A president backing the beverage boosts its popularity, whereas aggressive growth and competitive pricing make it easier to obtain.
The Chinese coffee market is experiencing rapid growth due to intense expansion and competitive pricing, making the beverage more available to the general public. Additionally, support from a presidential figure has helped increase enthusiasm for it.
As coffee culture expands into smaller towns and loses its upscale image, newcomers armed with innovative business approaches and flavors are entering the market en masse. This shift is prompting current participants to reconsider their tactics, industry experts say.
In the last year, a total of 66,920 new coffee shops opened across the globe’s number two economic power, resulting in an approximate net addition of 12,000 outlets after accounting for those that closed down. This information comes from Canyan.com, a company specializing in food and drink industry data.
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The increase occurred as part of an official effort to endorse local beans, following President Xi Jinping’s statement in March that coffee from the southwestern inland province of Yunnan “embodies China.”
Domestic and international coffee franchises alike have been affected, with Starbucks being among the most significant casualties. This brand, which was previously emblematic of coffee culture in China, saw its market share plummet from 34% in 2019 to just 14% in 2024, based on data from Euromonitor International. According to the firm’s own financial statements, same-store sales in China experienced an 8% decline during fiscal year 2024.
A significant portion of market expansion is occurring in secondary tier and emerging primary tier cities—urban areas that have lower global connectivity compared to major hubs like Beijing or Shanghai yet are experiencing rapid growth in terms of population and economic power. Last year, Chengdu, the capital city of western Sichuan Province, saw an addition of 1,995 retail outlets, placing it at third position nationally. In the east, Hangzhou—a technology center—ranked sixth with 1,725 newly opened locations.
A change in consumer behavior was driving this growth, as the beverage transitioned from being a status symbol to becoming an everyday drink, according to Guo Xingjun, founder and CEO of Nowwa Coffee, which boasts over 2,000 outlets across the nation and ranks among the biggest coffee franchises. Additionally, he noted that the rising appeal of coffee within broader demographics presented fresh prospects for development.
“For instance, Shanghai stands as the most economically advanced city in China,” stated Guo. With a total populace of 24 million, merely about 8 million function as office employees. The remaining 16 million consist largely of young individuals employed as mall servers, staff at retail chains like Chow Tai Fook, or courier personnel,” according to him.
He mentioned that they previously relied on energy drinks for an energy boost, but nowadays they prefer to have a swift cup of coffee.
Nowwa is capitalizing on this trend by broadening its reach into lesser-developed market areas as a strategy to secure a position within an industry experiencing intensifying price wars. During just the month of March, the company reported opening “hundreds of new outlets across the country,” with revenues doubling each month according to Guo, who chose not to disclose additional specifics.
The expansion positions the brand directly against budget-friendly coffee maker Manner and even outnumbers KFC’s in-house brand K Coffee in terms of store count.
The main feature is a compact, highly efficient retail outlet design.
Most of Nowwa’s outlets are located within retail spaces like convenience stores, internet cafés, and budget-friendly hotels, as stated on their site. Typically, these locations span from 30 to 40 square meters each, which contrasts sharply with an average size of around 200 square meters for a standard Starbucks outlet.
Thanks to this business model, Nowwa could leverage retailers’ pre-existing assets like their air conditioning systems, customer footfall, and even supply chain networks, according to Guo.
According to a November report from iiMedia Research, a market research firm, China’s coffee sector was valued at 624 billion yuan ($86 billion) and is expected to reach 1 trillion yuan this year.
As the market grows, so does competition, which is driving down prices. Data from research firm canyin88.com indicates that in 2024, the average amount Chinese consumers spent on a cup of coffee dropped to 28 yuan, representing a 14 percent decrease compared to the prior year.
Nathanael Lim, who leads Euromonitor’s research on the Asia-Pacific beverage industry, stated that ‘The coffee market in China is becoming increasingly crowded.’ He noted that local and emerging brands are growing quickly. This surge has led to intense pricing battles and promotional activities, causing reduced profitability and leading to the shutdown of some small coffee outlets.
According to Lim, for survival, Chinese coffee chains have been adapting; many are diversifying their offerings to include tea, pastries, and culturally-themed beverages. Some are also establishing themselves in picturesque locations such as historical sites and ancient temples to draw more visitors and generate social media attention. He further noted that international brands need to focus even more on localization and form local alliances “to stay competitive.”
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The article initially appeared on the South China Morning Post (www.scmp.com), which serves as the premier source for news coverage of China and Asia.
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