VF Franchise Consulting

Cafe competition perks up amid slowdown

Nov 2, 2015

Coffeehouse chains are pepped about their prospects in China, where consumers are increasingly embracing “small luxuries” as the economy slows.

     U.S.-based Starbucks — the global industry leader and already the biggest cafe chain in China, with some 1,600 shops in 90 cities — plans to add another 1,800 locations by 2019. That would make China its No. 2 market after the U.S., where it runs 12,000 shops.

   Other foreign and domestic chains are planning their own expansions to counter the American company’s offensive.

    “I feel relaxed here, whereas I don’t at McDonald’s, where the tables are unclean,” said Zhai Peng, 26, at a Starbucks in Shanghai. Zhai, who works for an information technology company, visits the shop about once a week to sip coffee and read a book on a comfy sofa.

     In China, Starbucks charges about 30 yuan ($4.70) for a latte. Customers who add a light meal can wind up paying around 100 yuan. “I don’t think the prices here are high,” Zhai said, “because I’m satisfied.”

     Zhai earns 15,000 yuan per month, considerably more than the average monthly income of 5,400 yuan in Shanghai.

Scent of opportunity

Overall, the Chinese market appears to be fertile ground for coffee chains despite slowing economic growth. In terms of per capita gross domestic product, Shanghai and other coastal Chinese cities have reached $15,000 to $20,000-plus — comparable to the figures of advanced economies. Coffeehouses like Starbucks appeal to many young people who have money to spend and crave Western lifestyles. Some call this group the xiaozi, or petite bourgeoisie.

     Now, Starbucks is targeting not only the big coastal cities but also smaller, regional centers. The U.S. chain faces competition from Costa Coffee of the U.K., which plans to increase its Chinese store count to 900 by 2020. As of the end of 2014, Costa had 344 shops in the country, run through joint ventures with two local companies.

     Both chains are being courted by shopping centers and other commercial facilities, which see them as customer magnets, an industry watcher said.

  Domestic chains, meanwhile, are scurrying to secure more of their home turf. Pacific Coffee, based in Hong Kong, operates some 260 shops with state-owned retailer China Resources Enterprise. Pacific aims to have 1,000 cafes — with new outlets to be opened at prime locations, such as the ground floors of office buildings and within hospitals.

     In addition to lattes and other conventional cafe products, Pacific differentiates itself with unique drinks, such as coffee mixed with baijiu, a luxury liquor. Its food menu includes dumplings wrapped in leaves and steamed. Pacific hopes to draw customers with Chinese fare unavailable at Western chains.

Source: http://asia.nikkei.com/

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