With space for independent and small-scale cafés shrinking in China’s competitive coffee shop market, many are carving out niches to challenge big brand chains.By Ding Rui and Li DongxuFree lottery tickets with every coffee, cafés within temple complexes, and even quirky-flavored brews such as vinegar Americano, octopus latte, and tofu coffee.These are just a few of the strategies small, independent, non-branded coffee shops are using to thrive in China’s growing and increasingly competitive market, home to over 190,000 coffee shops.But with the top 10 coffee brands controlling about 23% of the market in terms of store numbers, industry experts note that smaller, independent outlets without scale, funding, or brand advantages face growing challenges in this maturing market.
Qianqian Coffee sells lottery tickets with every cup. Courtesy of Liang
“The competition is fierce,” says Liang, who owns Qianqian Coffee, an independent coffee shop in Foshan, in the southern Guangdong province. “After I opened my shop, five more coffee shops opened consecutively in the opposite office building,” he tells Sixth Tone, requesting to be identified only by his surname citing privacy concerns.According to China-based securities firm Zheshang Securities, freshly ground coffee is the fastest-growing segment in China’s ready-to-drink market, with an annual growth rate of nearly 38% between 2017 and 2022. In 2022, this segment was worth over 130 billion yuan ($18 billion), making up 32% of the total market.Industry forecasts suggest it could reach over 190 billion yuan by 2024. The expansion has been driven by major chains like Luckin Coffee, Starbucks, and Cotti Coffee, which have 18,272, 7,818, and 6,889 stores, respectively, making China home to the world’s largest branded coffee shop market by outlets.Yet, space for independent and small-scale coffee shops has continued to shrink. The market size for brands with fewer than 10 outlets shrank by 5% from 2020 to 2022, also according to Zheshang Securities. And as of April 8, though China added 51,144 stores in the past year, nearly 38,000 closed in the same period.To carve out a niche in this competitive industry, innovation appears crucial for smaller coffee shop owners. Industry experts and analysts emphasize that creating a unique in-store experience, enhancing service, and maintaining high-quality coffee are essential to build a loyal customer base.In this highly competitive market, some coffee shops are betting on luck by pairing each cup of coffee with a lottery ticket.For Qianqian Coffee, as well as Xi Coffee in the southwestern city of Chengdu and Luck Come True Coffee in Yichang in the central Hubei province, this combination has proven particularly successful with younger customers, who are more drawn to the slim chance of a big win.Liang and his wife opened Qianqian Coffee in March 2023, just as several new competitors, including Luckin Coffee and boutique cafés, were establishing themselves in the neighborhood.Data shows that Guangdong hosts the most coffee shops in China, with over 31,000 establishments, and Foshan alone accounts for 3,579. Shanghai, with 8,970 cafés, has the highest number of coffee shops of any city in the world.Facing stiff competition, Liang turned to giving lottery tickets with his offerings. For each coffee priced between 20 and 22 yuan sold, he includes a 2-yuan China Sports lottery ticket.He says this business model has nearly doubled revenue, increasing daily sales from about 30-50 cups to 60-80 cups. Liang believes the appeal lies in the thrill of the gamble, though the largest prize among the tickets he’s sold so far is only around 900 yuan.“Buying a cup of coffee and getting a chance to win a million-yuan prize is a very practical gimmick,” he says. “People drink coffee while holding onto hope, knowing the odds are slim, but everyone has dreams.”However, selling lottery ticket sales in a coffee shop comes with significant challenges, including a complex application process.For Qianqian Coffee, securing a sales agent certificate from the local sports lottery center took about two months and a deposit of about 1,000 yuan for equipment. Moreover, stringent location regulations must be met, such as avoiding proximity to schools or existing lottery outlets.“The combination of coffee and lottery has created a powerful chemical reaction,” he says. “I believe its popularity will continue as we keep attracting more customers and lottery players.”With temples becoming increasingly popular among young Chinese seeking solace from the rat race, some have opened cafés within traditional Buddhist or Taoist temples. According to Trip.com, bookings for temples and religious sites saw a 310% increase in February 2023, with nearly half made by individuals born in the 1990s and 2000s.Among the most popular are Cibei Coffee, its name meaning “mercy,” at Yongfu Temple in the eastern city of Hangzhou and Jianfo Coffee, meaning “meet the Buddha,” at Longxing Temple in nearby Taizhou. Both aim to set themselves apart by incorporating elements of traditional culture into their names, designs, and products.
Zhuhe Coffee in Hubei province. Courtesy of Li Chunyang
Zhuhe Coffee, which means “bamboo and crane,” is located in the central Hubei province’s Wudang Mountain scenic area, a renowned Taoist destination peppered with temples.The café’s 25-year-old owner, Li Chunyang, tells Sixth Tone that he was inspired by Cibei Coffee. “Young Chinese are less inclined to hustle and more interested in spiritual solace, hence the interest in things like coffee. Older people, on the other hand, prefer traditional tea,” he says.“In this scenic area, people usually just burn incense, worship, and leave like in other Taoist temples. I wanted to create a place where people can relax and unwind.”At the Zhuhe café, Taoist motifs like cranes and tai chi are incorporated into the interior decorations and latte art. The café also uses delicate tea cups for serving coffee and introduces herbs from traditional Chinese medicine into its special coffee blends.“After living in Beijing and Wuhan, I realized running a café in big cities is a dead end because the competition is too fierce. But things are different here,” Li says. “I opened my shop on the mountain, and there is a high probability that there won’t be anything similar in this entire Wudang Mountain area.”But as a boutique café, it’s still in the soft opening phase, with an average monthly revenue of about 30,000 yuan. Sales peak on weekends and holidays, Li says, with daily net profits sometimes exceeding 2,000 yuan.Some cafés are moving out of cities entirely, venturing into rural China, where the competition is less fierce.After quitting her government job last September, Zhao Qian opened her first coffee shop alongside a scenic rural road in Jingxian County, in the eastern Anhui province.
Zhao Qian’s cafe in Anhui province. Courtesy of ZhaoWithout any decor, Zhao’s café is built in a converted cowshed among paddy fields, allowing customers to savor their coffee amid the expansive natural scenery.“We don’t have a specific target group for our coffee shop … anyone can come,” Zhao tells Sixth Tone, who named the café “The Universe is a Granary” to feature its earthy style.Since opening six months ago, her café has drawn tourists, local residents, and even villagers unfamiliar with coffee. “We have earned approximately 200,000 yuan since opening. Though many doubt this figure, our store has performed really well,” says Zhao, who’s also documenting her career shift on the lifestyle platform Xiaohongshu.Despite the current success, Zhao is cautious about the future, particularly with more cafés opening nearby.Zhu Danpeng, a food industry analyst, explains that the space for small and independent coffee shops is relatively limited in the current competitive Chinese coffee market.“China’s coffee market has evolved into a phase dominated by branding, scaled-up production, and customer loyalty to specific brands,” he says. “Despite their unique characteristics, the survival rate for individual stores that haven’t yet established a significant competitive edge will be relatively low, as their unique features are easily imitated or replicated.”Nevertheless, Zhu believes there are still opportunities for small coffee shops to succeed due to their greater flexibility for innovation.“No matter the type of innovation, it must be supported by quality assurance, innovative scenarios, enhanced service systems, and strengthened customer loyalty — these are the four critical pillars,” he asserts.(Header image: Screenshots show unconventional coffee designs. From Xiaohongshu)Download the new Sixth Tone app at the App Store or Google Play
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