In recent years, local Chinese coffee brands are emerging as strong competitors against the large foreign coffee chains in the country. The success of Manner Coffee highlights this trend and indicates a switch in Chinese consumers’ coffee consumption patterns, revealing new opportunities in China’s coffee shop market.
Manner Coffee’s Planned IPO In Hong Kong
Manner Coffee, a coffee shop chain in Shanghai, is preparing for an IPO in Hong Kong in 2022, to raise up to 300 million USD. Manner Coffee was established in 2015 as a roadside boutique stall on Shanghai street, targeting all customers with the price of each product ranging between 10 to 20 yuan (equivalent to 1.55 – 3.10 USD). Compared to Starbucks’ twice as high prices, Manner Coffee quickly became competitive.
Manner Coffee attracts consumers due to its low price-performance ratio, exceptional quality, and chic design style. Such features are appealing to an increasing number of young customers and have helped the chain’s quick expansion. Their fast development has caught the attention of many big investors, including food-ordering start-up Meituan and TikTok owner – ByteDance. The coffee chain was valued at 2.5 billion USD in June 2021 and continues to show great growth potential.
Despite the impact of the pandemic, Manner Coffee has built around 150 new stores between June 2021-October 2021, most of them in Shanghai. Now, with a total of over 300 stores, the company is planning an IPO for further expansion.
China’s Flourishing Coffee Store Industry
China is becoming a new hub for coffee chains and coffee consumption. The average growth rate of global coffee consumption is just 2%, which is close to market saturation. Meanwhile, according to data from China Coffee Association Beijing (CCAB), coffee consumption in China is growing at an annual rate of 15%. China’s coffee market overall is predicted to have a CAGR of 10.15% during 2021-2026, making the nation the fastest growing coffee market in the world. The market size of the coffee shop industry in China is also expected to grow steadily, the market is forecasted to reach 47.9 billion yuan (7.5 billion USD) in 2023.
The market for coffee chains in China is concentrated with some main players: Starbucks, McCafé, Costa Coffee, and Pacific Coffee. Witnessing the intense growth in recent years, these brands are also accelerating their expansion in number of stores.
Beijing, Shanghai, and Chengdu have the highest number of coffee shops in China. In 2020, on average, one new coffee shop opened every day in Chengdu. This has made the city home to more than 4,000 coffee shops, just behind Shanghai (7,000 – more than any other city in the world) and Beijing (4,500).
One of the main drivers of this coffee boom is the Millennials and Gen Z’s thirst for new experiences. Young coffee enthusiasts are not only open to new coffee tastes and flavours, but they also want their coffee drinking experience to be original and stylish. This behaviour also explains the success of Manner Coffee and the investment flows that other coffee chain start-ups across China are receiving. In April 2021, Seesaw Coffee – a local pioneer of speciality coffee – received an investment of 100 million yuan (approximately 15.4 million USD) from the Chinese boutique tea chain HeyTea and its shareholders; K Coffee and COFFii&JOY are backed by Yum! Brands – the owner of KFC, Pizza Hut, and Taco Bell in Asia; after its IPO in 2020, Peet’s Coffee – headquartered in San Francisco – successfully opened over 40 stores in China during 2021, despite the pandemic.
Market Trends and Opportunities
In parallel with the increasing purchasing power of the population and the growing interest of the young generation, the hype on coffee chains in China will continue to persist, especially in urban areas. Another rising trend fueling this thrive is the cooperation between tech businesses and coffee chains. The coffee shops mainly target a younger consumer base, thus technology businesses consider this an opportunity to promote services such as video games and streaming; these B2C interactions help increase usage rates for both parties. To name some notable collaborations, Tencent opened an e-sports coffee shop with Tim Hortons; ByteDance plans to partner with Manner Coffee to reach celebrities on Douyin (Chinese version of TikTok) to promote products; Alibaba has a successful collaboration with Starbucks and Alibaba’s delivery company Ele.me, where they enable delivery of Starbucks beverages to customers.
In general, although highly competitive, the fast-growing coffee shop market in China opens up huge opportunities as the standard of living improves, the adventurous young generations seek new experiences, and collaborations between tech giants and coffee chains continue to grow.
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