4 min read

πŸ‡¨πŸ‡³ The war for coffee

The war for coffee supremacy has been fierce for many years in China, and it's still heating up. Whether you're in the food market or not, this is one of the best proxies to understand Chinese consumers and our global economy.
πŸ‡¨πŸ‡³ The war for coffee

Think what you want of Starbucks but since its reinvention as a global brand in the early 2000s, this coffeeshop franchise now generates more yearly revenues than McDonald's. And in China, one of the most enormous consumer battlefields on the planet, the war for coffee supremacy is raging (Shanghai is supposed to be now the city with the most coffee shops in the world).

By 2011, the companies had 500 stores in China and spearheaded a revolution in consumer behaviors. Not only was drinking coffee now a thing, but paying a hefty premium on branded takeaway coffee was a status symbol while hanging in a Starbucks with a laptop was a sign of entrepreneurial spirit.

Soon after, many copycat businesses appeared, unable to duplicate Starbucks' glamour until Luckin stepped in the game.

Starting in 2017 in Beijing, this company rapidly expanded to 4,500 stores in 53 cities, clearly aiming at dethroning Starbucks from the get-go. Luckin got smart because they understood how the Seattle-born company was creating value with the concept of lifestyle premiumization. But they didn't just copy the core value engine of this business; they reinterpreted it for China, driving, for example, all orders, sales, and payments through their mobile app.

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Add to this the Chinese consumer's fierce taste for national brands and a huge investment from Tencent, and Luckin ended up listed on the NASDAQ in 2019, ready to dethrone Starbucks.

One year later, though, while trying to raise $400M to skyrocket even further with vending machines and automated shops (Alibaba-like), an accounting scandal hit them hard, and the company filed for bankruptcy in 2021. Welcome to China, I guess?

But this is probably just the beginning of the war for coffee in China...

First off, American-born companies are not done with this vast market. It's now the turn of Blue Bottle (now pretty much owned by NestlΓ©) to step in, with the first store opened in Shanghai. It's yet unclear what they will bring to the table. Blue Bottle's successful strategy in the U.S. as "Starbucks, but with actually good coffee" has proven remarkably successful for now.

Let's not forget that cautionary tales abound of trying to seize the Chinese market without a highly dedicated vision abound...

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I'd be optimistic about betting Chinese consumers' avidity to learn about ingredients, coffee-making, and having access to genuinely well-sourced, quality products. Just what Japanese consumers have been well-known for decades. And in this case, sourcing beans produced locally with maybe even ramping up a new high-quality producers network in China might be the winning recipe.

But wait, we're not done yet! Other Chinese brands are also appearing in the vacuum left by Luckin. The most promising one? Manner Coffee. Starting in 2015 with the creation of hundreds of coffee shops in the following years with financial backing from ByteDance (TikTok mother company) and Meituan (the most comprehensive national food delivery platform), Manner has followed Luckin's playbook to the letter.

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In contrast with the other chains, Manner has been a bit more low profile. Coffee is 30% cheaper than those from Western brands. Some efforts on sustainability and recycling have been made. Still, Manner is playing a powerful card in the current Chinese market: they brand themselves as an honest coffee company with Chinese roots, not just financial scale-up wannabes.

For me, this is the strongest card in the context of Xi Jiping's recent crackdown on big Chinese tech and China closing back on itself after years of open trade with the West.

All that being said, whether you are or not a player in the global food market, this war for coffee in China is fascinating for at least three key reasons:

  • The Chinese market by itself is strategic for so many other consumer brands, from luxury to automotive. Understanding what makes it tick in one of these food and lifestyle verticals might be a fantastic strategic indicator of what could be leveraged in your own vertical.
  • Especially, branding, consuming, and delivering coffee in China is a clear template of future digital best practices for the rest of the world only a few years from now. Β 
  • The way foreign and national coffee companies wage war for supremacy in China maps out the new reality of finance and political power dynamics in our global economy.