Fragrance brands

Luxury brands wake up to booming Chinese coffee market

Starbucks has been embroiled in controversies ranging from inappropriate staff manners to price hikes. Whether it will retain the lead in the Chinese coffee market remains a heated discussion. Meanwhile, national chains such as Luckin, Seesaw and Manner have grown rapidly and secured financial injections from investors.

Due to the rapid expansion of the sector, everyone now wants a piece of the action – including the “outsiders”. China Post opened its first cafe named “Post Coffee” on Valentine’s Day. A few days later, Goubuli, a long-established food company in Tianjin, officially established a company named Gao Leya Coffee Food (Tianjin) Co., Ltd.

As the industry has become more competitive and sophisticated, major high-end players are also diving like Blue Bottle Coffee, which opened its first store on the mainland last month. Faced with such developments, how did this vast market come into being? And how have luxury brands exploited this opportunity?

Not just Starbucks

In 1999, Starbucks opened its first Chinese store in Beijing. In an effort to build its physical outlets as “The Third Place” (Starbucks is a third place between home and work where people can relax), the company suffered heavy losses during nine years in China. After much time and effort, she managed to establish a high-end and professional image in China and maintain her leading position in the country’s high-end coffee business.

While the mainstream remained intact until Starbucks’ debut in Beijing, the Luckin brand played an important role in warming up the coffee industry and made the drink a habit across the country. Since 2018, Luckin has focused on expanding its stores and consumer subsidies. Stating its intention to “educate the market with CNY 1 billion” ($157 million), the retailer has successfully become the number one alternative to Starbucks.

In this, Luckin has done an excellent job. According to Euromonitor, in 2018, the average per capita consumption in mainland China was 4.7 cups. This number has increased to 9 in 2021, as reported in Deloitte’s white paper on China’s fresh coffee industry. More importantly, in first- and second-tier cities, where the drink has become a habit for many, an average of 300 cups of coffee are consumed per year, as many as those in a more sophisticated coffee market. Coffee is no longer just trendy, it’s part of the daily routine.

With the changes in the diet of Chinese consumers and the growing popularity of the drink, the local coffee trade is now experiencing accelerated development. According to iiMedia Research, the industry was worth $60 billion (RMB 381.7 billion) in 2021, with an estimated annual increase of 27.2%. In 2025, the market value is expected to reach $157 billion (1 trillion RMB).

A dynamic and segmented coffee market

Last month, Blue Bottle Coffee, also known as “the apple of coffee”, officially entered the Chinese arena. According to local media, on opening day, people spent up to six hours queuing, while vendors sold a $6.5 (RMB 42) iced latte for $15.7 (RMB 100). ).

As a pioneer of “the third wave of coffee” (which refers to a marketing movement that prioritizes high quality), Blue Bottle Coffee will inevitably find itself facing competition from artisanal brands that have been present in the metropolis for years, including % Arabica , Peet’s and Starbucks. Their target clientele: loyal coffee lovers, less sensitive to price and attaching great importance to the quality of the beans and the atmosphere of the cafés.

And then there’s a whole different group of consumers – those who just can’t live without it.

Modern city life means most young adults crave caffeine first thing in the morning. In first and second tier cities that were once ruled by Starbucks, their concept of “The Third Place” has been taken up by other cafes or commercial spaces.

“The hectic lifestyles, work pressures and convenient food delivery service of China’s big cities have driven white-collar demand for the cost-effective coffee to go,” said Amber Wu, marketing strategist at Emerging Communications. . “As a result, national coffee companies like Manner have sprung up and become popular.”

Luxury houses benefit from the coffee boom

In 1998, Armani opened its first Saint-Germain Emporio Armani Caffè & Armani/Ristorante, making it the first luxury fashion brand to exploit the drink. Soon after, brands such as Louis Vuitton, Dior, Chanel and Gucci got into the business, opening cafes all over the world.

In China, in addition to opening cafes such as The Tiffany Blue Box Café and Burberry Thomas’s Café, high-end fashion brands tend to set up pop-up stores and events to interact with their consumers – especially in the post-epidemic era – many including coffee. For example, Prada landed its pop-up “Prada Garden” store at Jiya Gathering, a cafe on Shanghai’s Wukang Road, and Louis Vuitton transformed the Yuyuan Mall (which houses cafes, art galleries and fashion stores). mode) in a pop-up store. Additionally, during the launch of its winter sports capsule collection, FENDI presented its new pop-up space and FENDI CAFFE at the Changbaishan International Resort, a ski destination located in northern China.

Fendi opened a pop-up café in Changbaishan International Resort from December 2021 to February 2022. Photo: Weibo by Fendi

Additionally, many luxury brands are trying to reach a wider audience by collaborating with local cafes, such as the pop-up event co-hosted by Louis Vuitton and Manner at the Qixi Festival in Sanlitun, Beijing, and the pop-up perfume store and coffee shop jointly created by Maison Margiela and Seesaw Coffee. These colorful pop-up events capture the attention of young people. On Xiaohongshu, it is very common for pictures of coffee cups with luxury logos to get hundreds or even thousands of likes.

In October 2020, Maison Margiela joined forces with Seesaw Coffee for a pop-up store in Shanghai.

“Coffee is now part of the office culture. Apart from the taste and the way it keeps people energized, coffee is a kind of consolation when people are working overtime, so luxury brands are now taking advantage of the image of coffee to become more accessible and connected. emotionally with young white-collar workers,” Wu said.

Today, Starbucks no longer serves as an important informal public gathering place (at least not like it used to), and the attention of the younger generation has been diverted to the never-ending stream of collaborations. On Xiaohongshu, you can easily get hundreds or even thousands of likes by posting coffee mugs with luxury brand logos. The colorful pop-up activities of luxury brands have caught the attention of the younger generation, and the luxury value behind the brand has been injected into cup after cup of coffee. By helping young people create a rich and fresh social currency, luxury brands can achieve brand communication that evolves with the times.