Coffee Franchise in China: Why is it Working so Well?

China’s coffee market is on the rise and so are coffee franchises. With the country’s economic growth, more and more people are able to afford luxuries like Starbucks and other coffee chains. What’s driving this trend? what are some of the biggest coffee chains in China (locals and global) and how to enter this market with your own coffee franchise? Keep reading to find out!

China coffee market overview

While China is a nation fond of tea as its primary source of caffeine, the popularity of coffee is steadily rising among its population. Because of this, opening a coffee franchise in China seems to be an increasingly viable business proposition for many companies.

This increase in popularity was spearheaded by the entry of the American coffee giant, Starbucks, in China. As they opened their first Chinese store in Beijing in 1999, coffee slowly became a more popular good rather than an exclusive and expensive gift for special occasions.

Currently, China is now Starbucks’ largest market outside of the US. This could be attributed to the decrease in the popularity of instant coffee. Many Chinese consumers now choose to visit coffee houses instead of making their coffee at home.

As such, many homegrown and global brands have started to see the potential of opening their coffee franchise in China. With the dream of replicating the success of Starbucks, many different coffee chains began to sprout. 

The Rise of the Coffee Industry in China

But how exactly did coffee catch up to tea in terms of consumption?

This phenomenon is primarily attributed by many to China’s millennial population, which has been widely exposed to the Western culture and its penchant for coffee. This is especially true of those who are students from America, Australia, Canada, and the United Kingdom. This demographic of people had higher purchasing power at the time, which explains why they could afford such a lifestyle. These individuals have brought many aspects of the Western lifestyle to their homes. Since they’re willing to pay more for specialty coffee, they became advocates of the industry in China.

Today, China is the fastest-growing market in the coffee industry, with a staggering growth of 5-9% every year. This growth is one of the reasons why many international brands are eyeing China as their next growth hub. Similarly, you can see that many homegrown brands such as Luckin Coffee are tapping into this potential and competing with Starbucks, the current hotshot in the industry.

Signs of growth in the industry are staggering. In the year 2006, very few multinational companies were present in the coffee specialty sector of China. In fact, tea was the preferred caffeine source in China, with staggering amounts produced every single year.

You can also attribute the success of the coffee industry in China to its evolving image in the country. Many Chinese consumers see coffee as a status symbol. In fact, if you compare the prices of coffee cups around the world, you’ll see that China’s coffee cups are among the most expensive among them. Though this might not make sense to many, the motivations behind buying a high-priced coffee are the same as buying designer items like bags and accessories.

The Rise of Coffee Franchises in China

Given the commercial potential of opening a coffee franchise in China — the dollar value of the Chinese coffee industry is at USD 14.2 billion, with over 330 million coffee drinkers throughout the nation — many international and local brands are trying to share the market.

Homegrown brands such as Luckin Coffee and Coffee Box are among the biggest names in the Chinese coffee industry. For instance, Luckin Coffee has over 4,500 coffee houses all over China, serving about 40 million consumers by the end of 2019. Although Luckin Coffee embroiled itself in a fraud scandal by inflating their revenues, they remain one of the largest coffee companies in China.

On the other hand, Coffee Box takes a different approach for their coffee franchise in China. Instead of building large coffee houses, Coffee box chose to erect small “coffee stations.” These stations employ only two baristas with many deliverymen. The idea is that these stations will bring coffee deliveries to consumers within 30 minutes.

This unique business strategy proved to be a success. They became one of the largest homegrown coffee companies in China, with over 400 stations throughout the country.

Of course, there are many more homegrown brands seeking to take part in the Chinese coffee market. These companies include Pacific Coffee, Greybox Coffee, and Fisheye Cafe.

Starbucks: The Leading Coffee Franchise in China

While there are a lot of homegrown brands and even international brands vying for the Chinese coffee market, Starbucks remains the undisputed king of Chinese coffee.

With over 3,400 stores in the country, Starbucks China currently holds the largest market share of the coffee industry in China. In fact, Starbucks’ largest coffee house globally is located in Shanghai, which is also the second Starbucks Reserves to be created.

A Starbucks Coffee Reserves is where coffee enthusiasts, tourists, and anyone, can learn more about the craft of coffee made by Starbucks. They can also go to these stores to buy fancy coffee equipment and, of course, enjoy a cup of coffee.

While Starbucks is easily the most prominent coffee franchise in China, other coffee brands challenge its dominance. For instance, homegrown brands are rising in popularity across different Chinese cities. There are also multinational companies that seek to expand in this market.

One good example would be Britain’s Costa Coffee, which takes advantage of the unique coffee sensibilities of each region. Their localization strategy seems to be gaining success as they grow in China. This strategy comes in stark contrast with Starbucks’ standard coffee brewing strategy across all its stores in China.

Other international brands trying to expand their reach in China include Tim Horton’s, Dunkin’ Donuts, and Nestlé. However, Starbucks still maintains a 60% hold of the market share in the country.

Pacific Coffee

Pacific Coffee seeks to differentiate itself from the rest of the industry by partnering with Dong’s E’Jiao. This partnership allows them to specialize in donkey hide extract, which is a famous Chinese medicinal ingredient.

Currently, they have over 300 coffee houses in Mainland China plus over 200 more around the globe. Their company covers significant cities all over China, which includes Beijing, Shanghai, and 13 others.

Greybox Coffee

Greybox Coffee aims to become one of China’s most premium coffee shops. This can be seen in their store locations; unlike other startup coffee franchises in China, Greybox Coffee makes high-end streets and malls their store locations.

After all, their primary demographic includes business elites, celebrities, and artists that stay in these locations most of the time.

Currently, Greybox Coffee has 23 stores in 9 cities all over China.

Fisheye Cafe

The last notable homegrown coffee franchise in China is Fisheye Cafe.

In 2010, Fisheye cafe operated as a specialty coffee retailer that gives a premium experience to its consumers. In 2017, Fisheye Cafe had set up numerous storefronts with limited seating across downtown areas in China.

From coffee to baked pastries, Fisheye Cafe offers a variety of products to its consumers, similar to Starbucks. It also operates a delivery system through the company’s WeChat mini-program.

Fisheye Cafe has 18 stores across 5 Chinese cities as of March 2022.

How To Launch Your Own Chinese Coffee Franchise

Given the commercial potential of opening a coffee franchise in China, how exactly can you launch yours?

There are generally two ways to go about this.

1. First, you can launch your coffee franchise all by yourself.
2. Secondly, you can hire an intermediary who can open your coffee franchise in China on your behalf.

The first method requires you to pass through several Chinese regulations. For instance, you need to have operated at two franchises elsewhere in the world. Additionally, you need to have run at least one of these franchises for more than a year already.

While it’s true that launching a coffee franchise in China can be beneficial for you, there are also a lot of challenges that you may face along the way. This includes researching the unique demographics of China’s diverse regions. While it’s true that Starbucks met success despite their standard coffee menus, this success isn’t replicated by many brands in China. With this in mind, it’s essential to integrate localization into your expansion strategy.

Past setting up stores in China, you Gotta Think Marketing

Furthermore, you have to consider the difference in technologies used for marketing in China. There’s no Facebook or Twitter to run your promotional campaigns. Instead, you’ll have Weibo, WeChat, and other social media platforms that are unique to the Chinese market.

Promote your coffee franchise in China on Weibo for views

Weibo is an open social media that enables people to share and get viral – it has similar features to Twitter notably hashtag function. Everyone can see everything, which encourages them to interact with one another in different ways while also engaging between themselves and brands through commenting on posts

Weibo is a great place for brands to be commercial, to promotional offers, and collaborate with influencers. Contrary to WeChat, the app is extremely visual, just like Instagram and viral posts will appear in its”trending section”. Furthermore, the Weibo paid advertising system is widely appreciated by brands & marketing specialists for its cost-efficiency.

Wechat to tighten the knit

Wechat is in many ways more than a simple messenger app and a daily life tool for its users: from texting to shopping, delivery, booking, or even memberships.

If these tools are great for users, they are awesome for brands and companies that can use WeChat in many ways to engage with their target audience.

For instance, Starbucks china published regularly on Wechat to promote their seasonal goods or activities the franchise take part in, but users can also access their WeChat shop to purchase goodies or order a coffee.

Coffee lovers can be snobby, don’t shy away from forums to discuss your coffee franchise

Do you want to attract coffee lovers? having an active presence on Chinese forums (on top of having good coffee) will actually help.

Not only will it help your brand build a name for itself, but it will also increase your visibility online and notably on Baidu.

Content on forums is written by other consumers which your target audience will take more seriously than official communication. This combined with a strong presence on social media will ensure that coffee consumers choose you rather than the competition.

Your Coffee Franchise in China need a website

Getting your coffee franchise a Chinese website will tie the rest of your effort together and it will allow your brand to have a direct presence on Baidu important for brand credibility.

Having a Chinese website is also key to having Chinese investors and franchisees take an interest in your franchise.

Coffee franchise in China: What we think

The Chinese coffee market is still growing; if you can take the leap, it’s the perfect opportunity to seize this commercial potential and expand your coffee franchise in China. In your journey to entering the Chinese market and expanding your coffee franchise there, you’ll need to make sure that your brand is compelling with Chinese consumers first before thinking of finding franchisees, and then maybe like Starbucks and Luckin coffee you’ll even be able to design goodies you’ll sell on a Tmall flagship store.

Want to get started as a coffee franchise in China?

GMA has a set of solutions for franchise and coffee shops that want to enter the Chinese coffee market. Feel free to contact us to set up an appointment and ask about our case studies.