China’s coffee sector on the rise

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flickr/Lynn Lin/CC BY-ND
flickr/Lynn Lin/CC BY-ND

SHANGHAI (Reuters) – In Wu Qiong’s small cafe in downtown Shanghai, coffee beans nestle in glass jars on the bar while various brews bubble away behind the counter.

The cafe – one of thousands of trendy, artisan coffee shops in the city – reflects a growing cafe culture in China that’s driving growth for chains like Starbucks Corp and attracting more competition.

“There are many more choices for consumers in the coffee market here now,” said Wu, 35, who set up the store with her boyfriend this year, the couple’s second outlet. “People can choose chains or go for specialist coffee stores.”

Starbucks dominates in China and is growing fast in the market, while in the US it comes under pressure from a “third wave” of boutique coffee sellers and cheaper rivals.

Executive chairman Howard Schultz, speaking at the launch of Starbucks’ first overseas “Reserve Roastery” – an opulent flagship store with gourmet coffees and a bakery – said China was on track to be “bigger, more powerful and more significant” than the firm’s US business.

“With the rising middle class and the opportunity in China, the market is going to be much larger here,” he said, adding Starbucks was looking to hit 10,000 outlets in China within a decade, catching up with the US in terms of stores.

The firm held a 54.8 percent share of China’s 25.2 billion yuan ($3.81 billion) specialist coffee shop market last year, far ahead of rivals like McDonald’s Corp’s McCafe and Whitbread Plc’s Costa Coffee, Euromonitor data show.

Unlike in the US, Starbucks’ challenge in China has been winning over traditional tea drinkers to coffee, rather than fending off local rivals. That could be changing.

“Right now we notice an increasing number of small brands and independent coffee shops. They are registering explosive growth rates,” said Shanghai-based Euromonitor analyst Yu Limin.

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