China’s coffee war isn’t just about chains — here’s the bigger brew
Independent cafes make up over half of all coffee shops in China's market — this is a force that should not be ignored when discussing China's coffee war at large
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China's coffee market has shown remarkable growth in recent years, despite economic headwinds - consumption jumped 57% from 2019 to 2023, far outpacing the 4% yearly growth in the west. However, almost all coffee narratives revolve around chain brands like Luckin, Starbucks, Manner, Peets and KFC while small cafes — sounds very niche — have been automatically overlooked in the narrative of coffee prosperity.
But, are small cafes really as “small” as their name suggests?
Consider this — small cafés accounted for 70% of the coffee market in 2023, according to the CIC's report. While each independent café may appear small individually, their collective economic impact rivals that of chain stores — making them worthy of serious attention.
Differences between big chains and small cafes
Before exploring the main course, I think we need to examine the key difference between big chains and small cafes. In general, their differences are reflected not only in scale, but more importantly in their store operation models.
[Big chains] like Luckin and Starbucks typically serve standardized drinks using bulk-purchased, lower-cost beans and employ staff who don't require high professional skills, relying on auto-machine brewing methods that are more efficient than semi-auto machines or manual techniques. These coffee shops excel at scaling because such standardized efficiency-driven store models are easily replicated 👇.
[Small cafes], also known as the independent cafés, follow third-wave specialty coffee culture from the US, prioritization of quality through meticulous bean selection, roasting, and more complex brewing techniques. Without a doubt, an excellent small coffee shop's product quality and creativity surpasses that of chain stores. However, such sophisticated craftsmanship reduces production efficiency, making business scaling difficult 👇.
Notably, brands like Manner, MStand, Grid, Peet's, and Arabica occupy a middle ground between these two extremes — these are known as [specialty chains]. They maintain high standards for raw materials and processing while balancing quality and scalability through more standardized operations, supply chain and product lines👇.
This is easier said than done, however. Take Seesaw as a prime example—as mentioned in my previous post, it began as an independent café and pioneered China's specialty coffee culture. Yet it nearly went bankrupt after failing to maintain its product quality and unique character during rapid chain expansion. Learning from this cautionary tale, most specialty chains take a more measured approach to scaling.
PS: In this article, when I mention chain brands, big brands or chain business in general, it means I am discussing both big chains and specialty chains, not just big chains.
Are independent stores and big chains coexisting harmoniously?
Theoretically, "the relationship between small specialty coffee shops and chain brands could be viewed as symbiotic," as they are contributing to the overall market growth. "Large brands may not necessarily take customers away from specialty brands." Moreover, large chains can introduce new coffee drinkers who have grown tired of regular coffee to small specialty shops that offer potentially better products. However, this theory of "harmonious coexistence" may be increasingly inaccurate. "The growth and evolution of the coffee industry means that it must compete with products not traditionally considered its competition,” according to Coffee Intelligence, a coffee industry media outlet.
In China, a nation widely acknowledged for its highly competitive market, this rivalry is even more apparent and serious.
I recently surveyed the menus of over fifty specialty stores (whether in Shanghai or small cities) and compared them with chain stores. Fun fact is – while some small cafes sell very expensive products, they also offer affordable options around ¥20-¥40 to meet regular consumers’ needs. This means these prices may not compete with budget options at Luckin or Cotti, but they clearly overlap strongly with chains like Starbucks and Manner 👇.
When small coffee shops are selling better products at the same prices as chain stores, you can't expect every consumer to spend years in chains before switching to small coffee shops. Especially in lower-tier cities where big chain brands and independent coffee shops appear almost simultaneously, chain stores don't have any first-mover advantage to exclusively educate the market. Particularly in close geographical proximity to each other, they obviously compete head-to-head for consumers' wallet share.
"Under the expansion of specialty coffee culture, Chinese consumers' palates will only become more discerning," said Ray Wang, a professional trainer in the coffee industry. "In today's Chinese market, it's very easy to access 'good coffee.' Therefore, Chinese consumers can easily tell good coffee from bad, making the coffee business much more challenging than before—even chain stores are no exception."
Believe it or not, I have even heard some well-famed coffee shop owners and staff criticize big chains multiple times while talking to customers something like "their blend beans formula is very inferior" or "they can't possibly be responsible for the quality of every cup of coffee." This kind of disparagement of industry peers is truly distasteful - but it reflects the reality that competition between big chains and small shops is extremely fierce now.
Obviously, the relationship between big chains and small shops has evolved into something more complex, with competition playing an increasingly significant role. If big chains' products or services prove inadequate, their sales will likewise be taken away by small coffee shops.
New force — Overseas roasters are launching small cafes in China
Thanks to their unique green bean sourcing and distinctive roasting techniques, overseas specialty coffee brands have gained popularity among coffee lovers. As the coffee demand rises, well-famed roasters such as Denmark's La Cabra, Copenhagen's April, and Australian ONA not only sell beans through domestic dealers in China but also actively collaborate with local specialty cafes through pop-up events to engage with native consumers.
Lately, several foreign coffee professionals, confident in China's market potential, have opened their own stores to operate directly in the country.
» Yasuo Suzuki, founder of Trunk Coffee Japan and inventor of the Origami dripper, launched his branch store in Shenzhen in 2021.
» Nawar, a Sydney barista, brought his brand Stitch to China, opening its first store in Suchow last year.
» Miraki, another Australian brand, announced plans during a coffee festival interview to open a Shanghai location this year.
Of course, most newcomers face a key challenge: understanding local consumers' taste preferences and feeding them with the most relevant products. This is where many international chain brands, including Starbucks, fall short compared to domestic brands, but this precisely creates opportunities for other global coffee professionals to fill the gap — after understanding local tastes, they can delight local consumers by leveraging their unique roasting techniques and distinctive green bean resources.
"China is big…you can't just say you're coming to China," Nawar, founder of Snitch Coffee , said. "You need to specify where you're going—Shanghai? Beijing? Chengdu? Suchow? They have totally different palates."
Conclusion
Without a doubt, China's coffee market is becoming more sophisticated, creative, and dynamic. If you're merely focusing on the rivalry between Luckin and Starbucks, or believe that local chain stores are the only significant competitors for foreign brands, you're missing the bigger picture – today's ubiquitous small players can confidently win consumers on their own merit, without the need for a long wait for customers to transition from big brands as they once did. While they may not be able to compete with chain stores on scale and production efficiency, they have surpassed most chain stores in quality and creativity.
Simultaneously, the arrival of overseas professionals has added vitality to China's coffee market, stimulating small cafés to maintain continuous innovation to stay competitive. Also, they are also part of the independent coffee culture, joining local small cafés in competing with chain stores for consumers' taste buds together.
In the end, it’s a sensory war — not just a scale war — and the brands that truly capture consumer taste will be the ones that win.