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Coffee Houses - China - December 2017

"Consumer spending at coffee houses is in a steady growth although some consumers may be switching to quality yet more convenient and value-for-money options such as in-home drip bag coffee and freshly brewed coffee from fast food restaurants. Coffee houses may consider offering more food and alcoholic drinks to attract more consumers and expand visiting occasions.”

– Summer Chen, Research Analyst

This report will look at the following areas:

  • Are non-specialised coffee venues winning consumers over?
  • More casual consumption scenes to expand into
  • Status quo of specialty coffee houses in China

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Table of contents

  1. Overview

    • What you need to know
      • Covered in this Report
        • Included
          • Excluded
            • Definitions
              • Figure 1: Definition of low/mid/high MHI groups, by city tier
              • Figure 2: Definition of heavy/light/non-users of coffee houses
          • Executive Summary

              • The market
                • A healthy value growth
                  • Figure 3: Best- and worst-case forecast for sales value of coffee house market, China, 2012-22
                • More frequent users, premium options and visiting occasions drive future growth
                  • However, competition from in-home coffee, non-specialised coffee venues and milk tea shops poses a threat
                    • Independents decline heavily due to poor management while expansion of chains also slows down
                      • Companies and brands
                        • Except for Starbucks, all leading brands are struggling with robust expansions
                          • Premium brewing method of cold brew, innovative social features and community stores are explored by brands to stay competitive
                            • Innovation highlights:
                              • The consumer
                                • Some sophisticated coffee users may be switching from coffee houses to high-quality yet convenient in-home coffee.
                                  • Figure 4: Visiting frequency, 2016 and 2017
                                  • Figure 5: Visiting frequency, heavy users, 2017 vs 2016 (as benchmark)
                                • Coffee houses are more of a casual third space than for coffee drinks
                                  • Figure 6: Visiting occasions, September 2017
                                • Coffee innovations: sparkling and cold-brewed coffee may need to localise towards the local palate
                                  • Figure 7: Interested innovations, coffee drinks, September 2017
                                • Food and alcohol are welcome in coffee houses
                                  • Figure 8: Attitudes towards coffee houses, September 2017
                                • Freshly brewed coffee is more of a treat and can be an alternative to milk tea drinks and juices
                                  • Figure 9: Attitudes towards coffee, September 2017
                                • Fast food restaurants are popular coffee venues, while consumers are unclear of what a specialty coffee house is.
                                  • Figure 10: Purchasing channel of freshly brewed coffee, September 2017
                                • What we think
                                • Issues and Insights

                                  • Are non-specialised coffee venues winning consumers over?
                                    • The facts
                                      • The implications
                                        • More casual consumption scenes to expand into
                                          • The facts
                                            • The implications
                                                • Figure 11: Affogato, Starbucks
                                              • Status quo of specialty coffee houses in China
                                                • The facts
                                                  • The implications
                                                  • The Market – What You Need to Know

                                                    • A healthy value growth
                                                      • More frequent users, premium options and visiting occasions drive future growth
                                                        • However, competition from in-home coffee, non-specialised coffee venues and milk tea shops poses a threat
                                                          • Independents decline heavily due to poor management while expansion of chains also slows down
                                                          • Market Size and Forecast

                                                            • A healthy value growth
                                                              • Figure 12: Market size of coffee house market, China, 2012-17
                                                              • Figure 13: Best- and worst-case forecast for sales value of coffee house market, China, 2012-22
                                                              • Figure 14: Best- and worst-case forecast for market volume of coffee house market, China, 2012-22
                                                          • Market Factors

                                                            • More frequent users
                                                              • Trading up for premium coffee
                                                                • Extended visiting occasions
                                                                  • Competition from in-home coffee and other on-trade coffee venues
                                                                    • Rise of milk tea shops and juice stands
                                                                    • Market Segmentation

                                                                      • Independents decline heavily due to poor management
                                                                        • Figure 15: Market volume of coffee house market, independents, China, 2012-17
                                                                        • Figure 16: Best- and worst-case forecast for market volume of coffee house market, independents, China, 2012-22
                                                                      • Expansion of chains slows down
                                                                        • Figure 17: Market size of coffee house market, chains, China, 2012-17
                                                                        • Figure 18: Best- and worst-case forecast for market volume of coffee house market, chains, China, 2012-22
                                                                      • Specialty coffee houses still niche at the moment
                                                                      • Companies and Brands – What You Need to Know

                                                                        • Except for Starbucks, all leading brands are either struggling or expanding slowly
                                                                          • Premium brewing method of cold brew, innovative social features, and community stores are explored by brands to stay competitive
                                                                            • Innovation highlights:
                                                                            • Market Share

                                                                              • Starbucks is the only leading brand seeing a robust growth
                                                                                • Figure 19: Leading chains in coffee house market, by market volume (number of outlets), China, 2015 and 2016
                                                                              • Starbucks and Whitbread (Costa) take control of regional joint ventures
                                                                                • Seesaw Coffee plans on an ambitious expansion
                                                                                  • Figure 20: Seesaw Coffee, Shanghai
                                                                                • New entrants in the market
                                                                                  • Peet’s Coffee
                                                                                    • Figure 21: Peet’s Coffee, Shanghai
                                                                                  • illy
                                                                                  • Competitive Strategies

                                                                                    • Going premium with cold brew
                                                                                      • Innovative social features to engage with consumers
                                                                                        • WeChat gifting
                                                                                          • WeChat Moments sharing
                                                                                            • Figure 22: Coupon from lucky bag on WeChat Moments, Coffee Box
                                                                                          • More casual coffee scenes empowered by community stores
                                                                                            • Figure 23: Starbucks neighbourhood store, Guangzhou
                                                                                            • Figure 24: Manner Coffee at Tongren Road, Shanghai
                                                                                          • Targeting specific consumer groups defined by lifestyle
                                                                                            • Figure 25: Challenged board, Costa Coffee
                                                                                        • Who’s Innovating?

                                                                                          • New coffee flavours
                                                                                            • Nitro coffee
                                                                                              • Barrel-aged coffee
                                                                                                • Figure 26: Whiskey barrel-aged flavoured beverages, Starbucks
                                                                                                • Figure 27: Beer purchasing and drinking preference, by coffee house users, September 2017
                                                                                              • Adding a savoury taste: Starbucks’ Pepper Nitro with a Jerky Twist
                                                                                                • Figure 28: Pepper Nitro with a Jerky Twist, Starbucks Seattle Roastery, 2017
                                                                                                • Figure 29: Examples of cheese-topped coffee
                                                                                              • A more transparent coffee-making process
                                                                                                • Figure 30: Open coffee-making process
                                                                                              • Eye-catching presentation
                                                                                                • Starbucks’ Rainbow Drinks and Unicorn Frappuccino
                                                                                                  • Figure 31: Starbucks’ eye-catching drinks
                                                                                                • DNA Café’s Mermaid coffee
                                                                                                  • Figure 32: Sweetheart coffee, DNA Café, Shanghai
                                                                                                • Coffee in a cone
                                                                                                  • Figure 33: Coffee in a cone, 2017
                                                                                              • The Consumer – What You Need to Know

                                                                                                • Some sophisticated coffee users may be switching from coffee houses to high-quality yet convenient in-home coffee
                                                                                                  • Coffee houses are more of a casual third space than for coffee drinks
                                                                                                    • Food and alcohol are welcome in coffee houses
                                                                                                      • Fast food restaurants are popular coffee venues, while consumers are unclear of what a specialty coffee house is
                                                                                                      • Visiting Frequency

                                                                                                        • Consumers are visiting coffee houses more frequently
                                                                                                          • Figure 34: Visiting frequency, 2016 and 2017
                                                                                                          • Figure 35: Visiting frequency, heavy and light users, by gender and age, 2017 vs 2016 (as benchmark)
                                                                                                        • However, heavy users in tier one cities may be switching to quality yet more convenient in-home coffee options
                                                                                                          • Figure 36: Visiting frequency, by city tier, September 2017
                                                                                                          • Figure 37: Visiting frequency, heavy users, 2017 vs 2016 (as benchmark)
                                                                                                      • Visiting Occasions

                                                                                                        • Coffee houses are a place for relaxation more than just for coffee drinks
                                                                                                          • Figure 38: Visiting occasions, September 2017
                                                                                                          • Figure 39: Visiting occasions, for relaxation, by gender, September 2017
                                                                                                        • Meals more popular among heavy users
                                                                                                          • Figure 40: Visiting occasions, meal occasions, by user classification, September 2017
                                                                                                        • Favour for business purposes drops
                                                                                                          • Figure 41: Selected visiting occasions, 2017 vs 2016
                                                                                                      • Interested Innovations

                                                                                                        • Coffee innovations: sparkling and cold-brewed coffee may need to localise towards the local palate
                                                                                                          • Figure 42: Interested innovations, coffee drinks, September 2017
                                                                                                        • Alcoholic drink offerings: traditional types widely acceptable
                                                                                                          • Figure 43: Interested innovations, alcoholic drinks, September 2017
                                                                                                        • Services: lower penetration could indicate white spaces in the market
                                                                                                          • Figure 44: Interested innovations, services, September 2017
                                                                                                      • Purchasing Channel of Freshly Brewed Coffee

                                                                                                        • Fast food restaurants meet the demand of convenient coffee
                                                                                                          • Figure 45: Purchasing channel of freshly brewed coffee, September 2017
                                                                                                        • Starbucks enjoys high brand loyalty
                                                                                                          • Figure 46: Purchasing channel of freshly brewed coffee, September 2017
                                                                                                        • Consumers may not truly understand what specialty coffee is
                                                                                                          • Figure 47: Purchasing channel of freshly brewed coffee, specialty coffee houses, by city tier, September 2017
                                                                                                        • Heavy users and high earners prefer leading coffee house chains
                                                                                                          • Figure 48: Selected purchasing channel of freshly brewed coffee, by user classification, September 2017
                                                                                                          • Figure 49: Selected purchasing channel of freshly brewed coffee, by MHI, September 2017
                                                                                                        • Young consumers prefer milk tea shops but not Costa
                                                                                                          • Figure 50: Selected purchasing channel of freshly brewed coffee, by age, September 2017
                                                                                                      • Factors of Choosing Coffee Venues

                                                                                                        • Starbucks beats Costa and Pacific Coffee especially at coffee taste
                                                                                                          • Figure 51: Factors of choosing coffee venues, by Starbucks, Costa and Pacific Coffee users, September 2017
                                                                                                        • Independent coffee houses are not a premium option to chains
                                                                                                          • Figure 52: Factors of choosing coffee venues, by Starbucks, specialty and independent coffee houses users, September 2017
                                                                                                        • C-stores need to improve on value for money
                                                                                                          • Figure 53: Factors of choosing coffee venues, fast food restaurants, C-stores and bakery houses, September 2017
                                                                                                      • Attitudes towards Coffee and Coffee Houses

                                                                                                        • Freshly brewed coffee is more of a treat and can be an alternative to milk tea drinks and juices
                                                                                                          • Figure 54: Attitudes towards coffee, September 2017
                                                                                                          • Figure 55: Attitudes towards coffee, by gender and age, September 2017
                                                                                                        • Food and alcohol options are both welcome in coffee houses
                                                                                                          • Figure 56: Attitudes towards coffee houses, September 2017
                                                                                                        • Internet-famous coffee houses: more than a one-time experience
                                                                                                          • Figure 57: Attitudes towards independent coffee houses, September 2017
                                                                                                      • Meet the Mintropolitans

                                                                                                        • See coffee as more unique
                                                                                                          • Figure 58: Attitudes towards coffee, by consumer classification, September 2017
                                                                                                        • More interested in and accepting of innovative coffee drinks
                                                                                                          • Figure 59: Selected interested innovations, have tried and liked, by consumer classification, September 2017
                                                                                                      • Appendix – Market Size and Forecast

                                                                                                          • Figure 60: Value sales of coffee house market, China, 2012-22
                                                                                                          • Figure 61: Market volume of coffee house market, China, 2012-22
                                                                                                      • Appendix – Market Segmentation

                                                                                                          • Figure 62: Best- and worst-case forecast for market volume of coffee house market chains, China, 2012-22
                                                                                                          • Figure 63: Best- and worst-case forecast for market volume of coffee house market independents, China, 2012-22
                                                                                                          • Figure 64: Market volume of coffee house market, by market segments, China, 2012-22
                                                                                                      • Appendix – Methodology and Abbreviations

                                                                                                        • Methodology
                                                                                                          • Fan chart forecast
                                                                                                            • Abbreviations
                                                                                                            • Appendix – Barista Training Classes by Little Bean

                                                                                                                • Figure 65: Details on barista training classes, Little Bean, Shanghai

                                                                                                            Coffee Houses - China - December 2017

                                                                                                            US $3,990.00 (Excl.Tax)