2023 Coffee Market Status and Outlook Analysis: How Has the Coffee Market Gradually Become "Prominent"?

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Since the rise of Luckin Coffee, the concept of "good coffee, actually not expensive" has attracted a large wave of high-frequency consumers. The coffee industry suddenly became very "prominent." Internet-based coffee chains like Coffee Box and Luckin Coffee, backed by capital, expanded rapidly. There was even talk that "China's coffee market is a trillion-dollar market." As a result, numerous new coffee brands flocked to carve up the coffee market share. Even businesses not originally in the coffee sector entered the coffee business, attempting to get a piece of the pie.

However, when everyone chose to enter the coffee market, the immediate problem they faced was: while this market has unlimited potential, the competition is too intense. How to stand out has become a difficult challenge that all coffee shop owners must face.

The 2020 Coffee Market Downturn

Looking back at the past year, due to the sudden outbreak of the COVID-19 pandemic in 2020, many physical stores faced the crisis of closure. China's two largest coffee chain brands, Starbucks and Luckin Coffee, were also in a "dangerous" situation. To summarize the 2020 coffee market in one sentence: the entire coffee industry was experiencing a "store closure wave" and once fell into a depressed state.

On January 28, 2020, the world's largest coffee chain brand, Starbucks, was the first to announce the suspension of operations in most of its stores in China. It wasn't until early August of the same year that Starbucks announced: only 1% of its stores in China had not yet reopened. During this period, Starbucks also closed many overseas stores. For example, in March, it closed 200 existing stores in Canada, and in June, it urgently closed another 200 stores in Canada to reduce operating costs. Under the heavy pressure of the pandemic, small independent coffee shop owners also had to take measures to suspend operations. For small coffee shops, due to their small scale, their ability to resist risks was weaker, and being forced to suspend operations meant facing direct closure.

During the pandemic, Luckin Coffee, another major coffee chain brand in China's domestic coffee industry, was surrounded by negative news for a long time due to a financial fraud scandal.

On September 8, 2020, Chinese internet coffee chain brand Coffee Box announced the closure of its offline physical stores. Besides Coffee Box announcing the closure of all its stores nationwide, the coffee chain brand COSTA also fell into the "camp" of large-scale store closures.

Market Resilience and Growth

In this context, people couldn't help but raise questions:

Is it really impossible to make it in the coffee market??

At this point in writing, the question arises: amidst the skepticism, what everyone sees is: the coffee market is growing and becoming stronger! (Portal: Coffee brand MANNER secures another round of financing, the coffee market is growing and becoming stronger!)

So, how did the coffee market gradually become "prominent"?

1. Support from Consumer Groups

At the beginning of this article, we mentioned: due to the "bargain" temptation of Luckin Coffee, many high-frequency consumers were acquired. Although now, the negative news about Luckin Coffee has not yet dissipated, one undeniable point is that the birth of Luckin Coffee did indeed bring good education to the Chinese coffee market. Despite still being controversial, it has, to some extent, contributed to the development of China's coffee market. Coupled with the widespread popularization of "specialty coffee culture," consumers have undergone a new transformation in their overall coffee consumption. They shifted from instant coffee to pour-over coffee, from single purchase scenarios to more diversified coffee consumption experiences, and have higher demands for coffee products (such as coffee quality, coffee packaging, etc.). Driven by consumer groups, the coffee market has opened up, and more innovative coffee brands have emerged.

2. New Blood from Coffee Brands

According to statistics, more than 10 coffee brands received financing in 2020. The sales revenue of China's coffee market will exceed $11.5 billion. Additionally, with the support of capital, entrants from multiple new fields have joined the coffee sector and quickly seized the coffee market. Through different coffee categories and continuously breaking old traditions, the coffee market has thus received more new blood injection, further promoting the development of the coffee market.

3. New Approaches to Sales Channels

According to data from the Forward Industry Research Institute: it is expected that the sales scale of China's coffee market in 2020 will reach 3000 billion yuan, and by 2025, it is expected to break 1 trillion yuan. Behind these data is the message: the development space of the coffee market is enormous. In today's consumer market, it's almost impossible to gain public recognition without breaking through tradition. Major coffee brands that want to shine and dominate the coffee market must stand in the most "prominent" position among consumer groups. New approaches are needed for marketing strategies, new product launches, and store operations.

I wonder if you still remember a popular term from last year called "private domain traffic" (i.e., traffic that brands or individuals can freely control). Before private domain traffic became popular, most online customers of coffee shops on the market were public domain traffic. Simply put, I would go to whichever store offered me a better price. Perhaps due to the impact of the pandemic, the sales channels in the coffee industry underwent relatively significant changes last year. For example, the operational model of coffee shops is no longer just a single store operation but focuses more on the relationship chain between brands and consumers. This relationship chain is about creating private domain traffic, establishing purchase entrances belonging to one's own brand, and carrying out digital transformation, such as mini-programs, APP purchasing methods, unmanned retail sales methods, etc.

In terms of digital transformation, Starbucks in the coffee sector took the lead by launching a new retail store format: opening "Coffee Express" concept stores in the Chinese market, changing from the previously emphasized third space experience, and stated that in the future, there will be a parallel trend of third and fourth spaces; in terms of private domain traffic, Luckin's previous data showed that the brand had 1.8 million private domain users, contributing 35,000 cups of direct orders daily and 100,000 cups of indirect orders. Private domain orders became the third-largest order source channel after the APP and mini-programs (Luckin's APP and mini-program pages have entrances for sending coupons, which is Luckin Coffee's third-largest order source channel). Private domain operations greatly improved Luckin Coffee's operational efficiency. Additionally, Luckin Coffee also conducted precise user behavior analysis based on various data, carrying out marketing activities such as SKU adjustments, store promotion plans, supply chain adjustments, etc., on this basis; of course, besides these two giants, many coffee brands also integrate APP user traffic pools with food delivery platform user pools, continuously breaking through the circle from marketing strategies, new product launches, and store operations to create new highlights belonging to their own brand, such as e-commerce-type SATURNBIRD.

Compared to traditional offline retail coffee experience stores, internet coffee consumption has become a trend, among which the approach of digital transformation can be said to have been very successful.

Conclusion

For now, with the improvement of the pandemic, in December last year, Starbucks stated that Starbucks China's business fully recovered by the end of the quarter, and the Chinese market had achieved positive growth. Luckin Coffee also actively spent $180 million to reach a settlement with the SEC at the end of last year, opened new stores, launched new products, and as usual, sent discount coupons, held lotteries, live streams, etc., in WeChat groups. Luckin's management expects that based on current operational progress, it is hopeful to achieve overall profitability this year.

But the market is ever-changing, and only being flexible is the best way to respond. How the coffee market will develop in the later stages, let's wait and see.

*Image source: Internet

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