Shanghai Street View: Coffee Craze

Coffee craze percolates through Shanghai

A new report on Starbucks (Nasdaq: SBUX) plans to accelerate its China expansion made me realize just how overheated Shanghai has become with a recent explosion in new coffee shops. In the last 6 months alone, at least a dozen trendy new shops have opened within easy walking distance of my home in an up-and-coming area of the Hongkou District, including 3 or 4 of those by Starbucks itself.
That’s quite a change from when I first moved to the area just 2 years ago, when Starbucks and a few early risk-takers had just begun to discover the area. Shanghai is clearly at the center of China’s recent coffee craze, in no small part due to its big expat community and its history as a mixing point between east and west.

This kind of landscape would have been unimaginable just 20 years ago, when KFC and McDonald’s (NYSE: MCD) were still considered leaders in the foreign food and beverage world. Back then, the thought of spending 30 yuan or more on a cup of coffee would have drawn laughter and disbelief from the average Chinese.

How the times have changed. The report that made me realize just how hot the trend had become said Starbucks plans to open 400 new stores in China in each of the next 5 years, bringing its total to 3,400 by 2019. If it really meets that goal, the new figure would represent a more than doubling of the company’s current count of 1,400 stores in 84 cities.
Within its current China store count, Shanghai is clearly the company’s biggest market.

Just last week, a friend sent me a virtual coupon offering 2-for-1 drinks at the chain, in celebration of its recent opening of its 300th Shanghai store. That means nearly a quarter of all Starbucks in China are now in Shanghai.

But Starbucks is hardly alone in the rapid colonization of our city by these trendy coffee shops. The Koreans also seem quite intent on milking the market, with chains like Caffe Bene and Zoo Coffee harboring big ambitions for both Shanghai and China. Both have recently opened one or more of their trendy shops in my neighborhood, and Caffe Bene’s recently announced plan of opening more than 5,000 shops in China by next year looks quite ambitious.

And then of course there are the other big global chains, including Hong Kong’s Pacific Coffee, Britain’s Costa Coffee and US chain Coffee Bean & Tea Leaf, all of which are well represented in Shanghai.

Besides these big chains, plenty of smaller chains and individual shops are testing out the market. The area near me now features an upscale shop called Cafe Ropla where aficionados can create their own blends of coffee beans. One of my favorites is a nearby place where the interior is modeled on the Central Perk coffee shop that’s the main hang-out from the old “Friends” TV sitcom.

This kind of explosion is reminiscent of another recent boom that’s seen convenience stores spring up all over Shanghai, led by Japanese chains FamilyMart and Lawson and US chain 7-Eleven, alongside local names like Kedi and Alldays. That explosion has left me with more than a dozen stores within easy walking distance of my home, though the addition of new stores does seem be slowing in the last year.

All this is quite mind boggling for someone who could barely find a good cup of coffee at all in China back in the 1980s and early ‘90s. In those days, freeze-dried Nescafe was pretty much the top of the line and often the only option in town, and a request for anything else would have drawn blank stares in this tea drinking culture.

It’s obviously much easier to find coffee shops today, though Shanghai almost certainly has the highest concentration of such cafes. During my occasional to other major cities and even Beijing, I often have to look around for a while to find decent coffee shops in areas that aren’t heavily trafficked by foreigners.

I’m not completely convinced that average Chinese consumers have completely embraced coffee yet, and many of my friends will tell me they still prefer tea. But many of Shanghai’s younger white collar crowd have clearly embraced the image that coffee drinking culture represents, and are happy to be seen sitting with friends having a drink at this new generation of cafes or walking around prominently holding a Starbucks cup.

As to whether this new coffee explosion is sustainable, I suspect the answer is “no”. Most of the new shops in my neighborhood are still looking for an audience, and with the rare exception of Starbucks many are still mostly empty whenever I look inside. Still, I do imagine that at least some of these new shops will find a following, since there’s truly a demand for this kind of comfortable space away from home where people can sit down and take a break from the pressures and high speed of daily life.

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