The future of coffee shops in Asia Pacific is likely to evolve into an environment with an increasing number of local chains in the short term, eroding the traditional stronghold of international chained coffee shops such as Starbucks, especially in markets such as China and Vietnam.
Competitive landscape of specialist coffee and tea shops in Asia Pacific
In terms of value sales for specialist coffee and tea shops, Asia Pacific recorded 8% growth between 2017 and 2022 to reach USD26.9 billion. China and Indonesia witnessed the fastest growth due to the expansion of local chained coffee shops such as Luckin Coffee and Kopi Kenangan, appealing to the price consciousness of consumers and local coffee tastes.
Specialist coffee and tea shops in Asia Pacific recorded 8% value growth between 2017 and 2022, reaching USD26.9 billion
Source: Euromonitor International
On the other hand, markets such as Japan recorded lacklustre growth in chained coffee shops due to an ageing population and maturity of the channel.
Among cafés, Starbucks remains the leading specialist coffee and tea shop in Asia Pacific, accounting for USD7,452 million in 2022. China, South Korea and Japan are key markets for the brand, with further expansion in the pipeline. This is due to its positioning as a premium coffee brand, its location of stores and interior design promoting comfort and socialising, as well as partnering with local delivery platforms such as Grab.
However, Starbucks is undoubtedly facing increasing competition from local chained coffee shops which are expanding rapidly. This is evident in China with Luckin Coffee, as well as specialist tea shops such as HEYTEA and NAYUKI, which not only compete by offering bubble tea, but have also added coffee to their menus to compete. Besides China, local chained coffee shops in other markets such as Ediya Espresso and Mega MGC Coffee (South Korea), Kopi Janji Jiwa (Indonesia) and Phuc Long (Vietnam) are offering affordable coffee with regional flavours and nationally-sourced coffee beans. They appeal to consumers in these markets interested in local coffee beans and their flavour.
Lean business model of local chained coffee shops in Asia Pacific
The advantageous business model of local chained coffee shops is mainly its small outlet space, ensuring low operational costs, with a focus on grab-and-go that caters for a high volume of consumers. As such, this makes it easier for rapid expansion across cities.
For example, in Vietnam, local coffee shop Phuc Long Coffee and Tea House expanded its number of outlets by opening a small kiosk format across convenience stores. In addition to addressing local demand, some Asia Pacific coffee shops have also sought expansion into neighbouring markets as a means to establish a regional brand, such as Indonesia’s Kopi Kenangan’s recent expansion into Malaysia, known as Kenangan Coffee.
Furthermore, local chained coffee shops leverage technology by creating their own mobile apps. This provides convenience for consumers who can purchase their coffee without having to queue physically. Instead, they can visit the store for takeaway or opt for delivery. Local chained coffee shops partner with third party delivery apps such as Grab and often conduct promotions, discounts and loyalty point programmes to incentivise consumers to purchase.
What lies ahead for local chained coffee shops?
In addition to affordable pricing and small format stores, investments from venture capitalists remain key for these local chained specialist coffee shops, given the fast pace of expansion. Should there be financial difficulties, as seen in the case of Highland Coffee in Vietnam and Luckin Coffee in China due to an accounting scandal, this could result in a rapid closure of local chained coffee shops.
To ensure success in the long term, it is key for local chained coffee shops to widen their presence by increasing multiple touchpoints beyond takeaway/delivery and e-commerce to engage consumers. This includes partnering with retail channels, including vending. Moreover, launching new product varieties and diversifying into new categories, such as RTD coffee and tea or desserts, to complement the existing coffee offering would potentially excite consumers and boost sales.
Learn more about local coffee shops in the Euromonitor International report, Coffee Shops in Asia Pacific, for further analysis on the strategies of coffee shops. And listen to Euromonitor International’s podcast on Caffeine and Anxiety: Will Anxious Consumers Ever Actually Cut Back? to understand why anxious consumers counterintuitively refuse to give up their triple shot lattes despite widely reported negative side effects.