- The number of Pacific Coffee stores has reduced from 443 in 2020 to 166 in 2023.
- Meanwhile, Starbucks has opened more than 1,300 Starbucks Now stores with mobile order and pay experiences
- Chinese brands must meet consumers in the digital marketplace if they want to survive
COFFEE COMPANIES must move quickly if they want to keep pace in a market as dynamic as China’s.
An increasing number of coffee shops are appearing to meet the exponential growth in demand. There are now over 100,000 coffee shops in China, with the market growing by 31% in 2021. It is now projected that it will be worth $31.5 billion by 2025.
In the early 2010s, Pacific Coffee was one of the most prominent names in the Chinese coffee market, with stores operating in most major cities and key destinations such as Shanghai Hongqiao Airport.
At its peak, Pacific Coffee operated almost 500 stores, but those numbers are quickly dwindling.
Established in Hong Kong in 1992, Pacific Coffee set itself apart with a distinct set of values – not only in its dedicated approach to its customers but also in its fundraising efforts towards social and environmental causes – being awarded a 5 Years+ Caring Company award for corporate social responsibility.
Representing a push for responsible consumerism, their mission statement aligned with the young consumers having an increasing influence on the Chinese coffee market.
This made Pacific Coffee an attractive proposition for investors and the company was acquired twice before 2010. The second acquisition by China Resources Enterprise (CRE) which allowed Pacific access to mainland China, a market in which they rapidly expanded.
In 2010, CRE managed approximately 2,900 stores in China. Pacific Coffee was able to benefit from CRE’s deep understanding of China’s retail market.
They introduced products and schemes that brought consumers to their stores. In 2011, Pacific launched its “National Liquor Coffee Series” – adding new varieties of Chinese liquors such as Huadiao (Chinese yellow wine), Kuei Hua Chen (wine infused with Osmanthus flowers), and Erguotou (baijiu made from sorghum) to their coffees.
And while their progressive values and enticing products were designed to appeal to the younger generation who were becoming increasingly dominant in the Chinese consumer market, Pacific had missed the mark.
Stuck in the past
Pacific Coffee was built on a strategy that brought customers to its stores at a time when coffee deliveries didn’t shape consumer behaviour and technology didn’t guide Chinese coffee culture.
CRE had planned to open 1,000 Pacific Coffee locations within key retail areas – hoping to boost their high-street profile and ride the wave of coffee consumption in China.
However, Pacific Coffee has since undergone mass closures nationwide, with the total number of stores reducing from 443 in 2020 to just 166 in 2023 – representing a market share of below 0.5%.
In an attempt to strengthen its position in the wider beverage market, Pacific launched a new series of teas across all stores. In 2018, they established two independent stores called Pacific Tea. The focus was experiential – providing a “third space” for consumers to come and relax.
However, there is evidence that the “third space” model was somewhat lost on consumers in mainland China. Today, Starbucks – which has focused more on the coffee shop experience in other markets – has opened more than 1,300 Starbucks Now stores in China, with mobile order and pay experiences.
Starbucks – once seen as a rival to Pacific Coffee – now has over 6,000 stores in mainland China, and new companies such as Luckin Coffee have also expanded rapidly – despite some struggles in recent years.
Once the second-largest operator in the Chinese market, Pacific Coffee can’t keep pace with the international brands and domestic companies backed by enormous investments from technology conglomerates.
The Chinese coffee market has been driven by technology, and consumption has been shaped around that. Mobile apps, AI, and other tech solutions have offered young consumers and the growing tech-savvy middle class a streamlined, remote-first consumer experience.
For Pacific Coffee, backing from a retail-focused conglomerate unfortunately means they aren’t as well-positioned to capitalise on mainland China’s digital-first ecosystem.
Chinese brands must continue to innovate
As growth continues in the Chinese market, we can expect competition among coffee brands to be fierce. Any companies that don’t keep up will be left behind quickly.
This means that coffee companies must do more than keep up with changes to how consumers buy coffee – there is also evidence that to be truly successful, they must be able to pivot to new products as the masses demand them.
For example, cold coffee is a thriving segment for markets around the world. In China, it could be argued that this growth has occurred alongside a surging demand for bubble tea. Without innovation driving product development forwards, brands risk missing out on the industry’s biggest growth segments.
If Pacific Coffee wants to survive, it must find ways to reach China’s younger consumers.
To this end, their Brew Bar in Beijing represents their first venture into specialty coffee. And a new product range exploring health-focused coffee demonstrates a willingness to target new audiences.
Yet, to truly capture the attention of the Chinese coffee market, the success of brands like Luckin and Tims China shows that companies must incorporate digital solutions into their consumer experience.
It appears that the Chinese market has spoken: if brands want to compete on the scale that Pacific Coffee had hoped for, they must be prepared to meet consumers in the spaces they operate – not bricks and mortar retail, but online. And while Pacific Coffee’s values and vision were clear at the beginning of this surge, this just shows that a market as dynamic as China’s required brands to be flexible.
