'Coffee war' brewing in China

A coffee war is breaking out in China as Starbucks goes head-to-head with Britain’s Costa Coffee and a handful of Asian chains.

Starbucks, the world's biggest coffee chain, is opening cafés in China at a rate of one every four days in its quest to expand from about 570 shops currently to more than 1,500 by 2015.

The company's rivals in China include Costa Coffee, South Korean-owned bakery chains Paris Baguette and Tous Les Jours, and Hong Kong’s Pacific Coffee.

They are also battling it out with US giants McDonald's, Dunkin' Donuts and Coffee Bean & Tea Leaf for a lucrative share of China’s coffee drinking market which includes both foreigners and locals.

James Roy, senior analyst at China Market Research, a Shanghai-based consultancy, said: “Coffee shops are opening everywhere in China. While you used to only see a Starbucks in first-tier cities and larger coastal cities in Hangzhou, they are now in more of the smaller provincial capitals like Changsha and Guiyang and are expanding into third-tier cities as well.”

Pacific has about 55 outlets so far, mostly concentrated in Shanghai, Beijing, Shenzhen and Guangzhou, with a few others in a handful coastal second-tier cities like Hangzhou and Qingdao.

Mr Roy added: “In their first few years Starbucks had been targeting expats and foreigners more. They and their competitors are now clearly focusing on locals as interest in coffee-drinking has grown. In particular, Starbucks has done an excellent job of positioning itself as an aspirational brand in China.”

Britain’s Costa has positioned itself as slightly premium to Starbucks and has more luxurious shop environments, including more sofas and plush seats.

Prices are slightly higher than Western prices - a grande cappuccino, for instance, costs about 60p more. Joe Drury, a British expat living in Shanghai, said: “I don’t mind paying a bit extra for my morning shot of caffeine as it tends to be more about the experience and environment. A price war may help drive prices down a bit but most expats don’t mind paying these prices for a home comfort like freshly brewed coffee.”

Amy Moir, who works for a British accountancy firm in Shanghai, added: “The Chinese don't drink coffee as a morning pick-me-up but as a social activity for relaxing with friends or business meetings, so the peak times are in the early afternoon rather than the morning.”