China’s fierce cafe scene keeps owners on their toes

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On Hunan Road in the French concession of Shanghai, jazz music derives from a boutique with elegant wood panels and leather seats. The place could easily be mistaken for a bar. Instead, the storefront is an upscale cafe called Rumors Coffee.

“When we opened our store 11 years ago, we were the only ones specializing in hand-poured coffee,” said Rumors co-owner Keiichi Nakayama of Japan. “We gradually started to see other stores pricing their coffee the same as ours.”

Other cafes want to copy more than their price, according to his wife, Liu Yan, who also co-manages the place.

“Some business owners brought in their own designers and started measuring the bar counter in secret. Our menus have been stolen, ”she said. “Customers told us there was a coffee training school that used our name.”

Cafes are a tough business. It got worse during the COVID-19 pandemic.

According to a study By Tsinghua University of China which included more than 50,000 businesses, nearly 19% of small and micro businesses closed last year, up from 6.6% in 2019.

Juzi started out as a barista and said the pandemic made his dream of opening his own cafe come true. Many others had the same idea in Shanghai. (Photo by Charles Zhang / Market)

Lockdown of the pandemic may present opportunities for some, like Juzi, who has gone from barista to operations manager at one of China’s coffee chains. She quit her job during the pandemic and opened her own cafe in June 2020, as Shanghai fully reopened after a lockdown and found affordable rental space.

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Rumors Coffee in Shanghai is part of the first wave of coffee shops in the Chinese financial capital (Charles Zhang / Marketplace)
Rumors Coffee co-owner Liu Yan said their prices, decor, and even their name were used as a model by competitors even before the pandemic hit (Charles Zhang / Marketplace)
Liu Yan, co-owner of Rumors Coffee, said their prices, decor, and even their name were used as a model by competitors even before the pandemic hit. (Photo by Charles Zhang / Market)

Pandemic competition

“After opening my cafe, I found that within six months, a few more opened nearby. Cafes appear so quickly in Shanghai! said the 27-year-old.

There are seven to eight cafes within a 1 mile radius of hers.

“The life cycle of a coffee [in Shanghai] is usually two to three years. We’ve been open for about a year and this street is already full of cafes. I am under great pressure, ”said Juzi.

There are at least half a dozen other cafes within a mile and a half of the Nameless Shanghai Cafe (left), including one to its right (Charles Zhang / Marketplace)
There are at least a half-dozen other cafes within a mile of the Nameless Shanghai Cafe, to the left, including one to its right (Photo by Charles Zhang / Marketplace)

She said she didn’t want to compete on price since her Americanos, cappuccinos and lattes are already sold below Starbucks prices, which are used as an industry standard in China.

“Some new stores offer an Americano for 9 yuan [$1.40] … Half the price if you bring your own mug. It’s scary, “she said.” At this price, I cannot guarantee the quality of the coffee.

How Starbucks won over China

Starbucks is credited with bringing coffee culture to a nation of tea drinkers. Its first shop opened in Beijing in 1999, and it was a premium experience. A cup of Starbucks cappuccino at the time was 19 yuan, which was equivalent to $2.30, according to Chinese state-run news agency Xinhua. That was beyond the reach of many Chinese consumers "when the same amount could bring back 10 kg [22 pounds] of rice," the news report added. Starbucks founder Howard Schultz told Chinese state broadcaster CGTN that the company did not make a profit for a number of years because it had to educate consumers and cultivate loyalty. As China's middle class grew, Starbucks also expanded. Starbucks currently has 5,000 stores spread across 200 mainland Chinese cities.
With borders closed during the pandemic, many Chinese customers are spending more in the domestic market, in favor of high-end cafes like Rumors (Charles Zhang / Marketplace)
With borders closed during the pandemic, many Chinese customers are spending more domestically, in favor of high-end cafes like Rumors (Photo by Charles Zhang / Marketplace)

Survive 2021

Instead, Juzi says, she stays in the game by researching and promoting new types of coffee every season. It offers high-end products like iced coffee, which takes six to eight hours to produce a cup and requires orders in advance. Juzi is also reducing his staff and sharing his rent with another company.

“We make coffee in front. They sell paintings and do frames on the back, ”Juzi said.

A framing store in Shanghai rented the front half of its store in Nameless Coffee during the pandemic to share the rent burden (Charles Zhang / Marketplace)
A framing store in Shanghai rented the front half of its store in Nameless Coffee during the pandemic to share the rent burden (Photo by Charles Zhang / Marketplace)

Rent is the biggest headache for business owners in dear Shanghai.

During the pandemic, the Chinese central government announced a reduction in rents for businesses, but this only applied to those who rented space from state-owned enterprises.

Nameless Coffee barista Liu Yi seen with ice coffee machines, which take six to eight hours to produce a cup (Charles Zhang / Marketplace)
Nameless Coffee Barista Liu Yi seen with ice coffee machines, which take six to eight hours to produce a cup. (Photo by Charles Zhang / Market)

“To cope with the high rents, most cafes sell alcohol at night or other products,” said Liu, co-owner of Rumors Coffee. She and her husband resisted. Their goal is to maintain quality and variety.

Rumors Coffee roasts its own beans and has 40 types on hand. A cup of drip coffee costs between 65 yuan ($ 10) and 140 yuan ($ 22).

“A lot of people can’t go abroad because of the pandemic, so people are spending their money here [in Shanghai]. If you serve coffee that people like, the word will spread and we will get loyal customers, ”said Nakayama, co-owner of Rumors Coffee. “During the pandemic, the number of clients we get is increasing. “

Keiichi Nakayama roasts his own coffee and keeps 40 varieties on hand at Rumors Coffee for customers to choose from (Charles Zhang / Marketplace)
Keiichi Nakayama roasts his own coffee and keeps 40 varieties on hand at Rumors Coffee. (Photo by Charles Zhang / Market)

He and his wife believe that China’s coffee culture is still in its infancy, despite a high concentration of coffee shops in Shanghai.

Coffee market

There are nearly 7,000 cafes in Shanghai, and just over half of them are shops like Rumors Coffee and Nameless Coffee, according to a study by a commercial platform under Yicai. However, outside of the financial capital, cafes are not very popular.

“I never drank coffee before working in a café in Shanghai [at the age of 20]”Said Liu Yi, the barista of Nameless Coffee.” I come from a small Chinese town with no coffee culture.

Yet his coffee-making skills left a deep mark on customers like Xiong Luying, a visitor to Wuhan city.

Xiong Luying said coffee culture is not as developed in Wuhan City, where she works, so she looks for coffee shops every time she visits Shanghai (Charles Zhang / Marketplace)
Xiong Luying said coffee culture is not as developed in Wuhan City, where she works, so she looks for coffee shops every time she visits Shanghai. (Photo by Charles Zhang / Market)

She had been to Nameless Coffee once before.

“That day I picked out a particular bean and… since it was hot, I asked for iced coffee,” Xiong said. “The barista said he tried to do it twice, but it didn’t reflect the best taste of the bean. He suggested I switch to a hot coffee.

Suddenly, barista Liu looked up from behind the cafe counter.

“Oh, that was you! He said, and they struck up a conversation.

In a city of 24 million inhabitants, the personal touch also helps build customer loyalty.

Further research by Charles Zhang.

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