Coffee shops brew new growth with tea drinks

Luckin Coffee, a leading player in China's coffee market, has long considered Starbucks its primary competitor. With over 20,000 stores nationwide as of July this year, Luckin has surpassed Starbucks as the largest on-premise coffee chain in China.

However, with the coffee market becoming increasingly saturated, the company has turned its sights to a new frontier: tea.

In a strategic move to diversify its product offerings, Luckin Coffee has launched a series of jasmine-flavored light milk tea beverages, targeting the emerging tea market dominated by HeyTea and Yunnan-based Chagee.

A new campaign, "Morning Coffee and Afternoon Tea", is designed to align with local consumer habits, where coffee is typically consumed to start the day, and tea is enjoyed for relaxation in the afternoon.

Bernie Gao, an analyst at Mintel Group, a market research institute, said the development of tea and fruit-infused coffee products is helping to broaden the coffee audience in China.

"Coffee brands are actively enriching their menus, especially with food options, which helps appeal to new customers and boost sales," Gao said.

Luckin Coffee has been aggressive in its product development, launching a total of 102 new products in 2023.

By the end of the year, eight of these products had each generated sales exceeding 100 million yuan ($14.1 million). Among its most successful innovations are orange-flavored Americano and coconut latte, considered a local innovation by the brand, selling over 700 million cups since its introduction three years ago.

The intense competition in the coffee market has forced brands like Luckin to explore new avenues for growth.

Its afternoon tea series presents an untapped opportunity, particularly among health-conscious consumers who prioritize high-quality beverages.

Afternoon tea orders have become a significant revenue driver, with platforms like Ele.me reporting an average of 2.7 cups per order.

Luckin's foray into tea drinks has already shown promise, with over 11 million cups sold in the first week of new product launches.

Zhu Danpeng, an independent food and beverage industry analyst, said that this move allows Luckin to expand its nonpeak beverage offerings, further solidifying its market position.

"Luckin Coffee's strategy of integrating coffee and tea aligns with the future trends in China's beverage market," Zhu said.

It is hard to overlook the quick rise of tea makers such as Chagee.

Zhaimen, a data institute specializing in the catering sector, said that in 2023, Chagee opened more than 3,511 stores nationwide, a jump from having a total of 934 stores in 2022.