As the second month of 2025 marches to an end, new trends in the consumer market seem to be emerging quickly. Coffee and tea chains, such as Cotti and Naixue, as well as supermarkets and fast-food restaurants, are extending their businesses to include something else, such as hot food in supermarkets or convenience stores from coffee chains.
The past few years saw competition in both tea and coffee and retail spaces heating up
The past few years saw competition in both tea and coffee and retail spaces heating up with quick expansion into lower-tiered cities and towns, as well as “race-to-the-bottom” price wars in many a sector. This, however, did not stop over 12,000 offline stores and restaurants from shuttering their doors in 2024, from department stores to high street boutiques. Even coffee chains, known to be fast-growing in the past few years, experienced over 45,000 closures in a year.
The Cotti expedition
Cotti began as what some commentators jokingly call “a personal vendetta against Luckin” by former executives from the leading Chinese coffee chain. In fierce competition with Luckin, Cotti became a driver of the price war in the coffee space. Now, it has been exploring business models beyond coffee. In late January, it was first reported that Cotti had added set meals for breakfast and lunch, as well as braised meat, to its menus, at a large branch in Beijing. Cotti’s set menus are priced about two-thirds of the price of Shaxian Delicacies, a popular affordable high-street restaurant chain, but with comparable portions and taste.
In fact, on 13 February, Cotti Coffee announced another branch out, this time into convenience stores. The new “accessible” (触手可及) project convenience stores will be understandably coffee-centric while offering a selection of products common to convenience stores such as ice cream and pastries etc, alongside Chinese-style buns and bento boxes and will be named “coffee convenience store”.
The new ventures came after Cotti halted its “shop-in-shop” branches, which are corners of established restaurants and convenience stores, due to compliance and quality control problems. For branches like Cotti Coffee, the main means of growing sales are price reduction, branch expansion, and SKU extension. However, with the brand still known for its 9.9 RMB (1.36 USD) coffee in the price war with Luckin, extending its offering might be the most viable option.
Canteens in supermarkets
While Cotti ventures into both retail and hot food, supermarket chains are opening dining corners or canteens in-store, including RT-Mart (大润发), part of Sun Art Retail Group, which was recently sold by Alibaba. RT-Mart’s 200-square-metre canteen in Beijing, which serves over 60 items on its menu, is one of the prime examples.
Competitors Freshippo, Wumart and Yonghui Superstores are also introducing freshly cooked dishes in their canteens. These canteens usually offer affordably priced fast food as quick meals.
Not only are supermarkets using canteens to differentiate from competitors like Cotti, but they are also using affordable and delicious meals to draw shoppers back to brick-and-mortar locations, amid the rise of instant delivery and “local life” services from e-commerce giants.
McDonald’s vs. KFC, as coffee shops?
McDonald’s and Yum China, the operator of KFC and Pizza Hut, both released their annual financial results for 2024 recently. It can be seen in the reports that both groups are planning large-scale expansions in China this year. Another thing pundits noticed is that the battle between KFC’s K Coffee and McCafé from McDonald’s will be intensified in the market.
By sharing the kitchen, K Coffee has grown from 50 locations across China in early 2024 to 700 at the end of the year and plans to open 1,300 new locations in 2025. Meanwhile, coffee from Pizza Hut and Lavazza also grew to become a significant part of Yum China’s coffee business overall.
McCafé had nearly 7,000 locations in China as of 15 December last year, up from 3,500 in May. Being part of existing McDonald’s restaurants, McCafé is pushing its breakfast strategy and upgrading its coffee to freshly filtered coffee with free top-ups.
Naixue, formerly Nayuki, is known to be the first “New-style” Chinese tea chain to go public and has a premium positioning. Recently, a Naixue branch in Shenzhen was spotted to have been upgraded into a “light meal” (轻食) café. Named Green by Naixue, the soft-launched café serves superfoods and a healthy diet menu. In fact, “healthy” has been a major draw for HeyTea’s slimming bottles and ChaPanda’s “super veggie” series of drinks.
Differentiation seems to be the major drive behind all the explorations from these chains
Differentiation seems to be the major drive behind all the explorations from these chains, be it tea and coffee or retail. Against the backdrop of “involution” and homogeneity between competitors. Sector leaders such as Luckin can afford to raise prices and large chains like Goodme and Mixue can use its public listing status to raise funds for further expansion and optimisation. For others, extending into adjacent or even not adjacent categories might be the quickest way to maintain growth.
Need to boost your China strategy? Dao Pro delivers bespoke insights on marketing, innovation, and digital trends, direct from Chinese sources. Find out more from our Dao Strategy Team here.
