Tencent and ByteDance sense the opportunity to brew in coffee chains in China

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SHANGHAI – Tencent Holdings and ByteDance are among Chinese tech companies betting that their products and coffees will go together as well as coffee and cream.

Despite last year’s Luckin Coffee accounting scandal still fresh in the minds of many, emerging coffee chains in China have become favorites for many of the country’s biggest tech companies, who can sense the opportunity to brew.

The coffee market is expected to grow by double digits – and one of the iconic children of that growth is Manner Coffee, a chain backed by TikTok developer ByteDance known for roasting its own beans and the sleek minimalist designs of its stores.

“The coffee is delicious and I like the store’s simple design,” said Chen, an employee of a Shanghai company who frequents a Manner Coffee outlet near her home.

Starbucks was Chen’s favorite haunt, but Manner Coffee won because “the prices are lower,” she said.

Manner Coffee, established in 2015, offers its main selections between 10 yuan and 20 yuan ($ 1.55 and $ 3.10), a price that compares favorably with Starbucks’ offerings, which mainly range from 20 yuan to 40 yuan.

The rise of Manner Coffee caught the attention of China’s leading food delivery app Meituan, which invested in the business in May. ByteDance injected funds this month.

The sleek design of Manner cafes and the cheaper prices have attracted fans. (Photo by Naoki Matsuda)

Tim Hortons, the Canadian coffee and donut chain, has also thrived in China. Since opening its first store in 2019, it has expanded to around 200 locations. Tencent has donated funds to Tim Horton’s Chinese unit twice, first in May 2020 and again in February.

The successful coffee chains will use their new capital to accelerate their growth strategy. Tim Hortons plans to open 200 more outlets this year alone, according to Chinese media. As part of the association with Tencent, Tim Hortons plans to build an empire of 1,500 stores over the next few years.

Although Manner Coffee has just over 130 stores, Beijing-based analytics firm ITJuzi values ​​the company at $ 2.5 billion.

Chinese tech groups are chasing coffee chains because of their huge growth potential. The coffee market will reach 120 billion yuan ($ 18.5 billion) in 2023, according to the Qianzhan Industry Research Institute, up from around 90 billion yuan in 2020. This would equate to market growth of more than 15% per year. on average since 2018.

The tech giants anticipate synergies with their digital services. There is a growing contingent of young Chinese people known as “lay-flatters”, or grab, who are not motivated to earn money and spend. This group, however, won’t buy something just because it’s cheap.

Since coffee chains are frequented by young people, tech groups see an opportunity to use the locations to promote their services, such as video games and streaming videos. This upsurge in business-consumer interactions would stimulate brand penetration.

Tim Hortons plans to open 1,500 stores in China in the next few years. © Reuters

Tencent, a renowned game developer, has opened esports cafes in collaboration with Tim Hortons. ByteDance is expected to collaborate with Manner Coffee by using influencers on Douyin, the Chinese version of TikTok, to promote the products.

Chinese e-commerce leader Alibaba Group Holding entered into a partnership with Starbucks in 2018. Under the agreement, the food delivery app and Alibaba Ele.me unit deliver Starbucks coffee to customers. Alibaba and Starbucks parties have successfully collaborated on e-commerce promotions.

Ele.me rival Meituan is backing Manner Coffee in anticipation of a partnership on coffee deliveries and sales promotion.

Coffee culture in China took root after Starbucks entered the market in 1999. Others have sprung up, such as local actor Pacific Coffee and Costa Coffee, the British chain under the Coca-Cola umbrella. .

But in recent years, the number of Starbucks stores has plummeted amid lackluster activity. Luckin Coffee managed to overtake Starbucks in terms of outlets before an accounting scandal forced it to close most of its stores.

Luckin is now restructuring after receiving bailout funding from private equity firms. In January, it was revealed that a group of executives had written a letter asking the company to fire the CEO.

Despite Luckin’s questionable stance, it is still the second-largest coffeehouse chain in China behind Starbucks. With the entry of the tech giants, the coffee market will undergo further upheavals.

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