Novel twists on tea, coffee spur China's catering consumption

BEIJING - From liquor-laced latte to pop star-tribute bubble tea, Chinese coffeehouse and teahouse brands are pushing the boundaries of China's beverage market with a firm grip on upgrading consumption trends.

Two weeks after its breakout debut, the new latte from Luckin Coffee, infused with the traditional Chinese spirit called baijiu, still has many people across China on the edge of tipsiness. The beverage has been created in collaboration with Kweichow Moutai, one of China's most famous liquor brands and a well-known producer of baijiu. The venture saw over 5.4 million cups sold on the first day, grossing 100 million yuan ($14 million).

The latte followed a string of market sensations created by Chinese coffeehouse and teahouse operators this year, pointing to the industry's potential for spurring catering consumption.

Industry data shows that China's coffeehouse market was worth 119.1 billion yuan in 2022 and could expand to 190 billion yuan in 2024. The market value of teahouses is expected to total 145 billion yuan this year.

"Chinese coffee and tea consumers are looking for eye-opening drinks," said Wang Xu, deputy director of the Research Office of the Institute of Consumer Goods Industry of the China Center for Information Industry Development. Chinese coffeehouses and teahouses are going all out to woo such consumers by constantly coming up with new recipes and expanding their menus.

Refreshing experiences

Shoppers for the baijiu-flavored latte flooded Chinese social media sites with photos of the cups and the iconic red-and-gold paper bag resembling Moutai packages, as well as discussions on the taste. Short videos trended on the internet featuring fathers saying it was their first sip of coffee and sons saying it was their first sip of Moutai.

The latte is a success story of cross-over innovation, bringing together two drinks that are widely consumed in the Chinese and Western cultures, as well as two Chinese companies that have different production systems, sales channels and customer bases, said Wang.

"As a representative of China's high-end alcohol, Moutai's unique status in particular prompted me to find out what a Moutai-flavored latte really tastes like," a college student who bought the coffee told Xinhua.

China's coffeehouse and teahouse businesses are no stranger to cross-over smash hits that can excite consumers. Before Moutai, Luckin Coffee collaborated with Coconut Palm Group, a household coconut milk manufacturer, to create a coconut milk latte that caused a nationwide frenzy.

So far this year, Chinese teahouse and coffeehouse brands have rolled out nearly 100 cross-over product series with partners like Louis Vuitton, Fendi, as well as video game creator miHoYo. The latest campaign from teahouse chain Nayuki -- a new bubble tea drink paying tribute to Chinese pop star Jay Chou -- sold 1.46 million cups on the first day.

The cross-over collaborations are part of efforts by Chinese brands to expand their customer bases. "We are seeking cross-overs that are meaningful, heartfelt and can strike a chord with our customers," said Guo Sihan, deputy general manager of teahouse chain Lelecha.

Refined taste

"I like Luckin's fruit coffee series, such as Orange C Americano. It is more refreshing and healthier, and has a richer feel in the mouth than an ordinary Americano," said Tian Yuan, a loyal customer of Luckin Coffee.

Tian's craving for healthy beverages made from quality ingredients is spreading among Chinese consumers, who are able and willing to spend money to please themselves.

Affected by the trend, teahouses in China have switched from instant tea and milk powder to premium Chinese tea varieties like Dancong tea, white tea and jasmine tea. Coffee drinks with flavors including coconut juice and seasonal fruits saw sales grow faster than plain ones, according to a report from food delivery service provider Eleme.

"Consumers can pursue cost-effectiveness and consumption upgrade at the same time. Most of them are willing to pay reasonably more for something they really desire," Kevin Yin, head of Asia Consumer Research at J.P. Morgan, said about the Moutai-flavored latte phenomenon. At 19.9 yuan a cup after discounts, the Moutai-tinged latte is currently the most expensive coffee available at Luckin's online store.

The recent coffeehouse and teahouse sensations came as China's overall consumption warmed with the help of supportive policies. Official data shows that retail sales in services surged 19.4 percent in the first eight months of the year. The catering sector in particular maintained strong momentum, with combined revenue up 12.4 percent in August from a year ago.

Industry insiders see potential for further upgrading of the sector enabled by the spending power of the customer base. An August report from Questmobile, a mobile internet business intelligence services provider, showed that 22.3 percent of coffeehouse consumers and 16.8 percent of teahouse goers spent over 3,000 yuan shopping online in June alone, while China's per capita disposable income stood at 19,672 yuan in the first half of this year.