Coffee culture comes to the boil in Shanghai

Consumer base

Dave Seminsky, the founder of Sumerian Coffee, offered some statistics that show why Shanghai is "ripe for the picking" by coffee companies.

He said the city's disposable per capita household income last year stood at 58,988 yuan ($8,796), more than twice the national average of 25,973 yuan. This level of disposable income in Shanghai, combined with a large workforce, shows that the city is a consumer base that has cash to spend.

Gavin Pathross, CEO of RATIO, a coffee and cocktail bar, cited another reason behind the coffee boom－the allure of a "pay to sit" culture that Starbucks brought to China.

"Like the United Kingdom－traditionally a tea-drinking market－Chinese consumers have been switching to coffee for a variety of reasons, one of which is that there are few other places serving beverages in the city that have invested as heavily in interior design and areas for people to sit down and hang out," he said.

"The only exception is perhaps TWG Tea. Most milk tea places are low capital expenditure models that are purely takeaway businesses."

Tim Hortons' entry into the burgeoning Chinese market comes amid a high-profile battle for business between Starbucks and local entity Luckin Coffee, one of China's latest unicorns, which raised $200 million in its latest funding round in December. A unicorn is a privately held startup valued at more than $1 billion.

Both companies have been rapidly expanding their footprint. According to Reuters, Luckin took just six months, between January and July last year, to open 660 stores in 13 Chinese cities. It took the market leader Starbucks 12 years to open the same number.

Starbucks, which according to market intelligence company Euromonitor holds a 58.6 percent share of the market, has also been stepping up its expansion. The US coffee giant, which has about 3,400 stores in China, is aiming to have 6,000 outlets in the country by the end of 2022. Costa Coffee is planning to have 1,200 stores by 2022.

Tim Hortons will open about 30 stores in Shanghai this year as part of its plans to have 1,500 outlets in the country within a decade.