Costa Coffee, the UK’s largest coffee chain, plans to further reduce its presence in the mainland China market by January 2021, after shutting down almost a tenth of its stores since last month.
The rival to Starbucks has closed some 40 stores since August, including nearly 20 in Beijing, two in Hangzhou, two in Shanghai, six in Nanjing and all six branches in Qingdao, according to local media reports.
The chain, which is owned by the Coca-Cola Company, “will be closing a number of stores between August and January 2021” as part of the adjustments to its retail strategy amid shrinking demand, a spokesperson told the Post in an email on Monday.
The retreat comes as a blow to the London-based chain’s ambition to tap into China’s consumption story, which took a major hit during the coronavirus outbreak. While China’s economy rebounded last quarter from a historic slump, the high unemployment rate has hurt spending power and discretionary consumption.
The pullback could be a reflection of its headquarters’ decision to tighten the belt. The chain announced on September 3 a plan to lay off 1,650 employees in the UK, or about a tenth of its UK headcount, citing the Covid-19 crisis.
China’s freshly brewed coffee market‘s sales reached 42.6 billion yuan (US$6.07 billion) in 2019, according to UK consulting firm Mintel. The market is expected to grow at 15.6 per cent annually through 2024, according to its forecast.
Costa Coffee entered the market with its first Shanghai outlet in 2006, seven years after Starbucks made its foray in Beijing. The firm in 2011 vowed to open 2,500 stores by 2022. It currently has about 400 stores in China, according to its website.
Coca-Cola paid US$5.1 billion for Costa Coffee in 2018. The seller was Whitbread, which owns the Premier Inn hotel chain. Apart from China, it operates 2,700 coffee shops in the UK and Ireland and more than 1,200 shops in 31 international markets.
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China’s boutique coffee shops have mushroomed in the past five years, with the number of fresh-coffee shops in Shanghai doubling to around 8,000 stores, according to Shanghai Chain Enterprise Association. Yet, competition has been brutal.
Costa Coffee not only trailed Starbucks, which has more than 4,400 stores across mainland China. Before its scandal, Luckin Coffee disrupted the market with its price discounting, while Canadian chain Tim Hortons arrived last year with the financial backing from Tencent Holdings.
The firm declined to disclose the total number of stores to be shut down or the number of people to be laid off. Despite the impending store closures, Costa Coffee remains committed to the market and will look to grow all its sales platforms, the spokesperson added.
China is a priority market, Shakir Moin, chief operating officer of Costa International, said in a statement in March. The firm was actively expanding its ready-to-drink portfolio to meet demand and to cultivate new growth areas, he said then.
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This article Costa Coffee to close more stores in mainland China by January following adjustments to retail strategy first appeared on South China Morning Post