The recent wave of store closures by Costa Coffee—a well-known coffee chain with deep roots—has raised significant concerns about its future in the competitive Chinese marketThis year alone, the company has shuttered 97 locations, drawing attention from both industry insiders and consumers alike.
Since 2020, the brand has faced a troubling trend of store closures across various regions, including a complete withdrawal from the Qingdao market and the closure of 20 outlets in BeijingAccording to data from Zhaimen Canyan, Costa closed a total of 111 stores this year, with 97 closures reported by November 7. In stark contrast to previous years, Costa's expansion appears to be stalling, with only 33 new stores opened this year compared to 90 in the prior year.
In cities like Beijing, Shanghai, Guangzhou, and Shenzhen, Costa's presence has dwindled noticeablyThe numbers tell a stark story: from 85 in Beijing to just one in Shenzhen, the footprint of Costa in these major metropolitan areas has shrunk substantiallyCurrently, Costa has fallen below the psychologically significant threshold of 400 total stores in China, with only 389 operating as of November 7. This is a significant drop when compared to Starbucks, which boasted 7,596 outlets in mainland China by the end of its fiscal fourth quarter in 2024.
Founded in 1978 by the Costa brothers in the UK, the company tried to carve out a niche that celebrated Italian coffee culture combined with British sensibilitiesThe first store opened in London in 1981, marking the inception of a brand that originally aimed to provide premium-quality coffee to its customersIndeed, during its vault into fame in the 1990s and its acquisition by Whitbread in 1995, Costa began expanding rapidly and tried to establish itself as a formidable competitor to Starbucks in China, entering the market in 2006.
At the onset of its journey in China with the establishment of its first outlet in Shanghai, Costa's rich coffee culture appealed to many local consumers
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Yet, in hindsight, Costa's expansion was relatively sluggish compared to Starbucks, which had already set a solid foothold with over 2,400 stores in mainland China by the end of 2016.
By 2018, Costa became the property of Coca-Cola, which acquired it for $5.1 billionThis ownership change did pivot the brand towards diversifying its offerings, aiming to become a comprehensive coffee company as opposed to just a chain of coffee shopsIt launched products such as ready-to-drink coffee and introduced self-service coffee machines, seeking to appeal to consumers increasingly seeking convenience.
However, in recent years, Costa's visibility and recognition within the Chinese market have dwindledWith its closure of nearly 100 locations in 2023 reported, many are left questioning its resilience amidst a market that appears to have moved on without itMeanwhile, rival coffee brands such as Luckin Coffee have surged, increasing their presence drastically while Costa's has seemingly stagnated.
It is essential to examine why Costa has faltered despite its long-standing presence in the coffee industryWhen analyzing the competitive landscape, the rise of China’s internet coffee brands, such as Luckin and others, significantly changed market dynamicsThese brands capitalized on convenience and affordability, redefining coffee consumption among younger consumers who now favor quick-service models over traditional coffee shop experiencesAgainst this backdrop, Costa's pricing strategy—often hovering between 33 to 41 RMB for various beverages—has rendered it less competitive, especially as consumer preferences quickly evolvedThe emergence of local players leveraging technology to reach consumers via takeaway and delivery methods has intensified the competitive pressure on older brands like Costa.
Furthermore, Costa's reliance on traditional cafe formats now clashes with a rapidly changing consumer baseYet, competition is merely one part of the narrative
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An introspective look into Costa's management and operations post-Coca-Cola acquisition reveals that while the parent company focused on external growth opportunities such as ready-to-drink coffee, the core coffee shop business did not progress at a similar paceThe strategic focus was misaligned, failing to innovate or adapt significantly in relation to its brick-and-mortar offeringsGoing forward, Costa's management announced the arrival of a new leader in the Chinese market—Lu Longhai, who formerly managed Häagen-Dazs at General Mills ChinaThis new appointment could be a potential turning point for the struggling chain if aligned effectively with strategies to rejuvenate its place in the coffee landscape.
In the face of daunting competition from both international and domestic brands, Costa must adapt its business modelTo recover from its current state, the company's strategy should focus on premiumization and a concerted effort to innovateThe emphasis should be placed on transforming traditional coffee offerings into artisanal experiences that resonate with contemporary consumersBrand storytelling must be enhanced to build a deeper emotional connection with customersMoreover, embracing localization is crucialBy tailoring its offerings to meet regional preferences, Costa can better integrate itself into the local coffee culture, taking cues from Starbucks which has excelled in this regardExpansion and growth should not only revolve around bolstering store numbers; it should include increasing engagement within existing stores and adapting product lines to match the evolving palates of Chinese consumersAs Costa Coffee maneuvers through the complexities of the Chinese market, it risks being overshadowed unless it proactively addresses the challenges while innovatively approaching the competitive landscapeAlthough the coffee market continues to evolve rapidly, Costa indeed has the foundation to revive its prominence—if not as the leading player, at least as a notable contender in the espresso-laden arenas of café culture.
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