China Consumer

Ren’s 5G baristas

Is Huawei set to take on Starbucks in coffee push?

how to make coffee latte art

A Rmb1 trillion market

Ren Zhengfei is not a coffee drinker. But that hasn’t stopped the founder of Huawei from becoming a coffee devotee. He’s known to have joked that when he retires, he would like to open a coffee shop. He has also been quoted (repeatedly) pushing the maxim, “A cup of coffee absorbs the energy of the universe”.

That’s not to say that Ren thinks caffeine has some magical power. “What he means is that over a cup of coffee, people can openly communicate with each other and exchange ideas,” one company insider explained to Time Weekly. “And a coffee shop is a way to facilitate the conversation.”

Last week, news surfaced that Huawei has applied for a new trademark with Ren’s famous tagline, sparking rumours that the telco giant is planning to open its own coffee chain. It didn’t take long before media reports circulated that Huawei envisages opening more than 100 cafes in Shanghai. The company has neither denied nor confirmed the speculation.

This could just be a defensive move by Huawei to prevent its name from being registered by newcomers to the coffee industry, which has become increasingly crowded.

In addition to large chains like Luckin Coffee, Starbucks and Costa, start-ups including Manner and Seesaw have been expanding rapidly. Indie brands such as Saturn Bird and Yongpu are also gaining momentum. More recently, US high-end coffee chain Blue Bottle opened its first outlet in Shanghai to much fanfare too.

An increasing number of companies with no background in coffee retailing – but with a nationwide sales network in the consumer market – are joining the foray.

Having trademarked Ning Coffee back in April, sportswear maker Li Ning is reportedly planning to open its own coffee chain. Chinese pharmacy Tongrentang, founded in 1669, now operates a TCM-inspired coffee chain called Zhima Health. Wanda Group, which manages thousands of shopping malls and commercial properties, has launched its own coffee and milk tea branded outlets as well.

Then there are the ‘national teams’. Both oil giants PetroChina and Sinopec have leveraged their extensive petrol station networks to launch their own cafe brands. China Post may be struggling to compete with private sector rivals such as SF Express but the state-owned postal service provider is expanding into the coffee industry as well.

According to iiMedia Research, the size of China’s coffee market was around Rmb381.7 billion last year and the number of coffee drinkers had exceeded 300 million. The industry is expected to reach Rmb1 trillion by 2025 and maintain an annual growth rate of 27%, which is considerably higher than the global average growth rate of 2%.

As the coffee culture becomes mainstream, there’s been an influx of capital into the caffeine sector. The total financing estimated to have been dedicated to the domestic coffee industry in the first 10 months of 2021 exceeded Rmb5 billion ($745 million). More popular brands went through more than two rounds of financing in the first half of last year. For instance, Manner received three rounds of funding in 2021, led by Bytedance and Temasek Investment. Similarly, M Stand concluded both Series A and B capital raises last year, backed by Qicheng Capital and Black Ant Capital.

Back to Huawei, many industry observers are surprisingly supportive of the new business line.

“Based on Huawei’s 1+8+N strategy [“1” refers to smartphones, while “8” includes commonly used terminal devices such as speakers and headphones, while “N” refers to a wider ecosystem of smart products], the company is trying to reduce the excessive dependence on the smartphone business. So the coffee business could be about digitally transforming its partners, that is, providing coffee shops with relevant technical solutions,” claimed Zhou Xibing, an author of a book about the inner workings of Huawei.

Of course, not all are convinced by the new entrants’ prospects. Take Wang Wei, CEO of Sanmo Coffee. “Many companies have already paid a hefty ‘tuition’ for diversifying into coffee and have found that it has been difficult to sustain after gaining a wave of popularity and traffic. Huawei’s entry into the coffee industry could face the same problem,” Wang said.

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