Smaller cities becoming coffee gold mines

He Jie, a key coffee promoter in Tongxiang, Zhejiang province, owns Xiaoman Cafe. Her coffee shop is located in a charming century-old two-story house with a small courtyard.

China's caffeinated consumption looks to grow further as more companies start to expand their presence

It is no secret that coffee consumption has been rising exponentially in China over the past few years, and industry players have forecasted that this growth will continue for years to come as more coffee companies and startup cafes are poised to make their entry into smaller cities.

According to Daxue Consulting, Chinese coffee consumption saw a staggering 500 percent increase between 2006 and 2018.Business intelligence service provider China Briefing also reported that China's coffee market surged by 31 percent over the previous year in 2021, and is likely to have a compound annual growth rate of 9.63 percent between 2022 and 2025.

Though the number of coffee drinkers in China has ballooned in recent years, most coffee consumers are from well-developed tier-1 and tier-2 cities like Shanghai, Beijing, and Shenzhen of Guangdong province, and this explains why top domestic coffee brands like Manner Coffee and M Stand have just a few stores in lower-tier cities.

But as an increasing number of people across the country develop a taste for coffee, smaller cities and towns are being viewed as gold mines.

Furthermore, statistics from Meituan, a major online food and beverage delivery platform, show that the growth of cafes in lower-tier markets, including small cities, towns and even rural areas, was much higher than that in major cities last year.

According to National Business Daily, Starbucks' expansion plan for the Chinese market involves opening new stores in nearly 3,000 counties, county-level cities and city districts. It has also been reported that local coffee giant Luckin will be opening new stores in small cities like Xinxiang in Henan, Daqing in Heilongjiang and Dezhou in Shandong province.

Tarffy Cafe in Dongxing village, Shantou, Guangdong province, is highly popular among locals.

A young driving force

One such city where the popularity of coffee has been steadily growing is Zhejiang province's Tongxiang, which is a 52-square-kilometer county-level city famous for its wool fashion industry and ancient water towns.

One of the key coffee promoters in the city is He Jie, owner of Xiaoman Cafe, which is located in a charming century-old two-story house with a small courtyard.

"At the beginning, my cafe had almost no local guests — most of the customers were tourists from big cities, such as nearby Hangzhou and Shanghai," she said. "Gradually, more and more young locals started coming. Now, I get dozens of locals ordering coffee every day."

He, who quit her job five years ago to pursue her new passion of making coffee, said she does not regret the move one bit even though she works longer hours — from 11 am to 9 pm, six days a week. She cites her interesting interactions with like-minded customers as one of the key reasons why she enjoys running this business.

The business has been brisk, too. According to He, Xiaoman Cafe can sell about 150 cups of specialty coffee on a busy day. She took two and a half years to recoup her investment of nearly half a million yuan ($74,050).

He also pointed out that local palates have become more discerning over the years. For example, many local customers who dipped their toes in coffee drinking by ordering less intense options like mocha and latte now appreciate handmade black coffee.

Mechanical engineer Chen Yu is one of Xiaoman's regular customers. After drinking coffee to lose weight, he gradually became addicted to the drink and now visits the cafe after the gym almost every day.

"Sitting in a nice cafe and sipping my favorite Americano after a day's work is my joy," said the 28-year-old man who lives in Tongxiang. He has also learned handmade coffee-making from He and makes fresh coffee at home during the weekends.

Another young cafe owner who has been riding the growing wave of coffee consumption is Lin Junping, who together with her husband opened two cafes in a village in Guangdong that are now highly popular among locals.

Today, her Tarffy Cafe in Dongxing village of Gurao town in Shantou is almost always packed with enthusiasts every evening.

Lin said her cafe is more about providing a social space. Apart from coffee, her cafe also sells milk tea and cocktails. Unlike most cafes in the city, hers is open till midnight to cater to young villagers who like gathering with friends and colleagues and enjoying a drink after a day's work.

Though located in a small village, Tarffy Cafe can sell over 550 drinks on a good day.

The location of Lin's cafe is a small industrial center featuring lingerie fashion and manufacturing instead of traditional agriculture. Many families here own plants and online stores selling lingerie and underwear.

"About 80 percent of my guests are locals and this ratio is still growing," she said. "Most of my customers are between 18 and 25 years old. They earn a decent income and generally face less pressure, unlike people from the big cities. They need a space to have a nice drink and chat and we offer the right place."

Optimism abounds

The location of such cafes has also played a big part. In recent months, June Cafe, which is located in a village in Guangdong's Dongguan, Kahf Cafe in Sangpo village of Jiaozuo in Henan province, and Two Tree Coffee in a village near Xi'an of Shaanxi province, have all gone viral on China's social media platforms because they are located in scenic and tranquil locations.

Both He and Lin said they are confident that business will only get better despite seeing more competition recently.

Just last year, Lin's two cafes were the only shops selling coffee in the town. Today, another 10 new cafes can be found. A similar situation has occurred in Tongxiang where several new cafes opened in recent years after Xiaoman. Some are community cafes selling specialty coffees and some focus on delivery services.

"More competition is good. We need a competitive business atmosphere. It's difficult for a single store to stay afloat for long," said He.

As such, both business owners are planning to expand their footprint.

He said she has already rented another house in Tongxiang, which she plans to convert into a cafe that sports a different style from the current one. She believes her customers under 35 years old are willing to try something different brewed by a privately owned cafe.

Meanwhile, Lin has been busy preparing for the opening of her third store in a nearby town located about 20 minutes' ride away. This new store will be her biggest yet and will start interior renovations after Spring Festival.

"I believe in the consumption power of the villagers," said Lin. "I'm sure I will be busier than ever when the third store opens after Spring Festival."