What does Costa Coffee history show about its China expansion?

Costa Coffee opened its first drive-thru store in China on Tainan West Road in Shanghai's Pudong New Area, allowing customers to collect orders without leaving their cars. The location also rents meeting rooms and offers co-working space, putting it in direct competition with Starbucks' shared-space concept store. The model is familiar overseas but still new to Chinese consumers.

Costa Coffee history traces back to London in 1978, when the Costa brothers, originally from Italy, founded the brand. It entered China in 2006 with a first store on Nanjing East Road Pedestrian Street in Shanghai. By mid-2019 the company ran more than 40 drive-thru stores in the UK, a number that climbed past 300 during the pandemic.

Competition in China's coffee market is expanding from the number of stores to the battle for consumption scenarios. Recently, Costa Coffee opened China's first "Drive-Thru" store on Tainan West Road in Shanghai's Pudong New Area. This model, which allows customers to pick up their orders without getting out of their cars, has a history of many years overseas, but is still a novelty in China. Notably, the store also offers meeting room rentals and co-working services, putting it in direct competition with Starbucks' previously launched "shared space" concept store. Costa once regarded Starbucks as its biggest competitor, but the gap in store scale between the two in China is now quite obvious. Whether this "Drive-Thru" store can help Costa accelerate its expansion in China is worth continued attention.

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In recent years, China's coffee consumer market has continued to expand, with brands such as Starbucks, Luckin, Costa, KFC, and Pacific laying out their operations around different consumption scenarios in order to secure a more favorable position in the battle for market share.

According to Coffee Finance, the chain coffee brand Costa has opened China's first "Drive-Thru" store on Tainan West Road in Shanghai's Pudong New Area. Costa's Chinese brand name is "咖世家", and it was founded in London in 1978 by the Costa brothers from Italy. In 2006, the brand officially entered the Chinese market, with its first store located on Nanjing East Road Pedestrian Street in Shanghai.

Public information shows that Costa began laying out "Drive-Thru" stores in overseas markets quite early. By mid-2019, the brand was already operating more than 40 "Drive-Thru" stores in the UK. After the outbreak of the COVID-19 pandemic, within just a few months the number of branches with "Drive-Thru" or similar takeaway services quickly climbed to more than 300.

For Chinese consumers, the "Drive-Thru" model is relatively unfamiliar. It was first created in the United States in 1921, and its core feature is that food or drinks can be packaged and taken away without getting out of the car. This model easily calls to mind the fast-food industry, and with the rapid development of the fast-food industry in the 21st century, the market scale of "Drive-Thru" has also continued to expand.

In 1975, McDonald's opened its first "Drive-Thru" restaurant in the United States, and today the number of such restaurants worldwide has reached thousands upon thousands. Coffee chain brands such as Starbucks, as well as Tim Hortons and Peet's, also have some stores with similar "Drive-Thru" functions, or that specifically provide "Drive-Thru" service. For decades, "Drive-Thru" coffee has gradually grown into an important part of the coffee industry.

It is reported that, in addition to regular coffee sales, Costa's "Drive-Thru" store also offers meeting room rental services. The entire store covers an area of about 500 square meters, with 4 rentable meeting rooms, and is also equipped with co-working space featuring standard office equipment such as projectors and meeting tables, capable of accommodating 12 to 18 people for meetings. Meeting room rentals? Starbucks seems to have a similar business as well.

Indeed. Starbucks China launched a "shared space" concept store last November, which can likewise meet the needs of mobile work, small-group collaboration, business negotiations, and multi-person meetings. The concept store is divided into four major functional areas, including paid private meeting rooms, semi-open single-person work areas, sofa areas convenient for group discussions, and leisure areas for short rests. To ensure privacy, the meeting rooms all use noise-reduction design, and the large meeting rooms are also equipped with screen-casting and other equipment.

When it first entered the Chinese market, Costa regarded Starbucks as its main competitor. The two have similar coffee pricing, and Costa also adopted a relatively aggressive expansion strategy, opening 2 to 3 new stores almost every week and carrying out a "close-quarters" tactic against Starbucks, with most Costa stores located right next to Starbucks. However, in recent years, its pace of development seems to have gradually slowed.

Judging from the current landscape, Costa appears to have been left far behind by the rival it once targeted. Starbucks' latest quarterly earnings report for 2022 shows that its number of stores in China has reached 6,021, and it plans to increase that to 9,000 by fiscal year 2025. Data from Zhaomen Canyan shows that Costa currently has only 424 stores in China, and in terms of both store scale and market share, it is clearly a step slower compared with Starbucks, which continues to increase its bet on the Chinese market.

However, as Costa's "Drive-Thru" store pilot achieves success, whether this model can push the brand to accelerate its pace of opening stores in China still remains to be further tested by the market.

A Costa representative said: "We are committed to providing excellent service and experience when customers visit our stores, and we are delighted to open our first 'Drive-Thru' store in China, where demonstrating great innovation is the focus of our efforts to gain a competitive advantage in the market."

Image source: Internet

The above content is compiled by CoffeeHunters, a coffee news website.