Coffee shops in China
Growth from less than 20 stores to 1,400 restaurants in 20 years is a big investment. It’s not huge for some companies, but for Dunkin’ Donuts especially it’s a bold plan, considering they’re entering a market where 50% of their selling point (donuts) is virtually unknown, and the other 50% (coffee) is dominated by Starbucks.
– Currently has only a few locations in a big city (3 in Shanghai), none like Beijing, Guangzhou, Shenzhen, etc. As these cities already have a significant coffee culture, we expect that they’ll be able to find significant acceptance among the populations there. Big city dwellers are quite accepting but also more fickle; they’ll get a surge of initial customers but it’s a question of if they can retain them.
Impact on other food-and-beverage
Small in big cities, big in small cities. The growth is steady over 20 years, and China’s market is big enough and growing fast enough to absorb another foreign fast-food giant. In terms of market share, they’re effectively competing with Starbucks, which has longer experience and wider footprint when it comes to coffee. In big cities, it’s unlikely they’ll be able to compete significantly. Starbucks has nearly 800 outlets in China already and plans to have 1,500 by the end of 2015, so Dunkin’s entry is unlikely to stunt their growth much in big cities.
However, Dunkin is already in a few Tier-2 cities, so that might be their strategy. They may try to establish themselves in lower-tier cities where the more down-to-earth and price-conscious coffee and snacks fast food culture will seem less intimidating than Starbucks’ fancier interiors and drinks.
While Starbucks generally serves higher-end coffees, dunkin donuts serves a kind of “good old fashioned cup of joe” styles coffee. It’s very American and quite “working-class” in image so it’ll be interesting to see if this appeals to China’s coffee-drinking middle and upper class, who typically like a product that looks more refined, sophisticated and prestigious.
By getting in ahead of Krispy Kreme, however, Dunkin has, at least, gotten a headstart on their biggest direct competitor.
Factors of Success
When appealing to the consumers on coffee, they’re coming up against Starbucks which has a much larger footprint and much longer experience in China. That will be tough, but they’ll be able to ride the wave of Starbucks’ attempts to introduce the Chinese customers to coffee; Dunkin won’t have to push hard to convert customers to their core coffees like espressos and lattes, etc.
When appealing more on the basis of their donuts and confectionary, they’ll have less competition as there is not a major fast food doughnuts player, though Krispy Kreme might be entering in the future. However, as it stands, they’re facing a much less well-developed market. Doughnuts could slot nicely into the niche already created by the popular cupcake and muffins snacks, since they’re sweet pastry that’s easily and quickly consumed, but they’ll be blazing the trail.
– Their plans to create localised snacks such as mochi rings (rice-based doughnuts) and locally flavoured doughnuts (honeydew melon/green tea) will be a risky maneuver; generally such strategies have paid off at first as the novelty factor drives up sales, but it’s still the mainstays of the menus that attract that majority of customers.