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Spencer: Coffee Wars on the Streets of Shanghai
Earlier this year, Richard Brubaker of All Roads Lead to China traced the lack of business in a Shanghai Starbucks (Nasdaq:SBUX) to Olympics-related visa restrictions. While he may have been partly right at the time, he ignored the coffee battle which has broken out in Shanghai this year. On my way to work alone, six new coffee shops have opened during the last three months, and all offer a top-quality Americano for RMB 8, cheaper than Starbucks' RMB 27 equivalent. Three of these shops are run by 85º -- a Taiwanese chain (85ºC being the optimum temperature to brew coffee), but the remaining three are copycat spin-offs with identical prices, products and cups. Competition is intense, and the fight has spilled out onto the street as teams of staff from each shop stalk customers at breakfast-time with cake samples and home delivery leaflets. It is astonishing to see how quickly the businesses have developed and that the same battle can be spotted elsewhere in Shanghai. Aside from offering shelter to the odd, bewildered tourist, Starbucks does not seem able to match the new competition -- three 85º coffee shops are doing roaring trade in spaces that were once occupied by branches of the Seattle-based chain.
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Spencer Sheehan edits sector research.
