In September 2023, Luckin Coffee launched a partnership with Kweichou Moutai, one of the world’s largest spirits companies, selling a baijiu-infused latte for RMB 38 (£4.27) per cup (although discounts usually made it around RMB 19). Despite many being sceptical of the coffee/baijiu mashup, consumers still flocked to Luckin in their millions. According to Luckin, 5.42 million cups of the coffee were sold on the first day of launch, with sales topping RMB 100 million (£11.2 million).

Now, Moutai has teamed up with Luckin again, this time launching a coffee-less chocolate drink that tastes “just like baijiu-filled chocolate”. The collaboration has been created to coincide with the run-up to Lunar New Year, with campaigns featuring Year of the Dragon imagery and slogans like “The First Cup of the Year of the Dragon”.

The timing is apt, as Lunar New Year celebrations are often accompanied by copious amounts of baijiu, and consumers will often shell out for a pricier brand like Moutai (500ml bottles of Moutai typically retail for upwards of RMB 1,500 (£168)) to mark the occasion.

Yet despite the good timing, the collaboration has failed to drum up the massive interest that the first round attracted. As Dao Insights reported, although the Weibo hashtag “Luckin Moutai collaborate again” (瑞幸茅台再联名) attracted 50 million views, it only reached number five on the Hot Search list – the previous collaboration reached the top spot.

It is hard to say why some campaigns go viral in China when others don’t, but it could be that this second campaign lacks the element of surprise and novelty – Moutai has already released a popular baijiu chocolate with Dove, so consumers could already imagine what the fusion of baijiu and chocolate would taste like.

This underlines the importance of keeping co-branded campaigns fresh and exciting and embracing collaborations that push the boundaries of your brand’s values – other examples from the China market in recent years include Gucci x North Face and Mac Cosmetics x Honor of Kings (an online multiplayer game).

These collaborations also reflect the continuing relevance of the “guochao” trend. Guochao, which translates to “national trend” (or ‘China chic’), encapsulates the rise of brands that celebrate and promote Chinese cultural identity, as well as the growing popularity of home-grown Chinese brands. Moutai’s recent collaborations reflect both sides of this trend. On the one hand, the decision to partner with Luckin rather than Starbucks aligned well with Moutai’s identity as a Chinese company and resonated with the national pride of Chinese consumers. On the other hand, marrying Western favourites like coffee and chocolate with a traditionally Chinese spirit was a smart way to integrate global tastes with local preferences.

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In September 2023, Chinese baijiu brand Kweichou Moutai, one of the world’s largest spirits companies, launched collaborations with Chinese coffee chain Luckin and international chocolate brand Dove that took the market by storm. What can other brands learn from these popular promotions?

Moutai x Luckin Coffee

Luckin Coffee launched a partnership with Moutai in early September, selling a baijiu-infused latte for RMB 38 (£4.27) per cup (although discounts usually made it around RMB 19). Despite many being sceptical of the coffee/baijiu mashup, consumers still flocked to Luckin in their millions. According to Luckin, 5.42 million cups of the coffee were sold on the first day of launch, with sales topping RMB 100 million (£11.2 million).

Founded in 2017, Luckin Coffee was a venture capital darling, leveraging ultra-cheap prices and quick delivery to win over Chinese consumers. The company took a hit in autumn 2020 after it admitted to fabricating over USD 300 million in earnings and was delisted from US markets, but has since bounced back with a vengeance, surpassing Starbucks in terms of income and number of stores by mid-2023.

Moutai x Dove

Moutai quickly followed up its Luckin partnership with a collab with Mars-owned Dove chocolate. The baijiu-filled chocolates launched on 16 September priced at RMB 35 (£3.95) for a box of two pieces or RMB 99 (£11.12) for a box of six, and sold out within minutes. Since then, unauthorised merchants have been flipping the chocolates on e-commerce platforms for several times the RRP. And the demand wasn’t just due to a trendy product drawing attention online; feedback from consumers was overwhelmingly in favour of the product, with some even suggesting making it a permanent addition to Dove’s offerings in China.

Analysis and implications

These collaborations indicate Moutai’s desire to broaden its market and appeal to a younger customer base. The strong spirit is traditionally associated with formal banqueting and 500ml bottles typically retail for upwards of RMB 1,500 (£168) a bottle, putting it out of the reach of many consumers.

However, the success of these collaborations isn’t just an indicator of Moutai’s willingness of to innovate; it also sheds light on the evolving tastes and preferences of Chinese consumers.

Young Chinese consumers have an experimental palate
The younger Chinese demographic, influenced by global trends yet deeply rooted in their cultural heritage, are always keen to sample new products and flavours, especially when they combine familiar elements in unexpected ways. This is especially true for low-priced products like soft drinks, sweets and savoury snacks, as the risk of purchasing them is significantly lower. Brands in the Chinese market must constantly look for ways to innovate and launch new products to stay relevant.

Guochao isn’t going anywhere

These collaborations also reflect the continuing relevance of the “guochao” trend. Guochao, which translates to “national trend” (or can be more eloquently translated as ‘China chic’) encapsulates the rise of brands that celebrate and promote Chinese cultural identity, as well as the growing popularity of home-grown Chinese brands. Moutai’s recent collaborations reflect both sides of this trend. On the one hand, the decision to partner with Luckin rather than Starbucks aligned well with Moutai’s identity as a Chinese company and resonated with the national pride of Chinese consumers. On the other hand, marrying Western favourites like coffee and chocolate with a traditionally Chinese spirit was a smart way to integrate global tastes with local preferences.

Co-branding is an important strategy
Co-branded partnerships have long been an effective way for high-end brands to connect with a broader consumer demographic. During CBBC’s 2023 China Consumer conference, Sarah Rotherham, CEO of Fontaine Group, which owns the fragrance brand Creed, described how Creed worked on a collaboration with Chinese rap artist Benzo, embedding the fragrance into one of his songs, and with Chinese art toy ROBBi, in which limited-edition collectables were scented using Creed fragrances and sold along with non-fungible tokens (NFTs).

In conclusion, brands aiming to thrive in China’s dynamic consumer landscape need to be attuned to evolving tastes, ensuring they strike the right balance between innovation and cultural sensitivity.

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From Cibei (Mercy) Coffee in Yongfu Temple, to Muhuanxi (Bathe in Happiness) in Faxi Temple in Hangzhou, to Jianfo (Meet the Buddha) Coffee in Longxing Temple in Taizhou, temples seem to have become a standard setting for coffee shops in China.

It’s not just the names of these outlets that gives a nod to their zen ambiance; their coffee offerings do, too. At Cibei Coffee, for example, an Americano is known as Di Fan (Wash Worries Out), the latte has been replaced by Ting Xue (Snow Stops) and Huan Xi (Happiness) refers to a mocha. A blind box offer called Sui Yuan (Let It Be) has also been introduced, where consumers are invited to draw a fortune stick, a common practice during a temple visit.

The rise of temple coffee is closely linked to the new-found popularity of temple visits among younger people in China, with Gen Z and Millennials becoming some of the most devout worshippers after China dropped its stringent Covid rules. It has been reported that bookings for temple-based scenic areas recorded a more than three-fold increase year on year since the beginning of 2023. The post-90s and post-00s generations also accounted for nearly 50% of the total temple footfall in February according to Chinese online travel agency Ctrip.

Burning incense and praying to Buddha are particularly popular among Gen Z, with the topic of ‘Temples’ on China’s lifestyle-sharing platform Xiaohongshu drawing in more than 160 million views, plus another 100 million reads of the hashtag ‘Pray in Temples’. Shared posts under these tags often include wishes about finding the right partner, passing exams or securing university or job offers.

Temple coffee shops have won over young consumers with their “sharp contrast” between Eastern religion and the Western origin of coffee, arousing curiosity among a generation always looking for new and unique consumer experiences. The presence of monks at a café, some even working as baristas, also appeals to young visitors. What’s more, these scenes of course create great photo opportunities, generating online engagement while fanning overall enthusiasm for the trend.

This latest temple coffee trend stands in stark contrast to a similar attempt by Starbucks in 2012. The opening of the American chain’s outlet near Hangzhou’s Lingying Temple turned into a controversial episode, with some viewing the move as being “too commercial” and “incompatible” with the sacred nature of the monastery, while others even argued that it was “an erosion of Chinese culture”.

The success of temple coffee today lies in a more detail-oriented re-packaging and marketing approach. Temple coffee can’t just rely on the simple installation of a coffee shop within a temple; it also requires comprehensive branding that integrates religious aspects, aesthetics and the spiritual and psychological demands of temple goers.

Examples include Money God Coffee at the God of Wealth Temple in Hangzhou, whose niche is offering caffeinated drinks symbolising wealth, while Xi De (“Happiness and Morality”) in Lingying Temple focuses on good luck in education and careers. These curated experiences are synonymous with the characteristics of each temple, which shows respect for religious culture while also enhancing an immersive consumer experience.

The success of these coffeehouses sets an example of how religious or cultural venues can create another avenue for differentiation through marketing. While setting themselves apart from traditional coffee providers by leveraging the seemingly contradicting image of “West meets East”, they are able to tap into different spiritual demands, enhancing their own uniqueness while speaking to consumers’ emotional needs, which is key to further unleashing the consumption potential of China’s coffee market.

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While China is still regarded highly for its tea, young Chinese people have recently been turning to coffee to get their caffeine fix. According to the Qianzhan Research Institute, China’s coffee market is set to exceed RMB 300 billion (£35.5 billion) by 2024. Currently, annual revenue in the coffee segment amounts to around £10 billion and it is projected to grow by 9.21% annually between 2021 to 2025.

In March 2021, it was announced that Shanghai has the most coffee shops in the world. At nearly 7,000 cafes, the city beats out Tokyo (3,826), London (3,233) and New York (1,591). The UK’s largest coffee chain, Costa Coffee, together with Starbucks accounts, for around 35% of the total coffee shops in Shanghai, while British retail brands like Whittards have also seen success with their coffee products.

The rise and fall of Luckin Coffee

Luckin Coffee was founded in 2017, and this venture capitalist pet project became the first successful Chinese coffee chain. By 2019, Luckin had opened more than 4,500 stores across 53 cities in mainland China. With the stated aim of overtaking Starbucks, the brand began trading on the Nasdaq.

However, its success was short-lived. In autumn 2020, the company admitted to fabricating over $300 million in earnings and soon after, Luckin Coffee was quickly delisted from US markets. Tainted by the scandal, the company faced numerous penalties from China’s Ministry of Finance and, perhaps more crucially, received a torrent of negative feedback from netizens unimpressed with the company’s behaviour. Despite this setback, Luckin played a key role in increasing the visibility of domestic Chinese coffee brands. Indeed, Luckin is still the second most popular chain in Shanghai behind Starbucks.

The rise and rise of Manner Coffee

Now other Chinese brands such as Manner Coffee are jumping on the coffee bandwagon. Starting as a small boutique café in Shanghai in 2015, the company experienced organic growth. Today, Manner has around 150 stores nationwide and sets itself apart with a focus on affordability and sustainability. Coffee is a high-end beverage and so by offering prices that are 30-40% lower than its Western counterparts, it has become a popular choice for young urban residents.

“Manner Coffee’s popularity is riding on two trends in Chinese consumer culture – the affinity for boutique experiences, and the aspiration to support the growth of guochao, or China chic, brands,” Antoaneta Becker, CBBC’s director of consumer economy, explains. Unlike Luckin, Manner has not compromised on quality standards and instead of automatic coffee machines, it prefers to use Chinese traditional roasters and train its baristas to build a ‘national’ coffee brand. The brand also resonates with the growing number of Chinese consumers committed to supporting Chinese brands and products, as it sources its coffee beans from Yunnan.

Furthermore, by taking advantage of Shanghai’s intense work culture, Manner has managed to turn coffee from one beverage-among-many to a necessity. With small stores located near busy business centres and office towers, it has established a niche in the market by meeting the demand for grab-and-go coffee.

Although Manner’s rapid growth bears similarities with Luckin, both consumers and investors remain confident in its potential. In June 2021, Manner Coffee received an investment from TikTok parent company ByteDance and from the delivery giant Meituan. It has also received a substantial number of other investments over the past six months.

It has been reported that the coffee chain is considering a Hong Kong IPO that could raise at least $300 million. Other Chinese brands such as Seesaw and Algebraist have also attracted vital capital investment as investors continue to see the financial potential of such chains.

The original roadside Manner Coffee stall (Image: wearemanner.com)

What is driving the growth of consumer brands like Manner?

The pattern of investing in China has changed over the past year, due in part to Xi Jinping’s yearlong campaign to rein in large technology companies. In an effort to achieve common prosperity, China’s newly established developmental model favours domestic consumption in the ‘real’ economy over financial goods. Furthermore, new rules for technology, gaming and education companies have pushed investors towards other sectors such as beauty, fashion, leisure and food and beverage.

“The scope for growth in food is enormous given China’s large population and the rise of ‘consumption’,” says Dr Zhujun Ding, senior lecturer in international business at King’s College London. “There are also some synergies between the sectors in that the tech companies anticipate using their understanding of the internet and their young target market [to increase profitability]. I think that tech giants targeting the food and hospitality industries and bringing in capital will be a major catalyst for change; we can expect to see the industry consolidate with eventually a few large leaders.”

Consumer brands like Manner Coffee have already integrated their marketing strategies into China’s booming digital ecosystem. As consumers become more and more digitally savvy, many brands are using innovative new marketing techniques to grow and penetrate the market. For example, beauty brand Perfect Diary and beverage maker Genki Forest have both benefited from live streaming campaigns and partnering with key opinion leaders.

While Manner has found success with its approachability and affordability, for foreign brands, there is an opportunity to position themselves at the top end, as Anthony Johnson from ADN Imports explains. “High-quality products with compelling brand stories can be attractive not only to a rapidly growing minority of coffee connoisseurs but also across the broader gifting market. Having beautifully crafted packaging is especially important in China, but brands must also have a well thought out and nuanced proposition.” Nevertheless, “The days of generating demand through merely being ‘British’ are over; an increasingly sophisticated consumer in an ever more crowded market needs a special reason to purchase,” he adds.

Consumer brands have been one of the few sectors that have continued to see activity during the pandemic, and it is predicted that this boom will continue as investors shift their money away from tech companies. Nevertheless, even with strong financial backing, it remains to be seen whether Manner Coffee can avoid the pitfalls of rapid growth that eventually scuppered Luckin.

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