This is an English adaptation of a FoodBud historical article originally published on October 24, 2022.
Xiaguangshe reported in October 2022, based on a field visit to Jieshou, a county-level city under Fuyang in Anhui province, that coffee brands moving into lower-tier Chinese markets faced a much harder operating reality than headline store-count expansion suggested.
As competition intensified in China’s first- and second-tier city coffee markets, many chains began looking to county-level and lower-tier cities for a second growth curve. Luckin Coffee, for example, launched a recruitment plan for “new retail partners” in early 2021, with its first batch of 157 cities largely made up of third- and fourth-tier markets. Lucky Cup, the coffee brand under Mixue Bingcheng, had 397 stores at the time, with 75% located in third-, fourth- and fifth-tier cities.
But the fieldwork in Jieshou suggested that the county-level coffee business was far from easy. Jieshou sits in northwest Anhui; its 2020 per-capita GDP was RMB 53,236, ranking 60th among Anhui’s 106 districts and counties, putting it around the provincial middle.
In that market, two Lucky Cup stores were operating poorly, with average daily traffic of only about 30 customers. A Luckin small-format store on a well-known local commercial street saw about 20 customers per day. A local chain coffee shop in the city center, despite occupying roughly 120-140 square meters and having some local recognition, had only a few customers inside and sold about 25 cups of coffee per day.
A barista named Yang Yang at a local coffee chain told Xiaguangshe that low sales in the county market mainly came down to weak coffee-culture penetration. Local consumers did not yet have a coffee-drinking habit, which meant stores lacked stable traffic.
Deloitte and Euromonitor data cited in the article showed the contrast: consumers who had formed coffee-drinking habits in China’s first-tier cities consumed 326 cups per year, while those in second-tier cities consumed 261 cups per year. The national average was only 9 cups per year.
Yang said the county-level coffee audience mainly consisted of two groups: young people who had worked in large cities and returned home, and a smaller group of culture-oriented young consumers with a strong personal interest in coffee.
This also created clear seasonality. Around Lunar New Year, when large numbers of young people returned home, some county coffee shops saw daily sales rise from around 25 cups to about 80 cups. After the holiday, sales quickly fell back.
The article argued that county-level coffee-market education would be a long process. First- and second-tier cities had built stable coffee demand on the back of a large middle class, heavier work intensity and stronger disposable income. County-level cities often lacked those conditions.
One returnee, Zhao Wei, said that after moving back from Beijing, he found local companies rarely required overtime except in urgent situations, reducing his need for coffee as a stimulant. His salary also fell from RMB 12,000 per month to about RMB 4,000. Because many goods in the county were transported in from outside and were not necessarily cheap, coffee became an expense he had to cut back on.
A self-employed business owner in his 40s, Zhang Yong, said that many county-level middle-class residents had built their own stable local networks over many years, where alcohol culture remained far more influential than coffee.
The article also pointed to long-term demographic pressure. Citing the China Urban-Rural Construction Statistical Yearbook, it noted that at the end of 2020, 1,495 counties, excluding county-level cities, had a registered population of 641 million. Compared with China’s seventh national census, registered population exceeded resident population by about 130 million, meaning roughly 20% of registered residents had left those counties.
In contrast to coffee’s weak penetration, new-style tea drinks were highly visible in Jieshou. Mixue Bingcheng, Tianlala and similar brands appeared across many townships, with daily traffic often exceeding 80 customers. During promotional campaigns, some stores could exceed 100 customers per day.
Yang said county-level young consumers accepted sour and sweet tea-drink profiles far more readily than coffee’s bitterness. Among 100 customers entering his store, at least 80 explicitly asked for sugar to be added to their coffee.
That meant coffee chains could not simply copy the product mix used in first- and second-tier cities. They needed to adjust product strategy and develop offerings around lower-tier consumer preferences.
Pricing was equally challenging. County consumers were highly price-sensitive, and low-cost substitutes were common. Milk tea that might sell for RMB 20-30 in large cities could sell for RMB 6-8 in county markets, even if the product contained little milk or tea and relied heavily on additives and sugar.
Lucky Cup’s county-level coffee prices were generally below RMB 10, which fit local price expectations. But a Lucky Cup franchisee, Li Mingming, said that although the franchise fee was only RMB 10,000, total upfront spending reached at least RMB 300,000 after rent, fit-out, labor and logistics. With coffee priced below RMB 10, the store’s gross margin was limited; its highest daily sales were only about RMB 1,800, and it had not yet become profitable.
Luckin faced similar pressure. A Luckin franchisee identified as Tao Ge said Luckin required franchise stores to be located in busy local commercial areas. Even in a county city, annual rent was at least RMB 100,000. Basic upfront investment was about RMB 180,000, and monthly operating costs were at least RMB 20,000.
Luckin’s delivery-platform prices in the county were around RMB 15-18, while in-store prices were RMB 20-30. Compared with Lucky Cup’s sub-RMB 10 coffee, that pricing discouraged many county-level consumers.
Delivery platforms such as Meituan and Ele.me mainly covered the county urban area, with surrounding townships difficult to reach. That limited the actual addressable consumer base for Luckin.
Luckin’s new-customer promotions could lift store sales, but Tao Ge said the problem was that two cups of coffee sold for only around RMB 15. Against rising coffee-bean prices, the store was effectively losing money on those orders. Finding a path to product velocity and profitability had become a major headache.
The article argued that if Luckin and Lucky Cup could not quickly identify a viable single-store profit model, franchisee returns would be difficult to protect, which would in turn affect expansion speed.
Repeat purchase was another challenge. Unlike independent coffee shops in big cities that attract consumers through flavor and craft, county markets have a much smaller base of people who actively want coffee.
Service quality also mattered. A customer named Linlin said she once ordered a coconut latte from Luckin in the county, only to be told it could only be made hot and not iced. She had ordered half sugar, but the staff made it extra sweet, resulting in a poor-tasting drink.
Yang said making a good cup of coffee required repeated practice and careful balancing of sugar, beans and water. When chains such as Luckin and Lucky Cup put baristas on the floor after only simple training, taste problems were hard to avoid.
The article concluded that in more closed, less mobile county markets with a higher share of middle-aged and older consumers, coffee expansion would struggle without the right consumer base. The size of the county-level coffee opportunity, and which operator could adapt product strategy well enough to lead it, would require more than time to resolve.