How has Covid-19 affected the coffee industry in Shanghai?
There’s no denying that the Covid-19 pandemic has had a lasting effect on coffee shops, roasters, traders, producers, and plenty of other coffee businesses around the world. But through 2021 and 2022, while many other countries were loosening their pandemic restrictions, China continued to impose a strict zero-Covid policy across its larger cities, such as Beijing and Shanghai.
This policy forced around half of the population in these cities to remain at home at any given time as a way to decrease the number of Covid-19 cases. Naturally, this placed immense pressure on local businesses (including coffee shops) which had to adapt to the sudden reduction in footfall.
This has only stopped in early June 2022, when the majority of hospitality businesses in Shanghai were allowed to reopen, including the 6,500 coffee shops in the city. However, many businesses are still unable to operate at full capacity, which raises concerns for many coffee shop owners and baristas.
Felipe Cabrera is the CEO and founder of Ad Astra Coffee Consulting in Shanghai. He has been working in the Chinese coffee industry since 2015.
In this article, he explores how China’s zero-Covid policy has affected Shanghai’s coffee industry, as well as how the sector is looking to regain its economic footing.
You may also like our article on how coffee shops can draw customers back after Covid-19.
How has China dealt with the pandemic?
As many other countries around the world continued to loosen pandemic restrictions in 2022, the Chinese government announced that theirs would return in an attempt to reduce the number of Covid-19 cases in the country.
At any one time, full or partial lockdown measures meant that millions of people in cities like Shanghai and Beijing had to remain at home for weeks on end. Naturally, this meant that coffee shops also had to close their doors.
As a means of reducing pressure on local businesses (and citizens), Shanghai authorities cordoned the city into three types of zones. Areas with recorded positive Covid-19 cases were lockdown zones, while areas without recorded positive cases in the previous seven days were classified as control zones.
The third type covered areas in Shanghai with no recorded positive Covid-19 cases in the previous 14 days: precaution zones. In these areas, residents were allowed to go outside for a few hours each day – mainly to supermarkets, pharmacies, hospitals, and even work places (if they were located close to their homes).
In early May 2022, according to the Shanghai Daily newspaper, very few districts in the city had low (or “zero”) levels of recorded positive Covid-19 cases. What’s more, the zone status of an area could change suddenly – and lead to an immediate shutdown.
Even in the city’s neighbourhoods which were categorised as precaution zones, coffee shops were unable to provide delivery services, and therefore remained closed.
These Covid-19 restrictions had severe financial implications for Shanghai’s coffee culture – even larger chains like Starbucks and Luckin Coffee. Both Starbucks China and Yum China (which owns national KFC and Pizza Hut brands) expressed concern over declining sales if the zero-Covid lockdowns were to continue.
The impact on Shanghai’s coffee shops
During the height of the lockdown in Shanghai, around 900 Starbucks stores were forced to close. In early May 2022, Starbucks reported that its store sales in China decreased 23% during the second quarter of the year – demonstrating why the company was concerned over zero-Covid measures.
So with larger chains like Starbucks and Luckin still very feeling the impact of the lockdown, how were smaller, independent coffee shops affected?
Many specialty cafés have been experiencing the impact of the pandemic even before China’s zero-Covid policy was enforced.
For example, coffee brand Yuzhou had to close all five of its Shanghai locations from mid-March 2022, continuing from four closures when the pandemic first hit the country.
Towards the end of March 2022, other coffee shops, such as haru.ESP Coffee, were unable to source enough delivery drivers (外卖骑手 in Chinese) to keep up with orders. If delivery times could not be guaranteed for the customer, many coffee shops were concerned that it would be detrimental to business in the longer term, and instead chose to close altogether.
Waste has also been an issue for some coffee shops in Shanghai. Towards the beginning of the lockdown, café owners were continuing to order regular levels of stock, such as milk and coffee beans.
However, as footfall abruptly decreased, many coffee shops were forced to dispose of the high volumes of milk and coffee they had bought. Others, meanwhile, were able to sell stock to customers and members of WeChat groups – mostly to people who were already isolated at home.
Local company Radar Coffee also reported selling stock through WeChat as a means of continuing business and reducing waste.
During lockdown, many smaller coffee shops in Shanghai were keeping a close eye on how larger chains were operating. This is because any news about reopening Starbucks or Luckin stores was a likely sign of a wider reopening for independent coffee shops in the city.
Has lifting restrictions helped?
Following a two-month lockdown, Covid-19 restrictions in Shanghai eased in early June 2022 – reviving the city’s coffee culture. This allowed residents in “low-risk” areas to leave their homes – meaning hospitality businesses were able to reopen at reduced capacity.
Initially, customers were not allowed to eat or drink inside coffee shops. To accommodate for these restrictions, baristas took orders and served drinks from a small table placed at the front door of coffee shops.
But for many specialty coffee shops, the ongoing decline in foot traffic was still detrimental for sales.
According to Radar Coffee, it was more sustainable to fully close its stores throughout the various phases of lockdown until conditions had stabilised, as opposed to opening locations on a more sporadic basis.
While some coffee shops chose to close their doors, others remained open and found new ways to boost sales, such as focusing on roasting. In one particular case, a 800 yuan bottle of natural wine (worth around US $120) was served in a coffee shop in an effort to attract more customers.
However, indoor dining restrictions in Shanghai have since been lifted, meaning customers can now visit coffee shops again. On 29 June 2022, Starbucks resumed indoor dining across 800 locations in the city, but government rules only allow a 50% to 70% seating capacity at any time (depending on the size of the store).
Overcoming challenges in the future
Much like other global cities, there will likely be a sharp increase in consumer spending as Covid-19 restrictions in Shanghai loosen – undoubtedly benefitting local coffee culture.
According to an online survey conducted by boutique market intelligence company STCAVISH + CO, Shanghai’s residents are keen to visit restaurants, coffee shops, and bars after the two-month city-wide lockdown. Around 52% of respondents stated they wanted to visit a restaurant as soon as they possibly could.
For Shanghai’s coffee shops, it’s safe to assume that recovery will be quick and positive, particularly for larger chains like Starbucks and Luckin.
Starbucks China reports it is still on track to open a total of 6,000 stores in the country by the end of the year. In the third quarter of 2022 alone, the brand was operating 5,135 locations – giving it a strong basis from which to grow.
But whether or not this recovery will be sustainable in the long-term remains to be seen. China’s wider coffee industry has already taken a substantial hit after shipments of imported green coffee were left stranded at ports and warehouses in Shanghai as a result of lockdown restrictions. For reference, Shanghai accounts for around 30% of China’s total green coffee imports – which could potentially have devastating impacts on the country’s coffee sector in the medium and long term.
For now, some local specialty coffee shops are experimenting with new ways to attract customers, such as selling instant coffee products, coffee concentrates, and single-serve filter coffee bags.
There will undoubtedly be an increasing focus on delivery services and ecommerce in the Chinese coffee market over the following months. And with more rental vacancies soon to be available in the city (similar to the growth of Shanghai’s rental market in 2020), we could see more coffee shops opening across the city in the near future.
There’s no denying that lockdown measures have already had serious economic consequences for many coffee shops in Shanghai, but it’s difficult to predict how China’s Covid-19 restrictions will the affect city’s coffee culture in the long term.
However, as the city steadily reopens, it’s likely that consumer spending will increase – boosting sales for many coffee shops. Whether or not this recovery will indicate further sustainable growth remains to be seen.
Enjoyed this? Then read our article on why coffee delivery is so popular in China.
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