What Challenges is the Coffee Industry Facing?

The coffee industry is currently confronted with five core challenges: soaring costs, homogenized competition, supply chain volatility, compliance & talent gaps, and cross-industry encroachment. Coupled with macroeconomic and ESG constraints, the industry is undergoing accelerated reshuffling, with small and medium-sized brands and independent stores bearing the brunt of the pressure. Below is a dimensional breakdown of these challenges along with corresponding solutions.

I. Comprehensive Breakdown of Core Challenges

1. Dual Squeeze on Costs and Profits (A Challenge to Survival Bottom Line)

• Raw Material Side: Global supply of green coffee beans is tight (with a deficit of 8.5 million bags in the 2025/26 season). Frost in Brazil and drought in Central America have driven up futures prices (Arabica futures fluctuate at a high level). Although the premium rate of Yunnan coffee beans has increased, costs have risen in tandem, making it hard to pass on the price hikes to downstream markets.

• Operation Side: Costs such as rent (accounting for 30%–40% of revenue), labor (3–5 employees per store with monthly salaries ranging from 8,000 to 15,000 yuan per person), cold chain, and packaging keep rising. Coupled with price wars (the price per cup dropping as low as 5–6 yuan), the gross profit margin per store has fallen from 60% in 2020 to 35%–45%. Small and medium-sized stores are caught in a dilemma: not cutting prices leads to customer loss, while cutting prices results in profit losses.

• Hidden Costs: Store renovation, equipment depreciation, and food delivery commissions (15%–25%) further erode profits. The payback period for independent stores has lengthened from 12–18 months to 24–36 months.

2. Homogenized Competition, Difficulty in Building Differentiation Barriers (A Challenge to Growth Ceiling)

• Products: Lattes and Americanos account for over 70% of menu offerings. Specialty drinks and IP co-branded products are easy to replicate. "Pseudo-innovation" (changing syrups or packaging) fails to retain customers, while genuine innovation (Single Origin Espresso, integration of local flavors) requires significant technology and capital investment, which is beyond the reach of small and medium-sized brands.

• Scenarios & Marketing: The "third space" concept has become homogenized across stores. Proliferated IP collaborations lead to low traffic conversion rates, causing consumer fatigue and declining repurchase rates.

• Price Range Collapse: The mid-range price segment (16–25 yuan) is shrinking. Consumers are polarizing toward the "budget segment (under 10 yuan)" and "premium segment (40–60 yuan)", squeezing the survival space of mid-tier brands.

3. Supply Chain Vulnerability and Sustainability Pressures (A Challenge to Fundamental Risks)

• Supply Volatility: Climate change (rising temperatures and extreme weather) has led to unstable output in major producing regions (Brazil, Indonesia). The scarcity of premium beans has intensified, triggering fierce competition for high-quality green coffee beans.

• Localization Bottlenecks: Despite the rising premium rate of Yunnan coffee beans (31.6%–46.15%), the capacity for deep processing is insufficient, relying heavily on imported equipment and technologies, resulting in weak coordination across the entire industrial chain.

• ESG Constraints: Regulations such as the EU’s Zero Deforestation Law and China’s tightened carbon emission reduction requirements have increased costs for coffee grounds disposal, water conservation, and energy consumption optimization, putting significant compliance pressure on small and medium-sized brands.

4. Compliance & Quality Control, Tighter Regulation (A Challenge to Compliance Red Lines)

• Quality Disputes: Rapid expansion has led to declining quality control, with more complaints about foreign objects and inconsistent flavors. Opaque labeling of artificial additives and caffeine content has triggered health concerns among consumers.

• Compliance Costs: Brands are required to clearly label ingredients, allergens, and caffeine content, and provide consumption guidelines for special groups such as pregnant women and cardiovascular patients. Penalties for non-compliance have become more severe, with compliance costs accounting for 2%–5% of revenue.

5. Talent Gaps & Cross-Industry Competition, Ecosystem Encroachment (A Challenge to Competitive Landscape)

• Talent Shortage: A shortage of professional roasters and baristas, combined with long training cycles (6–12 months) and rising salaries, has hindered the development of the premium coffee segment.

• Cross-Industry Encroachment: New tea beverage brands, convenience stores, and fast-food chains (e.g., McDonald’s, Luckin Coffee) have entered the market with low prices and high-traffic locations, seizing instant consumption scenarios and diverting customers from traditional coffee shops.

• Channel Game: Food delivery platforms hold strong bargaining power with high commissions. Instant retail has diverted offline customers, while brands lag in building private domain traffic, making them vulnerable to "channel constraints" due to over-reliance on platform traffic.

6. Macroeconomic & Consumer Psychology, Demand Uncertainty (A Challenge to External Environment)

• Macroeconomic Volatility: In a period of economic downturn, discretionary spending has contracted, pushing coffee from a "daily necessity" back to an "elastic consumption" category, with market penetration in sinking markets falling short of expectations.

• Rational Consumption Trend: Consumers have shifted from "check-in consumption" to prioritizing "cost-performance ratio", with lower acceptance of premium pricing, forcing brands to cut costs and improve efficiency.

II. Priority of Challenges by Stakeholder

III. Practical Solutions

• Cost Optimization: Adopt compact store formats (30–50 ㎡ pick-up stores) and streamline staffing (2–3 employees per store). Lock in prices through partnerships with Yunnan producing areas, and promote coffee grounds recycling (for cultural and creative products or biofuels) to reduce costs and enhance ESG value.

• Product Innovation: Focus on "sugar-free/functional/local flavors" (e.g., osmanthus, Pu’er tea-infused coffee). Leverage microencapsulation and freeze-drying technologies to develop sustained-release or sugar-controlled products, building technological barriers.

• Channel Strategy: In sinking markets, adopt a "small-store + high-turnover" model. Develop online instant retail and private domain traffic to reduce platform dependence; use membership systems to boost customer retention.

• Compliance Management: Transparently label ingredients and caffeine content, formulate drinking guidelines for special groups, and establish a quality control traceability system.

• Talent Development: Collaborate with universities and vocational schools for targeted training, and build internal certification systems to improve employee retention and professionalism.

Conclusion

These challenges are essentially growing pains as the industry transitions from "scale expansion" to "value growth". Only by simultaneously addressing "cost optimization, product differentiation, supply chain resilience, and compliance risk control" can brands weather the market cycle. For the chewable coffee bean/tablet category, brands should avoid price wars, build competitive barriers through "health functions + scenario adaptability", and enhance omni-channel efficiency with digitalization.