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Yum China Brews Up Local Coffee Giant With K-Coffee, Lavazza

A latte to top off your two-piece original recipe set from KFC?

The combo may sound like odd lunchmates, but KFC China’s parent Yum China is trying to pull off such a “coffee play”. In fact, the company has quietly become one of the largest servers of fresh-ground coffee in China by selling its high quality but affordable brew at more than 9,000 KFCs, as well as another 85 Lavazza shops, throughout the country.

Yum China has approached the market from both ends of the coffee price spectrum. At one end, leveraging its huge network of KFCs throughout the country to target the more budget-conscious coffee crowd with its K-Coffee products, typically costing around 10 yuan per cup, or about $1.50. At the other end, the company’s joint venture with Italian giant Lavazza targets the more sophisticated coffee drinkers with drinks typically costing around 25 yuan, or about $3.5.

China is still a relative newcomer to coffee, traditionally preferring tea products that have also spawned a separate group of premium chains and brands. But coffee is quickly playing catch-up with consumers embracing a drink that is increasingly associated with the modern urban lifestyle.

The industry has grown nearly 40% annually over the last decade, and is expected to be worth 157.9 billion yuan ($23.2 billion) in sales in 2023. Even after such rapid growth, the average Chinese consumer was still drinking just 20 cups per year in 2020, compared with closer to 700 cups in more mature markets like the U.S. and Germany, showing plenty more room for growth.

Yum China first started serving up K-Coffee from its KFCs in 2015 as a “convenient and affordable” option, and has since rolled out to all of its nearly 9,100 stores nationwide by the end of 2022. In 2022, K-Coffee also launched its first “K-To-Go” window serving coffee-to-go, targeting the growing numbers of Chinese who have flocked to takeout.

Yum China is also targeting the relatively high-end coffee market with Lavazza, an Italian brand with over a century of history, through a joint venture established in 2020. That same year, the pair opened their first Lavazza coffee shop in China, incorporating the brand’s Italian style and authentic Italian coffee and food including KAFA (one of the finest coffees in the world, made from first coffee plants) and Tigelle (an Italian flatbread with meat or egg stuffing). Additionally, in the tradition of localization, one of Yum China’s biggest strengths, Lavazza has also added products favored by locals, like coconut and osmanthus lattes to its menu.

The Lavazza chain is also aiming to leverage its loyalty program, which crossed the 1 million-member mark last year and now accounts for 40% of its sales. Lavazza had 85 stores in China by the end of 2022, and aims to increase that number significantly to 1,000 using a mix of smaller stores in office buildings and communities, and larger ones in shopping malls.

Yum China has made great progress in the coffee segment in recent years, but more work still remains to capture the full potential of the coffee opportunity in China. However, Yum China clearly believes in the power of the coffee segment in China and the company’s scale and capabilities mean it is well positioned to cement its position as a coffee powerhouse in China in the years to come.

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