The rise of Manner Coffee

Business & Technology

In Shanghai, coffee has become an addiction. Can Manner Coffee expand to become China’s first major Starbucks rival?

Manner Coffee, Shanghai
Illustration for SupChina by Alex Santafe

On a chilly autumn day last month, Shanghai’s urban professionals descended from their high-rise offices for an afternoon pick-me-up. Instead of Starbucks, they lined up outside the slick new storefront of Manner Coffee, a cheaper Chinese alternative of exceptional quality. As dawn approached, Manner’s white LED-logos shone like specks of luminescent dust among the leafy streets of the French Concession.

Manner has had a watershed year. From June to October, it built around 150 new stores, most of them in Shanghai — more than one a day. With stores now totaling over 300, it is planning an initial public offering in Hong Kong to raise as much as $300 million to continue its expansion, according to Bloomberg.

The bricklaying bash began in February after an undisclosed cash injection from Temasek, a wealth fund tied to the Singapore government. A few months later, Manner drew several hundred million dollars from Meituan’s venture arm. In June, ByteDance joined the party, pushing Manner to an approximate valuation of $4.5 billion, according to Chinese sources.

In the big cities of Beijing and Shanghai, a robust coffee-drinking culture has swept up urban Chinese whose rituals around work — slumberless and productivity-obsessed — will be familiar to their Western counterparts. In March, Shanghai was declared the city with the most coffee shops in the world, according to a Shanghai research firm. At nearly 7,000 cafes, the megacity towers over its rivals Tokyo (3,826), London (3,233), and New York (1,591). Yet the market still has room to grow. According to the Qianzhan Industry Research Institute, China’s coffee market is set to surpass 300 billion yuan ($46 billion) by 2023, a 30% increase from 2020.

Amid the coffee frenzy comes Manner, a local Chinese brand hoping to stay afloat in an ocean of foreign megastars like Starbucks, McDonalds, and Tim Hortons. After the financial implosion of Luckin Coffee, Manner is betting that the future of China is coffee, and the future of coffee is Chinese.

From casual cup to daily fix

Manner Coffee began in 2015 as a single roadside stall with lines that spilled directly onto a crowded Shanghai street. “We didn’t suddenly become ‘hot’ like everyone thinks,” said founder Hán Yùlóng 韩玉龙, a former veterinarian and coffee connoisseur, in an interview for a coffee blog. “All our stores grew organically.” After its first investment from Today Capital in October 2018, only five new stores were added that year.

Manner set itself apart by honing in on a younger crowd. It became known for its creamy flat whites, a chic store design, and prices 30% to 40% lower than Western chains. It was also eco-friendly: Customers who brought their own cup could get a coffee for just 10 yuan ($1.50). “I wanted to find a way to get average Chinese consumers to accept coffee,” Han has said. “Coffee is considered a high-end beverage [in China], a notch above Coke, which is just unreasonable.”

In 2019, Manner began its national expansion after a $12 million Series A investment from Today Capital. It added stores in five cities: Suzhou, Beijing, Chengdu, Xiamen, and Shenzhen. According to Chinese media reports, all the stores in Shanghai are profitable. “In Shanghai, Manner can sell 400 cups per store per day, whereas in other cities it would be closer to 100,” an investor at Beijing-based Puman Asia Capital told SupChina.

Manner has no doubt benefited from Shanghai’s intense work culture, one that has turned coffee from a beverage-among-many to a necessity. “Manner is the first mover in meeting the rising demand amongst urban Chinese professionals for grab-and-go coffee,” said Michael Chu, CEO and co-founder of L Catterton, a private equity firm specializing in consumer products. With small, densely-located units near busy business centers, it has made the most out of people’s transition from having a casual cup to needing their daily fix.

Luckin blazes the trail

In China, consumer brands follow the same logic as Chinese real estate in its heyday: just keep building. “Why do you think of Starbucks when you drink coffee? It’s because you see it everywhere,” said Kathy Xu, managing partner of Today Capital, the first investor in Manner. “So opening stores is the solution.” Enter Luckin Coffee, the first successful Chinese coffee chain. Two years after its founding in 2017, Luckin had opened more than 4,500 stores in 53 cities. In 2019, it began trading on the Nasdaq with the express goal of overtaking Starbucks as the most ubiquitous coffee outfit in China.

Luckin took off with a scrappy, cash-intensive ground game: its sales came mostly from takeaway stalls, fulfilling pick-up orders via mobile app. In its early months, it gave out free coffee to new registrants, and marketed its discounts aggressively through text messaging campaigns. By the end of 2019, Luckin claimed it was serving 40 million customers, twice the population of Beijing. Then, like Icarus, it flew too close to the sun. In the fall of 2020, in an unprecedented accounting scandal, the company admitted to fabricating over $300 million in earnings. The company was quickly delisted from U.S. markets.

Although Manner’s building spree this year has some similarities to Luckin, the former has differentiated itself from its growth-at-all-costs predecessor. For one, it began as a boutique cafe, while Luckin began as a venture capitalist’s pet project with a blueprint for national domination. Even as it expands, Manner has tried not to compromise on standards: it does not use fully automatic coffee machines, nor does it provide delivery services, citing the impact of time and temperature on quality. All of its baristas go through several months of training before starting the job, which is uncommon in China.

But Manner owes much to its predecessor for having blazed a trail for Chinese coffee chains. “Luckin proved that there is demand [in China] for this historically Western product,” said Chu. Luckin’s continued presence in Chinese cities — it is the second most popular chain in Shanghai, behind Starbucks — continues to bolster demand. Its recent revenue gains after the fraud scandal suggests that more and more Chinese are still learning to love — or need — coffee, perhaps more so than milk tea. “Before the pandemic, many of the stores nearby were milk tea shops, but they all closed down,” a Manner barista told SupChina. “Coffee is different, people think it’s healthy.”

An authentic Chinese brand, sort of

Manner, along with the down-but-not-out Luckin, heads a wave of new Chinese brands ready to make their mark on the coffee scene this year. They include Seesaw Coffee, Algebraist, and M Stand. Seesaw, founded in 2012, plans to reach a total of 100 stores by the end of the year after a 100 million yuan investment in July, which included funding from the milk tea brand HEYTEA. Algebraist also received an investment in April and plans to expand to 100 stores by 2021.

The coffee hype among investors this year comes amid a shift in the political winds. After a major crackdown on technology companies, part of Xi Jinping’s Common Prosperity agenda, and the emphasis on a new development model, one that favors domestic consumption in the “real economy” (the flow of goods and services) over financial goods, home-grown consumer brands may be the future.

Ironically, Manner does not have a Chinese name. According to Han, Manner comes from the old English maxim “Manners Maketh Man,” a quote he heard in the movie Kingsman. “We want coffee to become a habit,” he said, “and we hope habits will be elevated to a kind of refined custom.”

An Austrian confectionery conglomerate, also named Manner, has registered the Manner logo under a category that includes coffee in China. According to China’s trademark office database, Han’s company has been rejected several times attempting to register the same name. (Manner Coffee currently operates under the domain name “wearemanner.com” because manner.com is taken by the Austrian Manner.) A lawyer, who asked not to be named, confirmed to SupChina that Manner is treading on questionable legal ground. (Representatives of Manner Coffee did not respond to a request for comment.)

Despite the name, Han is determined, like many of China’s young entrepreneurs, to build a Chinese brand that can go toe-to-toe with international behemoths. As an example, Manner still relies heavily on Yunnan coffee beans, a province that accounts for almost 90% of China’s coffee output. “Some Chinese industries may truly be inferior to foreign countries, but, in Beijing and Shanghai, the coffee made from our Chinese roasters and baristas aren’t inferior at all, and the raw materials and equipment are also world-class,” Han said. “China can definitely make a national coffee brand, and we want the public to see this, too.

“This is what Manner wants to do.”