How Shangdao Coffee Collapsed as Foreign Brands Took Over China

In Chengdu, once a bustling hub for domestic coffee chain Shangdao, finding one of their cafes today is far harder than spotting a Starbucks. What happened to the once-popular brand? As international coffee giants expanded, Shangdao faded from China’s urban landscape—especially in Chengdu, where half its locations shut down.

Shangdao Coffee had over 20 stores in Chengdu at its peak. Now, only 10 remain—four inside the Third Ring Road and six outside. Two more are set to reopen soon, bringing the total to 12. That’s a 50% reduction in less than a decade.

What Went Wrong with Shangdao Coffee in Chengdu?

Founded as a premium domestic coffee brand, Shangdao was once a trendy spot to enjoy a cup of coffee. But in Chengdu, several stores—like the one on Renmin South Road—closed due to infrastructure changes, such as subway construction, while others failed to attract customers without amenities like chess and card rooms that were standard in earlier locations. Misreading local tastes also played a role.

"We didn’t fully understand the Chengdu market back then," said Wu Yuhao, Shangdao’s Chengdu regional expansion manager. "We didn’t install chess and card rooms, and locals weren’t as receptive to Western-style coffee at the time."

Why Did So Many Shangdao Franchises Close Nationwide?

Nationwide, the decline has been equally stark. In Tianjin, for example, Shangdao peaked at 70 stores in 2010 but now operates fewer than 45. The root causes include a fragmented franchise model, inconsistent management, and weak central oversight. Some stores had multiple rotating shareholders managing different quarters, leading to disjointed operations. Headquarters exercised little control over franchisees, resulting in financial mismanagement and customer disputes—especially around unauthorized stored-value cards, which in several cities led to franchise owners vanishing and customers losing their money.

"Each franchise is an independent legal entity. We can’t micromanage every financial aspect," Wu admitted.

The Role of High Rents and Large Store Formats

Renting commercial space in cities like Chengdu also crippled Shangdao’s viability. The brand’s standard store size—600 to 1,000 square meters, often double or triple the footprint of a typical Starbucks—made it extremely rent-sensitive. In prime areas like Chengdu’s Third Ring Road, rents became unsustainable. For instance, high-profile retail spaces like those in Raffles Mall once charged RMB 300–400 per square meter monthly. Current Shangdao outlets inside the ring road pay around RMB 150–160 per square meter, but even that is a stretch.

"Shangdao stores need large spaces, and that drives up costs dramatically," Wu noted. "Our old 800-square-meter Shanghai store had an annual rent of around RMB 1 million." To cope, the brand has begun reducing store sizes in first- and second-tier cities, but many franchisees still couldn’t hold on.

How Foreign Coffee Chains Took Over

As Shangdao retreated, global coffee brands surged forward. Starbucks now operates over 1,000 stores across 60+ Chinese cities and aims to hit 1,500 by 2015—calling China its 'second home market.' Costa Coffee, which entered China 10 years after Shangdao, grew even faster, adding 2–3 new locations per week and surpassing Shangdao to become the country’s second-largest chain. By 2015, Costa planned to open 350 stores in key cities including Beijing, Shanghai, Shenzhen, and Shijiazhuang. Korean brands like Caffebene also rode the Hallyu wave to gain a foothold.

These brands offered consistency, recognizable branding, and aggressive expansion—leaving Shangdao unable to compete on scale, image, or real estate efficiency.

Frequently Asked Questions

How many Shangdao Coffee stores are left in Chengdu?

As of the latest update, there are 10 Shangdao Coffee stores operating in Chengdu, with two more scheduled to reopen soon, bringing the total to 12. At its peak, the brand had over 20 locations in the city.

Why did Shangdao Coffee fail in China?

Shangdao Coffee struggled due to a weak franchise model, inconsistent management, high rental costs, and failure to adapt to local markets. Many franchises were poorly managed or had multiple rotating stakeholders, leading to operational chaos. Unauthorized stored-value cards and franchisee financial mismanagement also damaged consumer trust.

What caused Shangdao’s store closures in Chengdu?

Closures resulted from a mix of factors: high rents in prime locations, poor understanding of local coffee preferences (such as omitting popular features like chess/card rooms), subway construction disrupting foot traffic, and competition from better-funded international brands.

How did Starbucks and Costa outpace Shangdao in China?

Starbucks and Costa executed aggressive, well-funded expansion plans with strong brand identity, consistent product quality, and streamlined operations. Starbucks targeted 1,500 stores by 2015, while Costa grew rapidly by opening 2–3 new cafes per week, capitalizing on Shangdao’s weaknesses in real estate, marketing, and franchise control.

Are any Shangdao Coffee locations still profitable?

Yes, some Shangdao stores—particularly those outside major city centers and in less expensive areas—remain operational and profitable. The company believes there is potential in shifting focus to smaller cities and refining its business model.

Recommended FrontStreet Coffees for Nostalgic Cafe Brews

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