The First Generation of Coffee Chain Franchises in China

In the late 1990s and early 2000s, if you walked into a mid-sized southern Chinese city and saw a coffee shop with soft lighting, sleek wooden interiors, and a mostly middle-aged clientele, chances are it was part of the first wave of domestic coffee franchises. These weren’t your modern third-wave cafes — they were something else entirely.

The first-generation coffee chain franchise in China is widely considered to be Shangdao Coffee, created by Mr. Chen Wenmin, which spawned numerous imitators with "Island" in their names. These brands concentrated in southern cities, offered a relaxed interior design, attracted an older customer base, and served coffee primarily brewed via Taiwanese-style siphon pots alongside Western-Chinese fusion meals.

The Rise of Shangdao and the ‘Island’ Franchise Trend

Shangdao Coffee, founded by entrepreneur Chen Wenmin, set the template for what became a wave of similar franchises. These businesses adopted similar branding — often using the word "island" in their names — and targeted urban areas mainly in southern China. Their interiors leaned toward a gentle, soothing aesthetic, and they catered largely to an older, often middle-aged demographic. The coffee menu focused heavily on siphon-brewed coffee in the Taiwanese style, paired with a mix of Chinese and Western dishes.

The Game-Changer: Starbucks’ Entry and Influence

In 1999, another major player entered the scene: Starbucks, imported to China by Beijing-based company Mei Da. Unlike the domestic franchises, Starbucks operated exclusively through company-owned stores, focusing initially on major urban centres. The brand brought with it a complete shift in both product offering and customer experience. It introduced stylish, modern interiors and popularised Italian-style espresso drinks through an Americanised service model. This approach strongly appealed to young professionals. Notably, Starbucks enforced strict quality control — such as discarding coffee grounds within two hours of grinding — and relied on high-end Italian equipment and expert barista techniques. Its arrival essentially reset consumer expectations for what a cup of coffee could be.

Veneto Town: A New Contender Prepares for Battle

Not long after Starbucks’ rise, another brand, Veneto Town , began preparing to enter the market. Rather than rushing in like many others, Veneto Town spent nearly two years — from its official registration on August 8, 2005, to launching its franchise program on July 8, 2007 — conducting in-depth market research. The brand collaborated with experts from Tsinghua and Peking universities, as well as professional business negotiators, to refine its concept. Its founders aimed to build a brand with approachable charm and strong reputation. They emphasised a brand identity that would grow on customers the more they experienced it. Despite the booming franchise market, Veneto Town remained selective about its partners, understanding that early franchisee selection has long-term implications for brand value. By 2007, consumer behaviour was already shifting: more customers were entering coffee shops with clear preferences, though many still couldn’t articulate exactly what they wanted beyond a better experience than the status quo.

Veneto Town’s Brand Philosophy and Market Research Insights

When Veneto Town finally launched its franchise initiative, it deliberately avoided overly ornate or gloomy designs, instead pursuing a clean, streamlined aesthetic that aligned with its brand identity. The brand committed to high-quality execution of non-Italian items like steak and pizza, and combined international management standards with Chinese operational insights. It also introduced a communication-focused service model, aiming to elevate customer, employee, and brand value as a unified strategy. Prior to launch, Veneto Town commissioned an eight-month market research project involving surveys with both franchise store operators and consumers aged 20–35. The results revealed critical insights:

Frequently Asked Questions

What was the first major coffee chain brand in China?

The first major domestic coffee chain brand was Shangdao Coffee, founded by Chen Wenmin. It established the template for a wave of similar "island" themed franchises that focused on southern Chinese cities, featured soft interiors, and served siphon-brewed coffee along with Chinese-Western fusion food.

Did Starbucks enter China as a franchise?

No, Starbucks entered China in 1999 through Beijing-based distributor Mei Da, and all its early stores were company-owned. It did not use a franchise model and focused on major cities, offering Italian-style espresso drinks with American-style service.

What made Starbucks different from early Chinese coffee chains?

Starbucks introduced a modern, fashionable interior, high-quality espresso drinks, and strict quality protocols — such as discarding coffee grounds within two hours of grinding. It used premium Italian equipment and trained baristas, creating a significant shift in customer expectations for coffee quality and service.

How did Veneto Town prepare to enter the competitive coffee market?

Veneto Town spent nearly two years from 2005 to 2007 researching the market and refining its brand. It avoided rushed expansion, focused on clean, approachable design, and emphasized high-quality food and coffee. The brand also developed a customer-centric service approach and carefully selected franchise partners based on long-term brand value potential.

What did customer surveys reveal about coffee shop preferences in early 2000s China?

Surveys showed that customers cared most about atmosphere and overall feel when choosing a coffee shop. Many felt most cafes served poor coffee and that most establishments looked and felt largely the same, with little distinction beyond branding.

What were common concerns among franchise owners of early coffee chains?

Many franchise owners admitted to limited personal coffee knowledge, relied on staff training, and expressed frustration with lack of franchisor support. Some said they would not choose the same brand again if opening a new shop.