How Costa Lost China’s Coffee Chain Race to Starbucks and Pacific Coffee

Walk down any major street in a Chinese first-tier city and you’ll often spot two Starbucks outlets flanking a single Costa. This isn’t a coincidence—it’s become symbolic of Costa’s shrinking footprint in China’s booming coffee chain market.

As of 2024, Starbucks remains China’s biggest coffee chain by far, while Costa has slipped behind not only Starbucks but also Pacific Coffee, which now operates more stores nationwide and has overtaken Costa to claim the number two spot.

The Rise and Stagnation of Costa in China

Costa, the UK-based coffee chain, entered China alongside Starbucks as a key rival, each representing their home country’s coffee culture—British-style versus American-style. For years, the two were seen as roughly equal competitors, much like Coke and Pepsi or McDonald’s and KFC.

But over time, Costa’s position weakened. One infamous example involved a customer ordering a "matcha latte" at Costa, only to be told the drink was called "green tea latte" on the menu. It took nearly a year for Costa to update the menu wording to "matcha." Such missteps damaged consumer trust and brand clarity.

The Flat White Battle: Brand Posturing Without Clarity

When Starbucks launched its Flat White under the name "," Costa quickly followed with its own version, dubbed "." In marketing materials, Costa even claimed it served the "real" Flat White, criticizing Starbucks for not using traditional latte art. Despite the publicity push, consumer surveys showed most people preferred Starbucks’ version.

Industry analyst Li Yun pointed out that Costa has long struggled with a fuzzy identity. "Starbucks knows exactly what it is: fast, reliable, middle-tier coffee. Costa, meanwhile, wanted to be seen as premium without fully committing to either the mass or speciality market,” he told the International Finance News.

Over time, Starbucks de-emphasized its American roots to become a lifestyle brand. Costa, by contrast, remained just “coffee”—without a clear emotional or cultural hook.

Pacific Coffee’s Quiet Ascent

While Costa was busy rebranding and arguing over Flat White definitions, another player quietly moved ahead. Pacific Coffee, originally founded in Hong Kong in 1992 by American expats Tom and Nancy Neir, was acquired by China Resources in 2010 and expanded into mainland China in 2011.

According to Costa’s parent company Whitbread, as of May 2024, Costa has 344 stores in China. Pacific Coffee, meanwhile, operates 458 locations—significantly more. Just a year ago, Pacific was still ranked third behind Starbucks and Costa. Now, it has surpassed Costa entirely.

Pacific Coffee carved out a niche by targeting professionals and cultivating an understated, refined brand image. It built loyalty through curated events such as theatre meetups and live music salons, and invested heavily in membership engagement. Its strategy attracted a dedicated customer base aligned with its quiet, business-friendly vibe.

Why Brand Positioning Matters in China’s Coffee Wars

“Coffee shops aren’t just selling drinks—they’re selling identity,” said analyst Li Yun. “Pacific Coffee understood this. It found its audience and served them consistently. Costa, by contrast, tried to be upscale without clarity, and it paid the price.”

Costa has recently acknowledged the need to redefine its value proposition—measuring success by whether customers want to photograph and share their experience. But the damage to its brand perception may take years to undo.

Frequently Asked Questions

Which coffee chain is the largest in China?

As of 2024, Starbucks is the largest coffee chain in China by store count and market presence. It has established itself as the default choice for many urban consumers seeking a familiar, fast, and mid-tier coffee experience.

What is the current ranking of coffee chains in China?

The current ranking is: 1) Starbucks, 2) Pacific Coffee, and 3) Costa Coffee. Costa has fallen behind Pacific Coffee in store numbers, with Pacific operating 458 stores compared to Costa’s 344 in China.

Why did Costa lose to Starbucks in China?

Costa lost ground due to an unclear brand identity. While Starbucks positioned itself clearly as a fast, accessible coffee option, Costa struggled to define whether it was premium, mass-market, or something else, leading to weaker consumer recognition and loyalty.

What is Flat White and why did it cause controversy?

Flat White is a coffee drink made with espresso and microfoam. When Starbucks launched it as "," Costa quickly released its own version called "" and claimed theirs was the authentic one. This sparked a public back-and-forth, though most consumers still prefer Starbucks’ version.

How did Pacific Coffee overtake Costa in China?

Pacific Coffee grew its store count to 458, surpassing Costa’s 344. It built a loyal customer base by focusing on a professional audience, hosting cultural events, and strengthening its membership program, while Costa struggled with brand confusion.

What was Costa’s big menu mistake in China?

Early on, Costa listed a matcha-flavored drink as "green tea latte" on the menu, causing confusion when customers asked for "matcha latte." It took nearly a year for the menu to be updated to reflect the correct ingredient name, damaging consumer trust.

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