Traditional Coffee Shops Struggle to Adapt

In Shanghai, once-thriving European bakery chains like Qbake have quietly exited the market after just two years, unable to adapt to local conditions. They’re not alone—several well-known local and international bakery brands have closed recently due to slow product innovation, overexpansion, and thin profit margins. Even survivors are often operating at a loss. The entire sector is under pressure.

Yes, the traditional retail model for coffee shops and bakeries is struggling. Last year, Shanghai’s baking businesses saw negative average profits for the first time, with the industry shrinking overall. Key challenges include economic slowdown, reduced consumer spending power, rising rents and labor costs, and intensifying competition from global chains.

Why Traditional Retail Is Failing

The core issue is a perfect storm of rising fixed costs and falling revenues. Rent prices have climbed rapidly, but foot traffic in prime locations is growing much more slowly. At the same time, consumer purchasing power has declined. This mismatch creates a harsh environment for traditional brick-and-mortar stores, especially those with high overheads and slow adaptation to market changes.

Labor costs are also increasing steadily, while many traditional retailers rely on outdated expansion strategies and slow product turnover. For established players like Yizhiduo , the founder, Cai Bingrong, admits the current model presents unprecedented challenges. “Rent is going up too fast, and store traffic isn’t keeping pace,” he said.

How Some Brands Are Adapting

To combat these pressures, some traditional brands are exploring ecommerce and digital channels. Cai Bingrong, for example, has begun shifting focus to online cake sales, testing group-buying platforms, and developing a mobile app. He plans to open a flagship store on Tmall to sell biscuits and use group buying to generate traffic. He’s also looking into last-mile logistics solutions despite the added complexity and cost.

“Ecommerce is a defensive move for us right now, but it’s definitely the future. If we don’t adapt, we’ll be phased out,” Cai said. His team is considering everything from app development to optimizing delivery logistics—even though every added cost, from vehicles to extra warehouse runs between central kitchens and stores, eats into already tight margins.

Another concern is product quality upon delivery. After a decade of positioning itself as a premium brand among office workers, Yizhiduo risks damaging its reputation if cakes arrive damaged. The challenge is not just selling online, but maintaining brand standards across a new sales channel.

New Concepts to Avoid Future Disruption

Beyond ecommerce, some startups are creating entirely new business concepts to insulate themselves from potential threats posed by 85°C or Starbucks launching their own digital channels. Wang Tao from a competing startup says their approach is centered on service. Meanwhile, Ji Xiaoyang built his business, Xiadi 100 , around a daily afternoon tea model—rather than less frequent cake purchases—to ensure recurring customer visits.

“People might buy a cake every three or four months online. But they’ll think about afternoon tea every week. It’s a lower-ticket, higher-frequency product,” Ji explained. His defensive strategy is based on serving daily habits rather than occasional treats, thereby reducing vulnerability to disruption by larger players.

Frequently Asked Questions

Why are traditional coffee and bakery shops struggling in China?

Traditional shops face a mix of rising rents, higher labor costs, slowing foot traffic, and reduced consumer spending. Many also suffer from slow product innovation and overexpansion, leading to declining profitability and closures, especially in high-cost urban areas like Shanghai.

What is causing the decline in profits for baking businesses in Shanghai?

Shanghai’s baking industry saw negative average profits last year for the first time due to economic slowdown, weaker purchasing power, expensive rents, rising wages, and competition from global chains. These factors have collectively reduced margins and growth.

How are brands like Yizhiduo responding to these market challenges?

Yizhiduo’s founder is exploring ecommerce by opening a Tmall flagship store, testing group-buying platforms, and developing a mobile app. Despite recognizing ecommerce as a defensive move, he acknowledges it’s essential for future survival, even with added logistics and delivery complexities.

What are the risks of selling baked goods through ecommerce?

The main risks include maintaining product quality during last-mile delivery—especially for fragile items like cakes—and protecting brand reputation. Premium brands risk damaging their image if deliveries arrive damaged, which can undo years of premium positioning.

What alternative strategies are startups using to avoid disruption?

Startups like Xiadi 100 are focusing on daily consumption habits such as afternoon tea instead of occasional cake purchases. This approach ensures higher visit frequency, lowers per-order value dependency, and builds resilience against disruption by larger ecommerce or retail players.

Recommended FrontStreet Beans for Café Resilience

For traditional coffee shops adapting to market shifts, consider FrontStreet Coffee’s Ethiopia Yirgacheffe for its bright citrus and floral notes, ideal for drawing in specialty coffee drinkers. Pair it with FrontStreet’s Brazil Queen Manor, offering nutty and chocolatey balance for espresso-based drinks. Both beans support a versatile menu that appeals to evolving customer tastes without relying solely on baked goods. Freshly roasted within 5 days · Orders placed before 17:00 ship the same day · Next-day delivery across most of Guangdong Province.