People chill at a Peet's Coffee store in Chengdu, Sichuan province, in July.

US-based coffee chain Peet's Coffee has rapidly expanded in China, increasing store count to more than 200 within a year and entering eight new cities, including Chengdu in Sichuan province and Chongqing.

In a market characterized by deepening segmentation, Peet's, known for its emphasis on quality roasts and craft coffee, is targeting high-frequency coffee drinkers.

In 2023, the company introduced more than 150 coffee products, including cheese-topped coffee on social platforms. It also collaborated with art studios and high-end outdoor brands to weave itself into urban life.

Like Peet's, the branded coffee market has revolved around expansion and innovation.

China in 2023 overtook the United States as the largest branded coffee shop market in the world by outlets, according to an industry survey.

Over the past 12 months, China's coffee shop market has grown by 58 percent, reaching 49,691 outlets, Allegra World Coffee Portal, a global coffee market research provider, said in an analysis of the East Asian branded coffee shop market released on Dec 12.

The surge was led by a rapid expansion of the small-store format and delivery-focused brands such as Luckin Coffee and Cotti Coffee, which added 5,059 and 6,004 net new stores, respectively.

Starbucks opened 785 outlets in China during the period and is the second-largest branded coffee operator in the country by outlets.

China is the fastest-growing market in the region ahead of Malaysia (28 percent) and the Philippines (15.3 percent).

The Allegra World Coffee Portal forecasts China's booming outlet growth will slow to 24 percent in 2024 and 6 percent in 2028.

The Chinese are drinking more coffee. Indicating the role of coffee shops in driving consumption, 89 percent of the coffee drinkers surveyed visit or order from a coffee shop at least once a week, with a fifth of those doing so daily.

More than 90 percent of 4,000 Chinese coffee shop consumers that were surveyed drink hot coffee weekly, while 64 percent consume iced coffee at least once a week.

Commenting on the report findings, Allegra Group founder and CEO Jeffrey Young said: "The East Asian coffee shop market is experiencing rapid growth led by phenomenal outlet expansion in China, which has fast become a global coffee industry powerhouse."

Small-format stores focused on convenience are widespread in the Chinese branded coffee shop market, according to the report.

More than 85 percent of those surveyed preordered or ordered for delivery from a coffee shop during the period, with 57 percent preferring beverage delivery over visiting a coffee shop.

Domestic coffee shop operators have also expanded overseas to fuel their growth.

According to the report, domestic operators are increasingly seeking international opportunities.

Cotti Coffee has entered South Korea, Indonesia and Japan since opening its first store in China in 2022, while Luckin Coffee opened its first international store in 2023.

According to Kamen, a media portal for the coffee sector in China, the number of coffee shops climbed 15.9 percent in urban areas in 2023 compared to the year before, with Shanghai leading with nearly 8,500 cafes.

Hangzhou, Zhejiang province, witnessed the highest number of new stores, followed by Guangzhou, Guangdong province; Beijing; Chengdu in Sichuan province and Shenzhen, Guangdong province, with each city home to more than 4,000 coffee shops.

Among the top eight on-premise coffee brands, newly opened shops constitute nearly 20 percent of total operations.

Lower-tier cities, including Dongguan, Guangdong province; Shenyang of Liaoning province and Changsha of Hunan province grew more than 30 percent in 2023 in terms of store numbers compared with the previous year.

The report showed that Manner, M Stand and Tims continued to reach lower-tier cities, capitalizing on the curiosity of the new generation and the potential for increased profits in these markets, said Tang Di, partner at Kamen.

On coffee categories, lattes dominate, followed by flat whites and cold brews, with an emphasis on creative coffee drinks.

Regular additional ingredients include milk, coconut, cream milk and oat milk, reflecting the diversity and evolving preferences in China's burgeoning coffee culture, according to Kamen's report.

In the holiday season, competitors such as Luckin Coffee, Tims and Seesaw have unveiled winter delights — coffee with hot red wine flavor.

Luckin upgraded its cheese latte in 2023, selling 16.24 million cups in its launch week.

Manner Coffee introduced light cheese lattes and tiramisu lattes. M Stand innovated with sesame paste-flavored coffee.