(Yicai Global) June 28 -- Pacific Coffee, once the second-largest coffee chain in China after Starbucks, is shrinking its network amid intensifying rivalry with increasingly agile competitors such as Luckin Coffee and Tim Hortons.

Pacific Coffee only has 319 stores on the mainland after closing over 100 outlets in the past three years while 42 stores are suspended, according to data from Canyandata.Com, a catering industry data platform.

Established in Hong Kong in 1992, Pacific Coffee entered the mainland in 2011. In 2015, Pacific Coffee surpassed Costa in the number of outlets to become the second-biggest coffee chain in China after Starbucks. However, since 2019, the trailblazer has been slowing its pace of new openings as only six new locations were added this year after a tally of 44 in 2020. A quarter of its stores are located in shopping malls and the products are priced around CNY30 (USD4.20) per beverage.

The market is getting crowded. Luckin Coffee, which runs over 10,000 stores, is currently China's biggest coffee chain based on its network, according to Canyandata.Com. The No. 2 is Starbucks with its more than 7,000 stores. The American company intends to have 9,000 stores in the market by 2025 and raise its number of employees from 60,000 to over 90,000. Meanwhile, Tim Hortons, owned by Restaurant Brands International, is expanding its footprint in smaller cities.

From January to April, some 18,000 new coffee companies were formed in China, more than doubling from a year ago, according to Qichacha. In February, the number of newcomers even almost tripled.

The biggest problem with Pacific Coffee is that its brand is not big enough to justify its prices, as there are many options for CNY30 coffee, including Starbucks, Zhu Danpeng, a Chinese food industry analyst, said to Yicai Global. Pacific Coffee's strategy of focusing on "business people" lacks diversity and has low competitiveness, Zhu added.

Zhu reckons it is too difficult for Pacific Coffee to upgrade and renovate its over 300 stores simultaneously, so the only feasible reform method now is cutting prices.

Editor: Emmi Laine