China insights report: Coffee opportunities in China
In recent years, consumption of coffee in China has been growing at double-digit rates, and shows very few signs of slowing. The presence of coffee shops is no longer a novelty, but rather an essential feature of the China urban landscape.
According to market research firm Euromonitor, the Chinese coffee market is predominantly composed of instant coffee. Indeed, instant coffee makes up around 99% of retail sales by volume and 98% by value, although fresh roasted coffee is growing at a faster rate. The most popular types of instant coffee are the 3-in-1 products which contain coffee, sugar and whitener, as well as potential flavourings. 3-in-1 instant coffee mixes, which include milk powder and sweetener, are extremely popular in China, with significant market share held by Nestlé under the Nescafe brand.
Starbucks, which has enjoyed remarkable success in China, has helped to both position coffee as a premium beverage in the market, and to drive demand for coffee in China’s supermarket retail sector (somewhat paradoxically, Starbucks China has also created a culture of coffee-drinking with friends, outside the home). A coffee at Starbucks China is marginally sweeter than a Starbucks coffee in the West, and the chain has also successfully adapted to the local market by offering a range of coffee-flavoured drinks, frappes, teas, juices and drinks customised to local tastes such as green tea latte.
Although tea is still the leading hot beverage consumed in China by a large margin, some industry experts believe that China will be the world’s largest market for coffee within ten years.
The potential for growth in the Chinese market is enormous, yet there is still a long way to go. Average coffee consumption in China is less than one cup per person per year, and consumption is still less than five cups per person per year in urban areas, compared to about 160 cups in Korea and Japan, and 250 cups in North America. Average annual per capita consumption is only around 20 cups in such large metropolitan areas as Beijing, Shanghai, and Guangzhou. Coffee sales are only approximately ¥4 billion. China’s coffee market therefore offers boundless potential.
Aside from the large multinationals and coffee chains such as Nescafe and Starbucks, manufacturers from Taiwan and Korea dominate the packaged iced coffee market. However, there are still opportunities for manufacturers who can differentiate their product through innovative flavours and/or packaging, such as Austrian brand Landessa (below).
- Nescafe • illy • Lavazza • Klassno • Davidoff • Tchibo • UCC
- Grandos • Segafredo • Legal • Folgers • Rock Café • Paca • Moccona • Colcafe Brands (iced) • Nescafe • Starbucks • Mr Brown • Baristar • illy • Bernachon • Georgia • Landessa
Selected product information
|Product||Retailer||Manufacturer||Origin||Serving Size||Price (Rmb)|
|Café Nori Intense (ground)||Lianhua Convenience Store||Legal||France||250g||52.50|
|Iced coffee latte||Walmart||Landessa||Austria||230ml||16.80|
|The Blend 118 (instant)||Ole||UCC||Taiwan||100g||93.50|
|Roasted coffee||April Gourmet||Tchibo||Germany||250g||55.50|
|Whole bean organic||City Shop||Aini Garden||China||500g||95.00|
Packaging and flavours
Instant 3-in-1 coffee mixes are packaged in boxes containing individual sachets. There is also a popular domestic instant coffee brand with optional flavours that comes in take-away cups.
Iced coffee is sold in cans, paper cups, bottles or small cartons.
Attractive or innovative packaging for ground coffee is not yet common, though some manufacturers – including domestic producers in Yunnan Province – are beginning to offer their coffee in premium packaging.
Chinese generally prefer comparatively mild, milky and sweet coffee rather than bitter, hence the popularity of instant coffees in China with sweeteners and additives, and the various coffee-flavoured beverages at large coffee chains such as Starbucks and Costa.
Beverage manufacturer Chi’s ‘dairy free’ coconut milk espresso is an example of product differentiation in iced coffee, while reduced sugar claims are another emerging trend in this category.
During the study period, multinationals such as Nescafe and Kopiko were offering coffee packaged in carry bags and gift boxed with complimentary coffee cups. One Indonesian coffee brand featuring re-sealable and premium tin packaging was being promoted at an international supermarket.
Trends and opportunities
As in the West, the coffee bean’s origin has become a key selling point in the Chinese market. Western coffee manufacturers such as Davidoff are using online platforms to discuss at great length the story behind the coffee, featuring images of coffee plantations, in-depth descriptions of the growing and production process, and step-by-step guides to producing the perfect cup of coffee. In traditional retail, there may be opportunities to target the young, comparatively wealthy ‘Starbucks crowd’ through attractive packaging that appeals to this group.
Coffee is the most consumed beverage in the world after water, the coffee trend will continue to grow among Chinese consumers as a lifestyle choice and a social gathering direction. Overall coffee market in China still relatively young.