Second Cup? China’s Coffee Industry Revisited

October 16, 2014

China Briefing

Coffee reportedly made its initial appearance in China when a French missionary planted beans throughout Yunnan Province in the 1890s. Over the next hundred years, the drink would go largely unnoticed, but as with many things in China, the market has undergone rapid change over the last 20 years.

This week Asia Briefing revisits its three-part series from 2013 detailing various facets of China’s coffee industry. Part one, introducing China’s coffee industry, can be found here; part two, dealing with the coffee trade in China, here; and part three, dealing with domestic production, here.

Coffee Market Still Growing Fast

China is now the world’s fastest growing coffee market with a growth rate of approximately 15 percent annually – about seven times the average global rate of just two percent in the last decade. In first-tier cities like Beijing, the rate is even higher at 18 percent.

Although the average Chinese person consumes just five cups of coffee annually, this can vary drastically by location. In a small town in Hainan Province, for example, jittery residents each drink as many as 200 cups a year. In 2012, Chinese consumers drank a total of 130,000 tons of beans worth of coffee. Research shows that there were 28,000 coffee shops in China by the end of 2013, of which 8400 were chain outlets.

Riding the Korean Wave

The arrival of Swiss company Nestlé in 1990 introduced the Middle Kingdom to a wide array of coffees from around the world. This was followed to great success by Western coffee pioneers Starbucks (in 1999) and Costa Coffee (2006), but these are no longer the only key players in China’s coffee market.

Recently, a slew of Korean coffee chains have been springing up in metropolitan areas like  Beijing and Shanghai, positioning themselves firmly at the forefront of the ongoing coffee revolution. According to Korean newspaper AJU Business Daily, to date, over 700 Korean coffee shops have been established in China with some 300 more expected by the end of 2014. Caffe Bene, which arrived in China in 2012, has already opened more than 400 chain outlets in just two years, a feat that took Starbucks the better part of 13 years.

These Korean brands have skilfully exploited the marketability of Korean popular culture, now very much in vogue in China. Mango six, for example, a new Korea-based coffee & dessert café that first appeared in a popular television drama, expanded into China in 2014. Targeting upper-middle class teenage girls, its huge success is owing to Chinese consumers’ greater emphasis on the experience and environment of a café rather than the quality of its coffee.  Zoo coffee, one of Starbucks’ biggest competitors, with its giant stuffed animals and zebra-pattered chairs is immensely popular amongst Chinese students and young children.

Having recognized that it is comparatively difficult to compete with their more established Western counterparts in China’s first-tier cities, the majority of these newly-introduced Korean coffee shops have instead opted to target second-tier cities.

Indie Culture: The Next Mainstream?

An ever increasing number of independent coffee shops and cafés have been emerging across the country. Many have their own unique theme, be it cats, old movies or French maids. As young Chinese start to develop their own distinct coffee culture, these indie cafés are growing in popularity. Type the word “unique” into Baidu (China’s biggest search engine), and “most unique cafés” pops up as the fourth most popular search item, out of over 2,730,000 relevant search results.

Indonesian Instant: A Dark Horse

China’s instant coffee market has traditionally been dominated almost entirely by Western brands such as Nestlé and Maxwell House. But recently the industry has been shaken by the rapid and surprising success of Indonesian brand Kopiko. Arriving in China in 2012, the dark horse of the Chinese instant coffee market has in just two years become one of the country’s top three sellers of the powdered beverage. Chinese consumers, many not yet accustomed to the bitter flavor of brewed coffee, are attracted by Kopiko’s sachets that include powdered chocolate as well as the more usual powdered milk and sugar. In fact, as shown below, Indonesia is fast becoming a major exporter of coffee to China.

Imports

Chinese imports of coffee have been growing steadily since our last report. Vietnam remains the largest exporter of coffee to China, but the trend is changing. Over the first five months of 2013, China’s coffee imports from Vietnam dropped by 13.7 percent to US$23.2 million. Conversely, imports from Indonesia reached US$7.2 million at an incredible growth rate of 553.5 percent.

In 2013, imports from Korea stood at almost US$10 million, and have increased by 80 percent during the first half of this year. Meanwhile, Laos, Thailand and Malaysia stand out as emerging coffee import markets for China.

- See more at: http://www.china-briefing.com/news/2014/10/16/still-brewing-chinas-coffee-industry-revisited.html#sthash.KKHHOPDG.dpuf

Tags: brewing, china, coffee, industry, investmen
Posted in Asia, Commodities, Consulting, Commodities