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May 4, 2017

The Chinese Coffee Market

The state of the Chinese Coffee and Cafe Market

By David Parnham

This year will be our third exciting survey, with results seeing significant trends appearing in the expanding local Chinese coffee and cafe marketplace. The Third Annual China Coffee Market Report is now available, with over 65 Questions in the survey. This year we can see many benchmarks for leading cafe businesses and the development of the Chinese coffee industry.

For us to best understand the expanding Chinese coffee market and its potential future, we must firstly understand its recent colourful coffee history; only then can we best appreciate the vast opportunity that the western style café can offer the Chinese coffee market.

A Chinese person drinks on average a mere three to five cups of coffee a year. Interestingly however, in a small town in south China’s Hainan province, this rises significantly to two hundred cups a year.

The statistics above, which are comparable to the world’s average of 240+ cups a year, has impressed international coffee dealers and franchised coffee/café brands who are seeking to take a share of the expanding local café market.

“I do not believe China will become the world’s largest coffee consumption market in the next couple of decades – only when the coffee industry changes its mindset on high retail coffee price per cup and its ‘coffee only available here’ approach. However, the fact is that there are more middle-income families, teenagers and the business community now in China. Because of this, there is more coffee being consumed overall,” Christina Wang, Editor for Café Culture Magazine said in October 2015.

Let’s understand what is possible in China, as we head towards 2020. In Fushan, a small town in Chengmai county of Hainan, local farmers started growing coffee in the early 1930s, nurturing a strong coffee culture. Nearly 100 companies from different countries have opened outlets to promote their brands in this subtropical town.

2014 data from the China Coffee Association Beijing (CCAB) showed that coffee consumption growth in the country is increasing at an annual rate of 15% p.a. It is important to note, however, that this 15% is about seven times more than the average world growth rate.

According to the CCAB, the figure may continue to expand at a pace of 15-20% annually, while in 2016 the average China Café Market grew a steady +15%, versus 2015 – thus making China the most attractive coffee consumption market growth opportunity by 2020.

INVEST IN YOUR OWN CAFÉ BUSINESS VIA CONSUMER COFFEE EDUCATION
We urge the Chinese coffee/café industry (and all other countries for that matter) to develop the market via education and sharing coffee knowledge.

Here are just three successful examples from leading elite cafés to consider:
1st – When a customer enters your café and orders an Americano/long black, you could try upselling to a more specialised black coffee brew method such as pour over filter, syphon or Aero Press. This action can then lead to educate your consumer through coffee knowledge, with the use of experienced café barista staff.

2nd – Practice, practice, PRACTICE latte art designs and offer these to your white coffee consumers. Remember, 80+% of all good latte art served in cafés is shared by Millennials and Gen-Y people on social media, which leads to promoting your business and potentially more customers.

3rd – Why not think of your own unique coffee brew bar and espresso based beverage menus. Include “guest roast” coffees from successful international coffee brands and/or local roasters.

ROASTED BEANS OR TEA LEAVES?

Despite the fast expansion, it is unlikely that coffee will soon replace tea as the number one drink of choice in China. Foreign coffee brands were first introduced to China during the 1980s, and brands such as Nestle and Maxwell House have played a significant role in creating a retail lead in the country’s coffee culture.

Retail supermarkets and cafés are popular in first-tier cities like GuangZhou, Wuhan, Shanghai, Beijing and Chengdu, as well as some southern coffee growing provinces, including Yunnan, Hainan and Fujian. However, for most other regions, coffee is still an expensive “Western import”.
Even in GuangZhou, Beijing and Shanghai, the coffee consumption level remains stubbornly lower than 30 cups per capita; thus, all adding to the fact that the country’s coffee culture is not sufficiently mature.

It is true to say that the Chinese thirst for Western Pop/Gen-Y culture is leading many of China’s younger generation, with their growing purchasing power, whom are now willing to pay more for new experiences.

To them, the likes of visiting a Costa Coffee represents a luxury social status and fashionable experience. Many of them are attracted by this brand and as a place to meet, rather than the coffee or beverage offer itself. They can tell what kind of tea is good, but they can’t do so with coffee, compared to the nation’s popular instant coffee habits.

When it comes to the trends of “Specialty Coffee” and the fourth wave coffee culture, this remains a huge potential for consumption and shows that the coffee drinking culture with the Chinese has not yet reached its peak.

RISE OF FOREIGN COFFEE BRANDS
China’s coffee market has been dominated by foreign franchised chain brands. The likes of Starbucks, Costa, McCafé and MAAN Coffee, just to name a few, have grabbed the major share of the fresh ground coffee market, while Nestle, Nescafe and Maxwell House have taken over the retail supermarket and convenience store instant coffee market.

Return to the local town in Fushan: old and young, residents like to spend time in coffee shops. They may not know Costa, but they can name every local brand. It’s important to note that coffee mainly grows in the provinces of Yunnan, Hainan and Sichuan.

Coffee grown in Yunnan accounts for more than 80+% of China’s total production. However, over half of the output has been exported as crude mixing coffee blend material. The country boasts a few domestic coffee brands, mainly small enterprises or crude material producers, although only few of them can compete with foreign brands.

Sophisticated coffee-planting and coffee-making techniques, the lack of professional experience, and the absence of proper industry standards are major challenges for Chinese coffee companies.

What it is vitally important for the country’s homegrown coffee brands and café culture is for China’s café industry to focus on combining foreign coffee culture with local features, to nurture people’s future consumption habits.

For more details on purchasing the 3rd Annual China Café market Report, please contact davidp@cafeculture.com.cn or WeChat (ID: CCMDAVIDP).





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