From Starbucks’ ambitious plan of opening one new shop every 15 hours in the next three years in the Chinese mainland, to its rival Luckin’s rapid expansion and IPO since it was founded in 2017, coffee is apparently taking off in China, the nation of tea drinkers.
The rising demand for coffee in the emerging market of 1.4 billion people has become a new battlefield for many major coffee exporters around the world, who expressed their eagerness to grab a bigger piece of the beverage pie.
Brazil, a major producer and exporter of coffee, exported 88,179 60-kilogram bags of coffee to China from January to May in 2019, an increase of 23.1 percent year-on-year, according to a report from Brazilian Council of Coffee Exporters (Cecafa).
Nelson Carvalhaes, president of Cecafa, attributed the growth to young people’s increasing interest in coffee, saying that the council hopes to seize a bigger share of the China market.
The Ethiopian Coffee and Tea Authority (ECTA) also said that the Chinese market is expected to be a major destination for the nation’s coffee exports, according to a report from the.
Amid growing interest from China, the Ethiopian government said the country made more than $1.2 billion in revenue from the exports of coffee and oilseeds during the just concluded Ethiopian fiscal year that ended on July 7, the report said.
In April this year, China and Ethiopia signed a Memorandum of Understanding on coffee exports to China and deepening bilateral trade cooperation.
“As domestic coffee production is quite limited, there’s no doubt that major exporters like Brazil, Indonesia and Ethiopia will see huge growth potential in the China market,” Pan Wenxiu, the owner of Shenduosi Coffee Co based in Shenzhen, South China’s Guangdong Province, told in a recent interview.
Pan’s company mainly produces filter drip coffee. While eyeing the booming market, she has recently raised the stakes and launched new products like bottled instant coffee to cater for the diverse demands of domestic coffee lovers.
Pan was among the first batch of Chinese entrepreneurs to start a coffee business nine years ago, when coffee as a drink was still “rare and fancy” for most people.
Closely watching the booming trend of the domestic coffee market over the past years, industry players like Pan firmly believe that the rising middle classes in the country will provide a strong boost for the country’s emerging coffee import market and her business.
“It’s coffee that makes me alive every day,” Zhang Xiaoyuan, a Shanghai-based white-collar worker, joked during a phone interview on Thursday.
The 27-year-old coffee lover orders an Americano from Luckin with her colleagues after lunch almost every day. Not satisfied with the flavor in the shops such as Luckin and Starbucks anymore, she bought a coffee machine costing 3,000 yuan ($432.27) in April to customise her own flavor.
“My new hobby is trying different coffee beans from different countries in the new coffee machine,” Zhang said. The first thing she does every morning after she gets up is brewing a cup of hot black coffee.
“It’s low fat, healthy and refreshing, these are the three reasons why I love the drink,” Zhang said. She spends around 650 yuan on coffee every month, compared with her income of 15,000 yuan.
Young and trendy coffee lovers like Zhang are driving the consumption boom in China’s coffee market – which is now growing at a speed of around 15 percent every year. It is expected that by 2025, China will grow into a huge coffee market of 1 trillion yuan, according to media reports.
“With more capital coming into the coffee industry, especially amid Luckin’s fast expansion in China, whose strategy is to bombard its customers with tons of [discount] coupons, more people in the lower tier cities and have lower income will give the foreign drink a try, and this will further drive up coffee demand,” Pan said.
The growth potential is huge. According to Euromonitor International, the average person in China consumes just three cups of coffee per year. Compare that to 250 cups per person in the UK and 363 cups in the US.
“Domestic demand is set to be varied and will not be limited to imports from one single country, as coffee beans from different countries have different flavors according to the varying climate conditions. Thus, all coffee producers would have a chance in the Chinese market – as long as their coffee is unique and caters to local consumers,” Pan said.
Zhong Zhiqing, Marketing Director of Shanghai-based Baorong trading company, a coffee import agency, said that the company mainly concentrates on importing beans from Brazil, Columbia, Ethiopia and Indonesia.
Generally, with its large production and standardised industry chain, coffee beans from Brazil are used as the base of making coffee, which means demand for them is generally bigger, according to Zhong. Coffee imports from Brazil accounted for almost 40 percent of the company’s total imports, Zhong said.
The South American country accounts for 38 percent of the world’s coffee market with 300,000 producers, which makes it a major producer and exporter of coffee in the world, according to a report.
With the consumption upgrade in the country, speciality beans from Ethiopia and Indonesia have picked up momentum in China, and they all have good qualities, according to Pan.
Pan said she is especially optimistic toward the future sales of Ethiopian beans which have a floral scent and are of good quality, as they are popular among the middle classes in China.
According to a report from CNBData in May, orders of quality handmade coffee on online food-ordering platforms surged by 153 percent year-on-year in 2018. And Yegashafi coffee beans from Ethiopia are the most popular. The report was drafted based on sales data from online food ordering platform such as Alibaba based Ele.com.
Need for Localisation
Despite having distinct features, Wang Zhenning, a Shanghai based industry analyst, said that to further tap into China’s market, foreign producers have to be aware of Chinese people’s drinking habits and preferences, which are different from Western consumers.
An industry report showed that latte and mocha are the favourite coffee types in China, while consumers are showing more interest toward bitter black coffee, with a surge of online orders of 121 times year-on-year in 2018, according to CBNData.
They need to be creative in customising flavors for Chinese consumers to cater for that demand, Wang said, noting that foreign producers also need to upgrade coffee quality as domestic consumers are now in pursuit of high quality.
“Promotion activities and getting more brand exposure are also key,” Wang said, noting that these exporters should seize opportunities such as the China International Import Exhibition to let more people know their products.
Foreign coffee makers also face competition from growers in Southwest China’s Yunnan Province, whose production is steadily increasing though its plant system is not mature yet, Zhang said.
Zhong said that Countries along the Chinese Belt & Road Initiative are likely to have more advantages to push for coffee exports to China, as there are preferential policies during customs clearance procedures or tariff-free policies for imports from these countries.