The com­ing caf­feine rush

China Daily (Canada) - - DEPTH - ByWANG ZHUOQIONG

China will con­tinue to of­fer po­ten­tial for high growth to cof­fee bev­er­age play­ers, ex­perts said.

For, new con­sumers are be­ing con­tin­u­ally at­tracted to sup­port the ready-to­drink or RTD cof­fee and cof­fee pod ma­chines, they said.

Hope Lee, se­nior an­a­lyst of Euromon­i­tor In­ter­na­tional, said in­creas­ingly, cof­fee bev­er­age play­ers are look­ing be­yond younger con­sumers and white-col­lar work­ers in big cities to ex­pand the mar­ket. Some peo­ple in sec­ondtier cities have al­ready picked up the habit of drink­ing cof­fee.

“The ex­panded con­sumer base is now an at­trac­tive plat­form for brand own­ers, although ‘the jour­ney of nur­tur­ing cof­fee drink­ing’ is still an on­go­ing chal­lenge,” said Lee.

In terms of chan­nel de­vel­op­ment, food ser­vice sales of RTD cof­fee are still lim­ited as con­sumers are ha­bit­u­ated to drink­ing tea and other bev­er­ages. RTD cof­fee is not the most suit­able com­ple­men­tary bev­er­age for Chi­nese taste buds, he said.

How­ever, Euromon­i­tor In­ter­na­tional’s hot drinks data­base shows that sales of hot cof­fee have started to take off and out­paced re­tail sales in vol­ume growth terms.

With RTD cof­fee ex­pected to record a net sales in­crease of around $1.6 bil­lion for 2015-20, this huge po­ten­tial has at­tracted a great deal of in­vest­ment from ma­jor play­ers.

China’s RTD cof­fee mar­ket will grow from the cur­rent 6.65 bil­lion yuan ($1.02 bil­lion) to a fore­cast of 18.6 bil­lion yuan by 2020, ac­cord­ing to Euromon­i­tor In­ter­na­tional.

Nes­tle SA led the mar­ket with 58.1 per­cent share in 2015, fol­lowed by Sun­tory Hold­ings LTD at 12.6 per­cent and Uni-Pres­i­dent En­ter­prises Corp at 5.2 per­cent.

While Nes­tle’s mar­ket share rose from 56.4 per­cent in 2014, Sun­tory and UniPres­i­dent have seen a de­cline in their share from 14.2 per­cent and 6 per­cent re­spec­tively.

Lee said Coca-Cola re-en­tered the cat­e­gory with its Ge­or­gia brand. Its mar­ket­ing has im­proved the brand im­age and the prod­uct’s vis­i­bil­ity. Nestlé’s Nescafé, a strong cat­e­gory leader, hired Chi­nese ac­tress An­gela baby for TV ad­ver­tise­ments, which boosted sales. Star­bucks and Ting Hsin (Pep­siCo’s lo­cal dis­trib­u­tor and bot­tler) agreed to jointly pro­duce and dis­tributeRTD­cof­fee.

Sun­tory andHuiYuan also set up a joint ven­ture to mar­ket RTD cof­fee and RTD tea. In 2015, Hui Yuan was the largest lo­cal player in off­trade vol­ume sales terms.

In terms of fla­vor, the most pop­u­lar one is latte, ac­count­ing for over 54 per­cent of off-trade vol­ume

The ex­panded con­sumer base is now an at­trac­tive plat­form for brand own­ers ...”

sales in 2015.

Freshly brewed cof­fee at spe­cial­ist shops is tempt­ing con­sumers to seek the same plea­sure at home. So, they are in­vest­ing in ex­pen­sive cof­fee pods. Some buy one dur­ing their over­seas trips while over­seas ver­sions of lo­cal e-com­merce web­sites sell im­ported ma­chines. A typ­i­cal home espresso ma­chine could cost up­wards of 1,500 yuan. Re­tail sales of such ap­pli­ances surged in 2015.

Nestlé dom­i­nates the seg­ment of pods with its Ne­spresso and Dolce Gusto series. The Lavazza range earned­somemar­ket share in 2015. Pod sales are ex­pected to ac­count for over half of fresh ground cof­fee sales by 2020, sug­gest­ing that some con­sumers may choose to “leapfrog or skip” the stan­dard for­mat and di­rectly trade up to pods.

In the wider con­sumer mar­ket, this is not uncommon. For ex­am­ple, Chi­nese con­sumers mi­grated to mo­bile phones de­spite very lim­ited avail­abil­ity of land lines. So, Nestlé is plan­ning to launch new prod­ucts to meet lo­cal Chi­nese con­sumers’ needs, such as choco­late milk tea.

Paul Bul­cke, CEOofNestlé Group, said the com­pany is tar­get­ing long-term growth in the coun­try. “China as a key mar­ket holds an im­por­tant po­si­tion in our global strate­gic de­vel­op­ment plan.”

The com­pany in­vested 50 mil­lion yuan in set­ting up the Nescafé Cof­fee Cen­ter to pro­mote the de­vel­op­ment of China’s cof­fee in­dus­try.

De­spite Nestlé’s dom­i­nance, it was You Ji Jia (Shang­hai) Food Trad­ing Co Ltd that posted the strong­est sales growth in 2015, un­der­pinned by spe­cialty cof­fee mixes, in­clud­ing in­stant cap­puc­cino and café latte.

In­stant cof­fee is, and will con­tinue to be, the main­stay of the cof­fee mar­ket in China through 2020, ac­cord­ing to Euromon­i­tor In­ter­na­tional.


A ready-to-drink bot­tled cof­fee sold at a su­per­mar­ket in Fuzhou, Fu­jian prov­ince.

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