Recent research from Mintel shows that China’s love of coffee continues to grow – especially enjoying a cup of joe in a cafe or coffee shop, which, in industry-speak is referred to as the “on-premise coffee sector.”
According to research China’s overall market value reached an estimated RMB64.7 billion (USD $9.65 billion) in 2018, growing 7.5% from 2017. This compares to a 6% growth between 2016-17. While Chinese consumers enjoy their out-of-home coffee, Mintel estimates that the total market value of China’s on-premise coffee sector will grow at a slower CAGR of 6% between 2019-23.
As cafes compete for coffee-loving Chinese consumers, brands should focus more on the in-store experience says Belle Wang, Associate Food and Drink Research Analyst at Mintel.
Our research shows that more on-premise coffee users get their coffee from convenience stores than from traditional chain coffee houses. This is perhaps due to Chinese consumers associating convenience stores with a full range of breakfast options.
“Upgrading in-store ambiance and enriching coffee pairing selections are two aspects to improve on-premise coffee consumers’ overall consumption experience and encourage sustained consumption,” said Wang.
“Specific actions include but are not limited to building the best environment for business occasions, services and products that could educate over coffee culture, and healthy or indulgent snack-coffee sets.”
While sales by value are thriving, Mintel estimates that the number of on-premise coffee house outlets experienced a growth rate of -2% from 2017-18 due to the fact that the speed of new store openings is slower than that of stores closing down. However, the research found that gap is narrowing with the decline easing from -4.4% in 2016-17.
Looking forward, the market will see positive volume growth in the next two years, growing 0.6% between 2018-19, and a further 1.2% between 2019-20 to reach an estimated 74,000 coffee houses by 2020.
Only offering basic coffee selections makes it difficult to stand out in the homogenous coffee marketplace and attract more coffee consumers. As such, coffee houses can take inspiration from tea shop drinks by making their offerings more visually appealing and ‘instagramable’.
“Like many industries across China, the on-premise coffee market is not immune to the influence of ‘new retail’,” said Wang. “With the growing momentum of new retail coffee shops, and an increasing number of international and domestic brands entering the market, consumers today have more options when it comes to coffee. As such, the industry will see positive growth rates over the next two years.”
While a love for coffee is growing, the pace will slow as more traditional beverages carve out there own more modern niches. Wang said that the coffee industry will “see positive growth rates over the next two years. However, this growth will slow down, largely due to Chinese consumers’ traditional behavior of drinking tea and the country’s thriving tea shops.”
Convenience stores vs traditional coffee houses
When it comes to choosing where to get their caffeine fix, more consumers today are purchasing coffee from convenience stores than traditional coffee house chains, with 52% of Chinese consumers buying coffee at convenience stores compared to just 44% who purchase it from a traditional coffee house chain.
Meanwhile, around one quarter (23%) of consumers who drink on-premise coffee at least once a month have done so at new retail coffee houses.
“Our research shows that more on-premise coffee users get their coffee from convenience stores than from traditional chain coffee houses,” said Wang. “This is perhaps due to Chinese consumers associating convenience stores with a full range of breakfast options. Convenience stores are also viewed as easily accessible and more affordable. Given this upward trend, other coffee vendors could introduce unique features, like providing various food and coffee pairings, in order to compete.”
Wang said that there is an opportunity for new retail coffee houses to catch up in terms of popularity by offering aggressive discounts and delivery service.
“That being said, big discounts alone will not be sufficient, as discounting is neither the best nor a sustainable strategy for a long-term business plan. There needs to be other merits such as offering healthy mix-and-match meal deals,” Wang added.
Latte is the top choice for consumers
Mintel also surveyed to find out which coffee beverages Chinese consumers prefer. More than half of on-premise coffee consumers order lattes (54%) or cappuccinos (52%). These are followed by mocha (45%), Americano (38%), flavored coffee (36%), espresso (26%) and cold brew coffee (23%).
A relatively new concept in the Chinese coffee scene, just over one in five (22%) on-premise coffee consumers say they order coffee mixed with plant protein milk.
Lattes and cappuccinos are somewhat of a gateway drug in China’s caffeine scene says Wang.
“Once consumers fully appreciate these basic beverages, they are more likely to try non-milk based drinks, like an Americano or cold brew coffee.”
“However, only offering basic coffee selections makes it difficult to stand out in the homogenous coffee marketplace and attract more coffee consumers,” added Wang.” As such, coffee houses can take inspiration from tea shop drinks by making their offerings more visually appealing and ‘instagramable’ in order to draw attention and pique consumer interest.”
Photo by Taylor Franz via Unsplash.