With coffee consumption of little more than two cups per year per person, according to latest figures, China presents a clear opportunity for manufacturers of the beverage as European and American markets stagnate.
According to Euromonitor’s Dana LaMendola, this low rate of consumption, in tandem with China’s status as the most populous nation in the world, add up to real market potential—especially as sales of ready-to-drink coffee products are soaring.
“Thus far, the most significant strides have occurred in the instant coffee market, which reached over US$1bn in retail sales in 2012,” wrote LaMendola on her blog.
“However, since 2011, RTD coffee—packaged ready-to-drink liquid coffee products—has consistently boasted the strongest volume growth of any Chinese beverage category.”
The country now ranks as the fourth-largest global market for RTD coffee in terms of volume, and fifth in terms of value, and its growth is largely a result of the attributes it shares with instant coffee: convenience and a malleable flavour profile, according to the Euromonitor analyst.
Forget about fresh
Fresh coffee, though, remains a inch product, and accounted for less than just US$20m in 2002. The demand for instant coffee, with its convenience of preparation, is largely from recent adopters who tend to be unfamiliar with fresh coffee preparation methods and who often lack the appliances needed to make it.
“In terms of flavour, instant coffee’s ability to be packaged as a mix with sweetener and other additives appeals to the Chinese palate, which generally prefers milder, milkier coffee to the stronger, acid profiles often evoked by fresh coffee,” explained LaMendola.
“Indeed, the most popular type of instant coffee in China, which accounted for 52% of instant coffee sales in 2012, are three-in-one mixes that include a mix of instant coffee, creamer, and sweetener.”
The RTD coffee segment grew by 22% in value in 2012 to exceed US$414m in retail sales, says Euromonitor, and many of the drivers behind the success of this form of coffee are similar to those behind instant coffee.
“Packaged in can or PET bottles, RTD coffee provides convenience to Chinese consumers with busier and busier lifestyles. [It] is especially appealing to students and young professionals who perceive it as more convenient than instant tea, since they don’t need to add water, and a rival to energy drinks thanks to its caffeine content,” said LaMendola.
“As the Chinese RTD coffee market continues to expand, Chinese preferences for flavoured RTD coffee are also growing. In 2012, flavoured RTD coffee products accounted for 52% of the total market, up from a 32% share of the market in 2007.”
Nescafé the golden blend
Euromonitor found that Nestlé’s Nescafé is the dominant player in both instant and RTD markets, accounting in 2012 for 50% of the entire RTD market and 74% of the instant market. While the brand has a global instant share of 46%, meaning its strength in China is unsurprising, the strength of its RTD sales in the country is very different to its global weight of just 3% share.
“Nescafé’s success in Chinese RTD coffee may be viewed as less the product of its particular expertise in the category and more the result of its long history and high reputation in the Chinese market, which enables it to effect strong marketing campaigns and increase penetration in second- and third-tier cities,” continued LaMendola.
“As such, there is still potential for other RTD coffee manufacturers to increase their presence in the Chinese market. Suntory Holdings, the number two player in the Chinese market, and second in the world, is attempting to do just that through the expansion of its existing Suntory Rich line to include flavours that are designed to appeal to specific demographics including a stronger-tasting, less milky product aimed at hard-working professionals and a mellow-tasting mocha drink to appeal to younger consumers.”
According to Euromonitor International’s preliminary findings, in 2013 RTD coffee will continue to post the strongest volume growth of any beverage category in China.
In fact, by 2017, the Chinese RTD coffee market is projected to increase by 129% in volume, topping instant coffee in terms of absolute ready-to-drink volume growth.
However, LaMendola cautions that as disposable incomes continue to increase, further success for RTD coffee may be threatened by consumers looking to trade up to specialist coffee shop purchases.
“To combat a similar threat from increasing Chinese interest in fresh coffee, instant coffee manufacturers have begun introducing more premium products that use higher quality beans and reduced-fat whiteners.
“In order to maintain momentum, RTD manufacturers, may likewise consider launching value-added products.”