Market Trends of China Coffee Industry
Government Initiatives and E-commerce Penetration Drive the Market
- China's commercial coffee production is limited mainly to the two southern provinces of Yunnan and Hainan, while a smaller amount is produced in the Fujian province. Yunnan has more than 60% of China's coffee. Recently, Yunnan's local government established the Tea and Coffee Industry Bureau, whose mission is to promote Yunnan's coffee in the domestic and international markets.
- China lags behind other nations in the production of coffee and is dependent on imports. According to the US Department of Agriculture (USDA), coffee production in China in 2020 was 1800 thousand 60 kg bags 2020, whereas China imported 3804 thousand 60 kg bags in 2020. Thus, the government and manufacturers need to invest more in R&D activities and develop better measures to increase the production of coffee.
- Further, there is an increase in retail E-commerce sales in China. According to the International Trade Administration, in 2021, China's retail e-commerce sales reached USD 2.77 trillion, representing a 20% increase over the previous year. Also, according to the World Bank, 73% of China's population were active internet users in 2021, signifying an increase of 9% compared to 2019.
- Such an increase in China's retail e-commerce and internet usage will positively impact the scale of online instant coffee buying, according to the 2020 joint survey issued by Alibaba and Ele. China's online coffee buying has grown 1.5 times since 2019, with instant coffee constituting a 13.5% share of the overall coffee products.
Increasing Consumption of Instant Coffee in China
The instant coffee segment held a significant market share owing to its convenience. Moreover, middle-class consumers' rising household expenditure, changing lifestyles, and acceptance of Western cultural trends have increased demand for instant coffee across the country. In line with consumers' growing preferences for coffee over other beverages, instant coffee manufacturers have launched several flavored products to attract a broader customer base. Online retailing has been a minor distribution channel for instant coffee in China for the past few years. It is likely to gain prominence in the market during the forecast period owing to the convenience it provides to consumers. Consumers find it easy to choose their preferred brands from the wide variety of product choices available.
Further, product innovations are expected to aid the market growth during the forecast period. Players are innovating with products to differentiate product offerings and broaden the customer base. For instance, in August 2022, Zhongxuegao, a Chinese brand dubbed the 'Hermès of ice cream' for its premium prices, unveiled a new coffee pop-up product in nearly 600 cafés in China. The products included a blend of Zhongxuegao's almond and yogurt-flavored ice cream with cold-brew coffee, while others added Japanese probiotic milk beverage Yakult or jasmine green tea. Thus, many private-labeled companies launched their versions of coffee RTD cocktail drinks to satisfy the increasing demand for coffee and spirit-based RTD offerings.
