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China’s Booming Coffee Market

The consumption scale of China's coffee market has reached 70 billion yuan by 2019, and it is expected to reach 180 billion yuan by 2023. At present, 82% of coffee consumers in China are willing to try new retail coffee, according to the Blue Book of Coffee Consumption in China 2018-2019.

China’s coffee market has undergone a rapid transformation over the last decade. Chinese coffee giant Luckin Coffee listed on the U.S. stock market in May of 2019, less than two years after founding. Beverage companies like Nongfu Spring and Coca-Cola and dairy companies such as Yili and Mengniu have entered the coffee market by launching ready-to-drink coffee drinks. Chinese emerging brand Saturnbird completed two successive rounds of financing by the end of 2019, totaling tens of millions of yuan. China Petrochemical Corporation (Sinopec) launched its new coffee brand Easy Joy Coffee in nearly 30,000 gas station convenience stores.

Data shows that the consumption scale of China's coffee market has reached 70 billion yuan by 2019, and it is expected to reach 180 billion yuan by 2023, with an average annual market growth rate of more than 20% [1]. Besides, according to Guosen Securities report, the sales scale of China’s coffee market is expected to exceed 1 trillion yuan in 2025. China's huge consumer base and increasing demand for higher quality products, coupled with the popularization of new retail concepts, have led to an accelerated development pace of the coffee industry in China.

What are the major categories?

At present, the coffee market in China consists of four types of business:

  • instant coffee (Nestlé),

  • in-store coffee/fresh brewed coffee (Starbucks, COSTA),

  • ready-to-drink coffee (in bottles or cans), and

  • new retail coffee (Luckin).

Among them, the market share of in-store coffee and instant coffee is the highest. In China, there has been an explosive growth of chain coffee shops. By the end of 2019, Luckin, the fastest growing coffee brand, had opened more than 4,500 stores; Starbucks plans to open 6,000 stores in mainland China by 2022; Coca-Cola plans to open another 800 stores by 2022 following its acquisition of COSTA [2].

Who are the major consumer groups?

According to the Blue Book of Coffee Consumption in China 2018-2019, consumers between the ages of 20 and 35 account for nearly 80% of coffee consumption in China. Women account for nearly 60% of coffee consumers in China's first and second-tier cities. More than 40% are white-collar workers. The top five industries in terms of coffee consumption are finance, professional services, advertising/media, real estate, and Internet /IT. The office is the most common coffee consumption scene [3].

Who are the major players?

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What are the development trends

Trend 1 Health-oriented

China’s new generation of consumers prioritizes health. Therefore high-sugar, instant three-in-one, cannot meet their demands anymore. Instead, healthy coffee featuring lower fat and sugar is gaining more traction with consumers. According to CBNData, The growth rate of sugar-free black coffee sold online was significantly higher than that of the overall coffee category [4]. Sugar-free black coffee is especially popular among young people born in the 1990s and 1995s.

Trend 2 Convenient and portable

Consumers’ demand for more convenient and portable coffee drinks has catalyzed the development of many innovative coffee products. For example, drip coffee and capsule coffee, tend to taste better and are more convenient than takeaway coffee and have been trending in recent years. According to Online Coffee Industry Trend Insights in 2019 released by CBNData, the market size of capsule coffee and drip coffee has consistently grown over the past three years.  The market size of drip coffee has been growing faster than capsule coffee. China’s leading beverage company Nongfu Spring also launched drip coffee this month, marking its entry into this segment.

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Products launched by China’s emerging coffee brands are all convenient ones, such as Saturnbird’s mini cup coffee, Yongpu Coffee’s freeze-dried coffee powder, and cold brew coffee, etc.

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Trend 3 integrated with the "New Retail” concept

The emergence of the new retail coffee business (integration of online and offline coffee purchasing channels), best exemplified by Luckin has changed coffee from a product into a complete digital service and value chain. At present, 82% of coffee consumers in China are willing to try new retail coffee, according to the Blue Book of Coffee Consumption in China 2018-2019.

A typical new retail coffee business model is to buy through an APP or WeChat Mini Program. Data shows that 63% of consumers buy coffee through an APP or WeChat Mini Program, and more than 90% of the order every week. The top three orders through APP or WeChat Mini Program are Luckin (89%), Coffee Box (31%), and Starbucks APP (12%) [5].

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