Yesterday afternoon I had the opportunity to be on of those network talking heads in an impromptu live discussion about the retail market for coffee in China on CGTN, the China Global Television Network. In retrospect, I might have addressed some of the questions a little differently, but overall, not bad for live TV (and my first live broadcast interview!).
Some details in addition to the video:
- China’s retail market for roast and ground coffee is growing quickly. It’s among the fastest growing of any national markets right now and arguably the most significant for the coffee industry due to its size. The USDA Foreign Agricultural Service estimates a 5% growth in the market this year, and cites industry sources that project the 5% YoY trend will continue in at least the next few years.
- The same report estimates there are 108,000 retail coffee outlets nationwide, mainly in first and second tier cities — mostly in Shanghai, followed by Beijing, Chengdu, Guangzhou, and Shenzhen.
- This translates to a 400% increase in green bean imports in the past 10 years, or 4m 60kg green bean equivalent bags estimated in 2022 — 240,000 tons.
- Large chains dominate those first and second tier cities, while smaller chains and independent shops represent nearly all of the shops in third tier cities.
- Among them (and please keep in mind these are mid-2022 best estimates, the numbers move fast in China!), Starbucks has about 5,600 locations in China, Luckin Coffee 6,000, KFC (with expanded coffee offerings) 8,000, McDonalds and McCafe 3,500, 7/11 stores about 1,600, and Tim Hortons a few hundred — however, Tim Hortons recently announced a planned tenfold expansion in just five years, which would make it a major player in the growing market. Other domestic and international chains are expanding there too, including Japan’s %Arabica, Costa Coffee (owned by Coca Cola), Blue Bottle (owned by Nestle), local players Seesaw Coffee (100+ locations), M Stand (100+), Manner Coffee (150+), and YongPu (not immediately found).
- Young people are driving the market (something I should have mentioned in the interview), and particularly younger women. The country currently has 350,000,000 estimated coffee drinkers — nearly the whole of the U.S. population, but far less frequently consuming beverages.
- Coffee consumption growth in China is being driven by increases in disposable income among an emerging middle class, coupled with the trendiness of historically western-influenced coffee culture, and unique Chinese O2O (online-to-office) business model. 30% or more of coffee retail beverage sales are made online with drinks delivered to your door. …something that hasn’t quite arrived in America or elsewhere yet, to my knowledge.
- Coffee production in China is mentioned briefly (wasn’t quite ready for that question!). Arabica coffee is grown mainly in Yunnan with robusta growing on Hainan Island. The volumes of both are relatively small (particularly Hainan). Yunnan has faced declining volumes in recent years, as mentioned in the USDA report, largely because farmers have switched to other higher value crops. While potential exists in Yunnan for productivity improvements, I don’t see it ever being a sole source for the domestic market. Growing at this pace, China will need to rely on coffee imports from Brazil, Vietnam, and elsewhere, just like every other consuming country.