New study on Chinese coffee market

China’s on-premise coffee sector is recording strong growth in recent years. The latest research from Mintel, says demand for coffee has resulted in the overall market value reach an estimated RMB64.7 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 (compound annual growth rate) of 6% between 2019-23.

And although 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, this gap is narrowing with the decline easing from -4.4% in 2016-17. Looking ahead, 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.

Belle Wang, Associate Food and Drink Research Analyst at Mintel, said: “Like many industries across China, the on-premise coffee market is not immune to the influence of ‘new retail’. The quick expansion of new retail coffee businesses across the country has stimulated more coffee consumption among consumers, resulting in strong sales volume. 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. However, this growth will slow down, largely due to Chinese consumers’ traditional behaviour 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. Mintel research reveals that 52% of Chinese consumers* buy coffee at convenience stores compared to just 44% who purchase it from a traditional coffee house chain. Shining the spotlight on heavy coffee users**, one in ten (10%) drink their coffee at convenience stores as compared to 5% who do so at traditional chained coffee houses.

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. 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.”

“While new retail coffee is experiencing a lot of growth at the moment, consumer engagement remains low—partially because they are still relatively new. However, 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.” Belle continued.

Latte is the top choice for consumers

Finally, Mintel research reveals the nation’s favourite coffee beverages: more than half of on-premise coffee consumers order lattes (54%) or cappuccinos (52%). These are followed by mocha (45%), Americano (38%), flavoured 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 the most popular drinks in coffee houses as they are generally very palatable due to their creamy texture and rich dairy flavour. Furthermore, as they are usually widely available, they are often a first step into coffee appreciation. 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. 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.” Belle concluded.

*3,000 internet uses aged 20-49, September 2018, who have sat in and consumed on-premise coffee at least once a month

** Consumers who have sat in and consumed on-premise coffee once a day or more