Popularity Of Coffee In the Chinese Market Leads To Rapid “Luxurification” Of The Standard American Coffee Shop
While any visitor to China’s biggest cities will quickly become accustomed to seeing familiar sights like Starbucks on virtually every corner, until recently coffee has remained something of a luxury in the world’s most populous nation. Although tea has reigned supreme in China for thousands of years, after 30 years of internationalization the country has opened up to new beverages at a never-before-seen rate: whiskey has become the drink of choice for many of China’s business and political elite, Chinese collectors are snapping up prize bottles at fine wine auctions, China consumes more beer than any other country on earth, soft drink companies like Coca-Cola lean on their reliable China profits, and now coffee is quickly becoming less of a niche drink and more of a daily necessity for millions of Chinese.
Though coffee is less widely consumed in China than other beverages, Chinese coffee chains have multiplied in number in the last 20 years, with large mainland companies like Ming Tien Coffee Language and Taiwan’s UBC Coffee becoming somewhat ubiquitous even in smaller second- and third-tier cities that are less westernized than Beijing, Shanghai or Guangzhou. China International Business today looks into the sustainability of this growing interest in coffee in China, and how companies like Starbucks and other major foreign chains have capitalized on their “foreignness” to promote coffee as a sophisticated, “western” drink that stands in stark contrast to tea:
According to the April 2009 Euromonitor International Report, the total volume of coffee sold in China grew over 10% in 2008, a hefty figure compared to the world average of roughly 2%, and Starbucks — which opened their first Chinese mainland coffee shop in 1999 in Beijing — isn’t the only one leading the charge, far from it in fact.
California-based The Coffee Bean & Tea Leaf set up their China operations in 2004, and in 2006, UK-based coffee chain Costa Coffee made inroads to the Chinese market via a joint venture with Yueda Group in Jiangsu Province. Taiwan’s UBC and Australia’s Jamaica Blue are among two of the many other chains that have also entered the world’s largest potential market in the past decade.
The growing popularity of coffee shops in the Chinese market cannot be attributed to a single factor. Certainly, the lowering of coffee import tariffs from 10.4% to 8% after China entered the World Trade Organization in November 2001 helped industry development, but it can’t be the only explanation for why the admittedly nascent coffee culture is nonetheless well-planted, at least in the major cities. Progressing from mere market to burgeoning culture takes more than just coffee and customers. “You have to see coffee shops not just as a place to get high quality coffee, but also as a great place to spend time and relax with friends,” says Paul Smith, president of Costa Coffee China. He stresses that a friendly and relaxed vibe is as important as a well-roasted cup of coffee. Phng Li Kheng, general manager of The Coffee Bean, China, concurs, saying The Coffee Bean has found its niche as “a more elegant place to chill.”
For the moment, this atmosphere appeals to a more well-heeled crowd. Coffee chain executives concede that their product is still very much a luxury item for Chinese customers, and China Market Database reports that 36% of coffee shop patrons have received higher education. The ambience of coffee shops is also inviting for people looking for a place to sit with their laptops and novels. Recently during the busy lunch break hours at Oriental Plaza Mall in Beijing, university student Liu Xueyang sought sanctuary at Starbucks with a cup of coffee and a book. “I like coming here because of its peaceful atmosphere,” she says. A marketing executive could not have scripted her words any better.
The article does a great job of illustrating how coffee has “leapfrogged” in the Chinese market, from absolute obscurity to ubiquity (at least among urbanites). This is evident in nearly every aspect of life in most major Chinese cities — from the advanced mobile phones to the state-of-the-art architecture to luxury cars to museums and art galleries. In every sense of the word, China has leapfrogged into the 21st century.
While coffee culture in China is still immature compared to the West, in the bigger cities it seems to be catching on enough to move from the coffee shop to the home. In Beijing, supermarkets catering both to expats and locals carry row upon row of coffee beans and powder. In 2007, Nestle’s Nespresso division opened two coffee “boutiques” — one in Beijing, the other in Chengdu — to sell their high-end coffeemakers and the hermetically-sealed capsules of coffee that are used with them. Ernest Yong, regional marketing manager (Asia) for Nestle Nespresso, notes that though their boutiques initially attracted only foreigners, as of late the customers have largely been local. While Yong also declined to give exact sales figures, he says sales have grown quickly and that the company is looking at opening additional boutiques.
Yong likens coffee’s ascent to the growth of the mobile phone market in China. “I call it the ‘leapfrogging effect’,” he says. “In China, people went directly from no phone at all to the mobile phone, bypassing the landline. So too has coffee culture grown rapidly, even if it takes some learning of the different kinds of drinks.”