Are you Ready To Drink coffee in China?

Coffee has been reported on before in my post on Pu’er. People have been talking about the Chinese market for ready to drink coffee a lot since then. Apparently it is a topic that is on people’s minds, so I have bundled their remarks in this dedicated post.

An emerging coffee nation

China is gradually emerging as a coffee producing nation. The country’s current annual production is approximately 100,000 mt, 98% of which takes place in Yunnan, the home province of Pu’er, and the remaining the island province of Hainan.

By the end of 2010, China had 135 coffee processing companies, the geographic distribution of which is can be found in the following table.

Region companies
Shanghai 37
Guangdong 26
Yunnan 18
Beijing 17
Hainan 11
Other 26

This shows that the processing still mainly takes place in the most developed regions and not in the locations where the coffee is grown. However, the Pu’er post shows that the main multinational players have set up shop in Yunnan.

The Chinese have never acquired a habit of brewing coffee at home, which creates a fertile ground for two types of products: coffee shops where you can enjoy your favourite brew (see my post on that market), and Ready To Drink (RTD) coffee products, introduced in this post.

Applying the Chinese instant tea model to instant coffee

Between 2008 and 2013, instant tea has been the driving force in the Chinese tea market, increasing sales by USD 1.7 billion. To date, the popularity of instant tea is almost entirely a Chinese phenomenon, as China accounted for 92% of Asia-Pacific’s instant tea sales in 2013. Instant coffee on the other hand, is immensely popular throughout the region, with China accounting for just 15% of the overall market in 2013. As instant coffee shares many of the attributes that have driven the success of instant tea in China, namely the replication of foodservice options, flavour malleability, convenience, and a young consumer base, applying the innovative packaging of instant tea to coffee may spell further success for Asia’s already booming instant coffee market.

Instant tea in China is composed almost entirely of instant ‘milk teas’ that aim to replicate the sweet flavours of popular street stall/kiosk and café operators like Happy Lemon, Jack Hut, and ChaTime. Popular flavours include red bean and jasmine green, while some also include bobas (tapioca pearls found in bubble tea) for added texture. To make the beverage accessible through retail channels, manufacturers use single-serve packaging of on-the-go paper cups filled with a sealed pouch of instant tea and a straw.

The sweet flavour profile of these milk teas, and economical price tag compared to their on-trade equivalents, makes them particularly popular with younger Chinese consumers. The accessible format and price of instant tea enables young consumers to partake, albeit indirectly, in fashionable foodservice.

Aware of the influence of younger demographics, Chinese manufacturers including the Guangdong Strong and Zhejiang Xiangpiaopiao are deliberate in their marketing, positioning the products specifically to Chinese youth, through fun packaging, and celebrity endorsements. Xiangpiaopiao is awaiting approval for its IPO before the end of 2015.

ChineseRTDcoffee

Is China the future for instant coffee?

In the past decade, the instant coffee market has actually expanded at rates of 7 to 10% a year, according to the Global Coffee Report; the International Coffee Organization projects a 4% global volume growth between 2012 and 2017.

The country that historically drank about two cups of coffee per year per person is now the fourth-largest global market for ready to drink coffee in terms of volume. The reason? Convenience. A 2012 poll found that 70% of Chinese workers said they were overworked and more than 40% stated they had less leisure time than previous years. Plus, most new buyers are used to boiling water to make tea, often owning just a teapot and not the appliances needed to make a fresh pot of coffee. By 2017, the Chinese RTD coffee market is projected to increase by 129% in volume. A recent study estimates that the value of the Chinese RTD coffee market will be RMB 18.6 bln by 2020.

Like many food innovations, the origin of instant coffee has several claimants.

Instant coffee is tapping into a new market: tea drinkers. As of 2013 in Great Britain, tea bag sales dropped 17.3% while sales of Nescafé instant coffee went up in supermarkets by more than 6.3%. The country known for it’s tea and crumpets may be making a similar transition to China’s tea-drinking population.

Nestlé SA led the Chinese market with 70.8% share in 2017, followed by Suntory at 4.9%, Uni-President at 3.3%, and Starbucks at 3.1%. Coca-Cola re-entered the category with its Georgia brand. Its marketing has improved the brand image and the product’s visibility. Nestlé’s Nescafé, a strong category leader, hired Chinese actress Angela baby for TV advertisements, which boosted sales. Starbucks and Ting Hsin (PepsiCo’s local distributor and bottler) agreed to jointly produce and distribute RTD coffee. Suntory and Huiyuan also set up a joint venture to market RTD coffee and RTD tea. In 2015, Hui Yuan was the largest local player in off-trade volume sales terms.

In terms of flavor, the most popular one is latte, accounting for over 54% of off-trade volume sales in 2015.

Coffee as ingredient

Europeans still mainly think of coffee as a beverage made by infusing ground coffee beans with boiling water. The real coffee lovers drink it black, hot and bitter. Those who find that a little too intimidating can dilute it with milk. As most Chinese still have a problem with pure coffee, even with the heavily diluted americanos served by Starbucks or Costa Coffee, a number of coffee flavoured beverages have appeared on the Chinese market. The most recent one Maoyuan Coffee by Wahaha (Hangzhou, Zhejiang).

Multinationals follow suit

A recent development in this market is a strategic alliance between Starbucks and Tingyi. Tingyi, a leading food and beverage producer, has signed an agreement with  Starbucks to manufacture and distribute the latter’s RTD products on the Chinese mainland. Tingyi is a well-known supplier of instant noodles and biscuits. According to the agreement, Starbucks will help Tingyi, which makes the well-known Master Kong brand of instant noodles, with coffee expertise, brand development and future product innovation. Tingyi will manufacture and sell the Starbucks RTD portfolio in China, said a statement from Starbucks.

But it will take a lot more than a fancy Starbucks product to convince Americans to drink products like this one sold in China: Nestlé’s instant coffee with jelly.

Coffeebev

A multinational like Coca Cola cannot afford to miss out on the popularity of tea beverages in China. The company is marketing its RTD coffee brand Georgia in China.

Taiwan-based manufacturer of snack food, Want Want, had already started looking for divesting opportunities in the beverage industry, when it launched its own RTD coffee brand ‘Mr. Bond’ in 2018. When I am writing this (June 2018), it is still too early to judge the success of this product.

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.

 

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Cheers! How Chinese discuss beer online

Don’t say that social media are changing the way we market products and services, until you have learned about their impact in China. The collectivist nature of Chinese culture has undoubtedly affected the speed in which social media have caught on in China. This particularly applies to beer in China.

Largest beer market in the world

China has been the world’s largest beer consuming and producing nation for a number of years. China has produced 440.15 mln hls of beer in 2017. The competition is murderous and the number of individual players is decreasing almost yearly through mergers and acquisitions. The current number of breweries in China is 460, almost half the number of two decades ago. The top 5 breweries now have a combined market share of 73.7%. Chinese brewers are among the most heavy users of the new social media in China in the battle for the consumers’ attention. I have therefore chosen the Chinese brewing industry to illustrate how Chinese food and beverage companies are using the Internet.

Weibo – China’s Twitter

Not only individuals use Weibo, the Chinese counterpart of Twitter or WeChat, the Chinese WhatsApp, but with many more possibilities, companies have discovered the power of the social media as well. Beer seems like a great product to investigate the way Chinese companies are exploiting the new media.

China’s top domestic brands Tsingdao and Yanjing immediately reflect a very Chinese cultural trait: imitating. The banners of the Weibo accounts of both brands are related to football. in China too, beer is THE drink for couch potatoes, watching football.

YanjingWBQingaoWB

The first posts on today’s (26-9-2014) Weibo site for Yanjing mainly inform visitors of the quickest way to get their hands on a can of Yanjing beer. The other posts relate to everyday life issues like ‘the 30 things that are most worth doing in a man’s life’. I am not really excited.

Tsingdao’s site on the other hand gives a much livelier impression, and tells you what you can eat best with a glass of Tsingdao, or leads you to the Weibo site of the Tsingdao Beer Museum. That is 1 – 0 for Tsingdao, at least from my personal point of view.

International players cannot afford to lag behind and are following suit. Heineken’s Weibo home page is all about . . . Heineken, while Budweiser is measuring itself a musical image, both on the site’s banner and in the content of the first posts.

HeinekingWBBudweiserWB

Public praise

Whether or not a company is active on a social network and if so, with what type of banner is not the most exciting aspect. Much more interesting is the analysis of how and how much netizens discuss a certain brand. In China as well, statisticians have discovered that all that online communication is by no means idle talk, but a true mine of information about the way consumer perceive a certain product, company or brand.

They are referring to this a the koubei (literally: ‘oral stele’) of a brand. Koubei is hard to translate properly. Dictionaries usually give ‘public praise’ as the translation, and I am inclined to go for ‘reputation’, although Chinese usually refers to that concept with another word. However, the figures featuring in statistic reports are not only about praise, but also refer to brand awareness, or the frequency in which a brand pops up in online conversations.

Let’s have a look at the statistics published this week about the way beer brands are discussed in the Chinese online media. The statistics have been compiled by the China Statistical Information Service Centre (CSISC). For each item, I will list the top 3 and Heineken, to see how this top international brand is faring in China.

The first dimension is ‘brand awareness index’.

Rank brand figure
1 Tsingdao 6.49
2 Yanjing 2.61
3 Pearl River 1.68
10 Heineken 0.03

Pearl River here ranks higher than Snow Flake, which is China’s current top brand according to turnover. Heineken ends up rather low, with two international brands, Budweiser and Carlsberg, before it.

The second dimension is ‘consumer interaction index’; how much netizens mention a brand in online conversations.

Rank brand figure
1 Tsingdao 5.79
2 Yanjing 1.96
3 Snow Flake 1.30
8 Heineken 0.41

This ranking coincides with the ranking using financial indicators. Heineken is quite close, but still lags behind two international brands: Asahi and again Budweiser.

Then we move on to the ‘quality recognition index’.

Rank brand figure
1 Tsingdao 4.51
2 Snow Flake 2.62
3 Pearl River 1.56
9 Heineken 0.38

Not much needs to be added here and Heineken only has, once more, Budweiser before it.

The ‘company praise index’ sounds intriguing. This is not about merely mentioning a brand, but doing so in a positive way.

Rank brand figure
1 Tsingdao 5.11
2 Snow Flake 3.72
3 Yanjing 2.08
8 Heineken 0.33

Can you guess what international brand outranks Heineken in this table?

The following index, ‘brand praise index’, resembles the previous one but concentrates on the brand rather than the producer.

Rank brand figure
1 Snow Flake 13.08
2 Tsingdao 6.43
3 Harbin 5.38
7 Heineken 0.65

Snow Flake is the big winner here, but Heineken is still behind Budweiser.

The final figure is the ‘brand health index’; how healthy do netizens believe a brand is. This seems odd for beer, and indeed the figures literally turn around the brands.

Rank brand figure
1 Qingke Beer 0.00
2 Dafuhao 0.00
3 Yellow River -0.01
12 Heineken -0.03

Qingke Beer is made in Tibet using the local Qingke barley. This has a relatively healthy image, but because this is about an alcoholic beverage, consumers do not really regard it as healthy. The other beers that come out in high position are all smaller local breweries, that apparently gives them more credit in the health department.

Our Heineken now ranks higher that all top domestic brands and its American competitor Budweiser. However, a number of international brands, like Suntory and Carlsberg, still rank slightly higher.

It is not immediately obvious to draw conclusions about these figures. I will leave that to my readers, but am also interesting in learning your reactions. I am sure more figures like this will be published for other product groups. I will make new items for them, or add them to existing items in this blog.

Output

So how much beer does China actually produce? Here is the regional breakdown of the volume during the first 9 months of 2014, with the in- or decrease compared to the same period in 2013.

Region Volume (1000 L) Growth (%)
China 40,924,478.98 1.74
Beijing 1,365,905.07 -4.05
Tianjin 249,319.97 9.17
Hebei 1,437,217.75 15
Shanxi 399,626.20 -2.92
Inner Mongolia 900,010.08 1.28
Liaoning 2,117,929.95 3.10
Jilin 1,135,387.64 1.15
Heilongjiang 1,585,479.68 -3.13
Shanghai 538,281.23 24.56
Jiangsu 1,801,601.02 -1.85
Zhejiang 2,267,633.18 -7.01
Anhui 1,237,393.38 -14.42
Fujian 1,530,728.09 -7.27
Jiangxi 1,020,149.91 4.94
Shandong 6,324,000.21 10.23
Henan 3,372,637.06 8.08
Hubei 1,851,839.85 -1.68
Hunan 651,440.76 -2.37
Guangdong 3,420,602.46 -1.54
Guangxi 1,547,119.61 1.64
Hainan 54,055.00 -6.11
Chongqing 608,640.74 -12.97
Sichuan 1,888,282.58 0.11
Guizhou 620,163.14 54.11
Yunnan 736,064.25 2.45
Tibet 122,985.56 -5.28
Shaanxi 855,607.11 3.59
Gansu 548,007.18 -4.29
Qinghai 86,810.00 2.61
Ningxia 234,304.97 8.96
Xinjiang 415,255.35 -5.40

Eurasia Consult Food knows the Chinese food industry since 1985. Follow us on Twitter.

Eurasia Consult Consulting can help you embed your business in Chinese society.

Peter Peverelli is active in and with China since 1975.