Urbanisation and globalisation in a cup

Rising living standards, urbanisation, and strengthening foreign influences are turning the heads of Asian consumers. Source: lemonbody.com

China developing a taste for coffee

Newswire Bloomberg recently wrote about a growing trend of coffee consumption in China, a traditional tea country. As reported by various authorities, such as the International Coffee Organization (ICO), Chinese consumers are increasingly turning towards coffee shops and are developing a taste for what is essentially seen as a Western beverage.

Citing ICO figures, Bloomberg reported that the Chinese coffee market has been running laps around the global market in terms of growth during 2003-2014. The accelerating urbanisation, the growing middle class, and rising incomes are all seen as contributing factors to this shift—circumstances akin to Vietnam, effecting a similar turn-away from traditional robusta coffee to trendier, more Western brews and beverages like milk tea and bubble tea.

At the moment, tea is still the overwhelmingly dominant beverage in China, accounting for ten times the retail sales of coffee products. However, the astounding growth of coffee consumption shows great promise: by ICO estimates, the trend will remain strong until 2024 at an average of 16 per cent per annum.

Currently, Chinese consumers prefer 3-in-1 instant coffee products, with more than 90 per cent of coffee retail sales belonging to this type, according to Limin Yu, senior research associate at Euromonitor, as cited by Bloomberg.

However, big investors and coffee companies are banking on the expectation that as coffee gathers momentum, Chinese consumers will develop a taste for higher-end beverages and the milder, more expensive Arabica beans currently favoured in Western markets.

Striving to capitalise on this shift, a number of international coffee brands are starting to target China. American and world-favourite coffeehouse chain Starbucks, for instance, has spent $1.3 billion last month to buy out its joint venture partner in East China, gaining sole ownership of 1,300 coffee shops.

Having been present in China for 20 years, Starbucks’ latest investment almost doubled its coffee shops to 2,800, professing of the corporation’s faith in its second fastest growing market. The expansion is far from over as Starbuck’s has also reaffirmed its long-term goal of having 5,000 stores in mainland China by 2021, as reported by newswire Fortune.

“The first step is to switch tea into more mild coffee drinks such as 3-in-1s and the frappuccinos you get at Starbucks,” Cofco’s Reiner told Bloomberg. “Then coffee starts being consumed in the office and at home. That’s how it develops. We are talking a massive potential here, with between 450 to 600 million Chinese people joining the middle class by 2021-22.”

Dunking Donuts, gathering itself after two previous failures, is gathering speed to take on China again to capitalise on the growing consumption trend of Western fast food and beverages. Undeterred by its previous faltering, the company aims to have 1,400 locations in the country within 20 years—a significant increase against the current 34 shops.

Nestlé SA, the current leader on the Chinese coffee market with a market share of 66 per cent, is optimistic about consumption prospects and expects China to become one of the leading coffee countries in the world, given time.

Vietnamese youth turning towards milk tea?

Chinese millennials turning towards coffee is not a unique trend in a global context. In fact, Bloomberg identifies strong similarities between the growth rates of coffee consumption in China between 2005 and 2014 and Japan between 1965 and 1974. An important addition to the similarities is that Japan has since become the fourth largest coffee consumer in the 2000s, drawing up promising prospects for the Chinese market.

In fact, Japan had been experiencing somewhat similar trends in the 1960s as China does now: consumers were increasingly exposed to the Western world and its consumption trends, while undergoing a period of positive income growth.

Urbanisation and globalisation, an expanding middle class, and rising income levels have a transformational effect on consumption trends, which in itself comes as little surprise.

Similarly, the fact that change originates from the most receptive consumer circles, in this case millennials and the youth more susceptible to what is coined as trendy, fashionable, and cool, simply makes sense.

While similar trends are working at large in Vietnam as well, an important point of difference is that due to the country’s French colonial past—the French being largely renowned for their café lifestyle—Vietnam already has a unique, budding coffee culture centring around the strong and characteristic flavour of Robusta beans grown domestically.

On one hand, there might be a turn towards the milder-flavoured Arabica beans as a high-quality coffee experience positioned as more refined and “worldly” for middle-class consumers willing to spend extra for the added touch. Based on the current coffee scene in the country, international and large domestic coffee chains like Starbucks and Highlands Coffee are opting for this approach: they reside in a generally higher price-band with the promise of quality coffee for the trendy connoisseur.

On the other hand, a trend cultivated not within the groves of the wealthy and well-to-do but urban youth, milk tea and bubble tea shops have been on a definitive rise in the past five or so years. These sweet and flavoured tea cocktails with added toppings are not a Western food and beverage innovation, but part of the Taiwanese—and a broader Asian—cultural, fashion, and consumption influence.