2018 China Coffee Industry Insight Report: my country's coffee consumption grows 15% annually

In 2018, the coffee industry was quite lively.

Whether it is the increasingly frequent "give you a cup of coffee" in the circle of friends, or Luckin Coffee's strong declaration of 1 billion challenge Starbucks, people feel that 2018 is the "first year of new retail coffee."

Offline, a convenience store coffee brand invited a Taiwanese female celebrity to be its spokesperson, and you can often see her smiling standee holding a coffee cup on the streets.

The online market has also been making a lot of money in recent years. From 2015 to 2017, the number of coffee consumers on Taobao and Tmall platforms increased by 70%, and sales also increased at a rate of about 30% per year.

Since Nestlé entered China in the 1980s, coffee has been developing in the Chinese market for more than 30 years. Why has this industry suddenly become lively in recent years? Through big data insights into industry trends and in-depth exploration of the three "top players" in the coffee market in 2018, namely new retail coffee, convenience store coffee and online markets, CBNData believes that their rapid growth in recent years has the same entry point behind it - a breakthrough in coffee consumption scenarios.

Convenience store coffee

Expand the coffee scene with price advantage

China's coffee market is experiencing a stage where freshly ground coffee is gradually becoming popular. From the perspective of coffee drinking structure, freshly ground coffee accounts for more than 87% of total coffee consumption worldwide, but in China, instant coffee accounts for 84% of the market share, and freshly ground coffee accounts for only about 16%. For a long time, drinking freshly ground coffee in coffee shops such as Starbucks was a "fashionable" thing. However, under the influence of these brands, some people who originally drank instant coffee began to turn to freshly ground coffee, and some of them even developed the habit of drinking a cup of freshly ground coffee every day. But not everyone can accept the coffee consumption of 20-35 yuan a day.

The emergence of convenience store coffee has given this group of coffee consumers a more advantageous choice. In 2010, 7-Eleven first launched freshly ground coffee in convenience stores in China, followed by convenience store brands such as Lawson and FamilyMart. By using fully automatic coffee machines, the price of convenience store coffee has dropped by half compared to chain coffee shops such as Starbucks.

Although there are few varieties of coffee, only "basic" coffee such as Americano and latte, the taste may not be as good as that of boutique coffee shops and chain coffee brands. However, the convenience and cheapness of convenience store coffee make it quite competitive. For some working people who are in a hurry on their way to work, if it can save time queuing in the coffee shop and each cup of coffee only costs 8-12 yuan, it is not a bad idea to have a cup every morning.

FamilyMart, the convenience store with the largest market share in mainland China, sold about 10 million cups of coffee in 2016, a year-on-year increase of 140%. Some of its stores in Shanghai can even sell more than 300 cups of coffee a day.

New Retail Coffee

Bringing the possibility of "infinite scenes"

At the beginning of this year, Luckin Coffee "entered the market with 1 billion yuan" and "openly challenged Starbucks", attracting the attention of many media. Luckin and other new retail coffees have become a phenomenal consumer hotspot with online ordering + offline store pickup and delivery models, providing coffee services anytime and anywhere.

Why does Luckin Coffee dare to challenge Starbucks? One of the key reasons is that the new retail model has brought about a breakthrough in scenarios with a wider service coverage.

In more than half a year, Luckin Coffee has entered 13 cities and opened more than 500 stores. Through the new retail model, Luckin Coffee has expanded the service radius of its stores to about 2 kilometers. For example, if Starbucks' service radius is set at 500 meters, which is a comfortable walk, as of June 13 this year, Luckin's service coverage area in the 13 cities it has entered has exceeded Starbucks.

The larger service area not only brings more consumers, but also enriches the consumption scenarios of freshly ground coffee. Whether it is refreshing during work breaks, drinking beverages at gatherings, or enjoying leisure time at home, the emergence of new retail coffee has made these scenarios that traditional offline coffee shops cannot cover become new growth points for freshly ground coffee.

On May 8 this year, Luckin Coffee released its "Any Moment" brand strategy. In addition to takeaway kitchen stores that specialize in delivery, Luckin also set up flagship stores (Elite) and Relax stores to meet users' offline social needs, as well as quick pick-up stores (Pickup) for business people. Compared with traditional brands such as Starbucks that focus on "social space", Luckin Coffee, as a new retail coffee, has set its sights on all-round coverage of various demand scenarios for consumers' daily life and work.

Online Market

Breakthrough outside first- and second-tier cities and in home scenarios

Whether it is new retail coffee or convenience store coffee, the current starting point is first- and second-tier cities. For coffee consumers in these regions, there is another "number one player" that is changing their coffee consumption, that is, the rapidly developing online coffee market.

Currently in the online market, not only Starbucks, illy and other brands have opened stores, but many domestic coffee brands have also grown rapidly, and some of them have even surpassed international brands in market share in certain coffee categories. With the booming online coffee market, consumers can buy high-quality coffee beans and coffee products from all over the world at a lower price and in a more convenient way, and can also make their own coffee at home more conveniently.

One example of the popularity of coffee in the home is the rapid growth in sales of capsule coffee. Currently, capsule coffee machines have become a part of "fashionable home appliances" and are popular in many families. In the past three years, capsule coffee has become the fastest growing coffee category in the online market, with sales growth of nearly 60% in 2017.

In addition to first- and second-tier cities, the online market has also opened up a new blue ocean for the coffee industry - third- and fourth-tier cities. In these cities, the consumption of freshly ground coffee is still mainly limited to coffee shops. But with the rich variety of online coffee products, coffee consumption has been able to go beyond first- and second-tier cities and beyond coffee shops.

According to the CBNData 2018 China Coffee Industry Insights report, among online coffee consumers in 2017, those from first- and second-tier cities accounted for only 40%, while the rest were distributed in third- and fourth-tier cities and even rural areas. This shows that coffee is no longer a "petty bourgeoisie" beverage. Through the online market, coffee has found a broad market outside first- and second-tier cities.

New retail coffee, convenience store coffee and online markets have achieved rapid development through breakthroughs in coffee consumption scenarios, and have also brought new trends and greater market space to the industry. In addition, the continued expansion of the influence of "Internet celebrities" in boutique coffee and the emergence of new formats such as automatic coffee machines have also made the industry more diverse. 2018 is already halfway through, and in the remaining six months, the coffee industry is bound to have more changes and surprises.