U.S. coffee chains are capitalizing on Chinese millennials preference for coffee over tea
When you think of beverages in China, tea is no doubt the first thing that springs to mind. To a younger generation of Chinese consumers raised on global capitalism, however, coffee is increasingly the caffeinated beverage of choice—and coffeehouse chains are ready to pounce.
According to data from Bloomberg, Chinese coffee consumption is trending upward at a rate that far outpaces other areas of the world. An increasing number of Chinese millennials see coffee as a trendy, cosmopolitan alternative. Coffee shops are also gaining a reputation as social spaces, with consumers like Kathy Chen describing them as “places where you can talk to friends and relax.”
While Nestle currently controls the lion’s share of China’s coffee market, other retailers are taking steps to cash in on a relatively untapped opportunity. Starbucks already manages about 2,800 locations in the country, but recently invested $1.2 billion to buy out partners to assume full control of more than 1,000 additional franchises in eastern China. Dunkin' (Donuts?), hoping that a third try in the far east will be the charm after two false starts, announced its commitment to grow from 34 locations to 1,400 over the next 20 years.
The signs that the $1.1 billion market could experience the hockey stick growth that transformed Japan into one of the world’s largest coffee markets over the last quarter of the 20th century are all there. This belief in future earnings has fostered a zen-like patience among profit-minded coffee executives. As Starbucks President and CEO Kevin Johnson describes it, “we’re playing a long game.”
As this trend continues, consumer tastes will likely shift as well. Most current coffee drinkers in China prefer ready-made “3-in-1” drinks, which combine coffee, milk and sugar in a prepackaged vessel. Most of these instant options are made from robusta (a bitter blend originating in Vietnam), but market forecasters speculate that the explosion of coffee shops will lead to increased demand for tastier—and pricier—arabica beans. It’ll be a long time before coffee supplants tea as China’s national beverage. But with the Chinese middle class expected to include more than 450 million people by 2021, we should know whether or not this coffee craze is for real soon enough.