Surging popularity of beverage among urbanites, sizable mid-income group spur sector growth
China is probably the last place where one would expect a large group of consumers to overwhelmingly take to coffee.
Traditionally home to products like oolong tea, Longjing (Dragon Well) tea and Xinyang Maojian tea, the country is, however, slowly seeing consumer preferences and consumption patterns evolve in favor of the dark beverage.
The fierce competition between global coffee chains such as Starbucks and Costa, and domestic players like Luckin Coffee and Manner Coffee, coupled with surging demand for coffee makers and beans sourced from various countries, have resulted in a greater number of coffee shops springing up across the country, leading to a significant increase in coffee consumption.
In fact, Jiangsu province in East China — a major coffee bean importing region — has seen a significant surge in green coffee bean imports.
The province imported 8,193 metric tons of green coffee beans valued at 250 million yuan ($34.9 million) in the first five months of 2023, a year-on-year growth rate of 65 percent, according to data from Nanjing Customs, a local unit of the General Administration of Customs.
"Our main imports were green coffee beans from Brazil, Colombia and Ethiopia over the past two years," said Wang Rui, a warehouse manager of Kunshan Yiguo International Trade Co Ltd in Kunshan, Jiangsu province.
The company has expanded its sourcing to include Costa Rica for the first time this year, importing 76.8 tons of green coffee beans from the Central American country in the first six months.
After the GAC permitted the import of coffee beans from Honduras in June, Wang's company is looking to source the beans from the Central American nation in the future.
"Coffee bean suppliers from Honduras are also making efforts to apply for business registration qualifications in China. Once they obtain export qualifications, we will be able to import coffee beans directly into China," said Wang. "Driven by consumers' diversified shopping preferences on coffee products, we will expand into more coffee-producing regions and bring high-quality specialty coffees to the home market, especially cities located in the Yangtze River Delta and the Pearl River Delta regions."
The origins of coffee bean exports are expanding and their import volume is growing, said Gong Kaiqing, president of Kunshan Kele Coffee Baking Co Ltd, adding that soaring orders mean the quantity of purchased raw coffee beans has increased notably compared to the same period last year.
"Regarding our coffee bean imports this year, we expect an increase of approximately 50 percent from 2022," he said.
The company has already made reservations for the second half of this year and the beginning of 2024, Wang said.
Kunshan, a major coffee importer and processor, imported 185 million yuan worth of coffee beans in the first five months of this year, a year-on-year growth of 206.5 percent, Customs data showed.
To secure its competitive edge in this rapidly expanding market, Kunshan launched a giant coffee bean storage and distribution center in mid-June to serve both the home market as well as the Asia-Pacific region.
With an investment of 380 million yuan, the facility can store 50,000 tons of coffee beans and achieve real-time monitoring of internal temperature, humidity and other parameters within its warehouses.
Supported by rising coffee consumption in cities as well as a sizable middle-income consumer group, China will continue to be a key consumer in this lucrative business segment, said Wang Qi, vice-president of the Beijing-based China National Food Industry Association.
Wang said global and domestic coffee chains are prioritizing human connections, promoting healthier performance and strengthening investments in digital capacities and innovation. They are allocating more resources and manpower to expand their presence in smaller cities in China, aiming to capture a larger consumer base at lower costs.
"This rapid expansion into smaller cities is advantageous for large on-premise coffee brands due to lower expenses on management, labor and rent compared to major cities," she said.
The domestic coffee market has entered a stage of rapid development. Orders from coffee shops jumped 250 percent year-on-year in the second quarter of 2023, making it the fastest-growing category among all beverages, according to food delivery platform Meituan.
Nottington (Kunshan) Coffee Co Ltd, a Kunshan-headquartered coffee chain that operates more than 200 stores nationwide, reported that its coffee sales grew by 30 percent on a yearly basis in the first half of this year.
"Not only is the consumption of freshly ground coffee growing rapidly, consumers are also favoring ready-to-drink coffee due to its convenience," said Tang Xukai, president of Nottington (Kunshan) Coffee.
The company's production line for this type of product has been operating at full capacity in South China's Guangdong province, Tang added.
In addition to major cities, most of the sales volume comes from smaller markets.
Due to the fast-paced market growth, there is an increasing demand for coffee beans, with an average monthly growth rate of 11 percent to 13 percent, said Li Jiamin, owner of Yunnan Chaoka Trading Co Ltd, which runs a number of coffee stores in smaller cities.
According to Tianyancha, a Chinese corporate information provider, currently, more than 180,000 coffee-related businesses operate in the country. In 2022, 34,000 new companies gained business licenses in this field, a growth rate of 11.75 percent.
Zhang Yi, chief analyst of AI Media Consulting (Guangzhou) Co Ltd, said China's coffee market is in a phase of high-speed development.
The country's coffee industry is expected to maintain a growth rate ranging from 25 percent to 35 percent in the coming years. By 2025, it is projected that the overall market size nationwide will exceed 1 trillion yuan, AI Media Consulting (Guangzhou) said in a report.
Although more people in China are embracing the coffee culture, per capita coffee consumption in the country still lags behind that of developed nations like Japan, South Korea, and the United States. This has caught the attention of global coffee brands, who recognize the immense untapped potential of the Chinese market, he said.
China traded 231,200 tons of coffee and related products worth 9.35 billion yuan in the global market last year. Meanwhile, its import volume accounted for 175,300 tons, with a total value of 7.39 billion yuan, Customs data showed.
Wang Lingjun, vice-minister of the GAC, said the government will further deepen cooperation with relevant departments of African countries in inspection and quarantine, and expand the variety of agricultural and food products, including aquatic products, fruit, honey and coffee, imported to China.