Market research on Coffee shops in China
China has a rapid growing coffee culture as the consumption grows 10 to 15 percent yearly while in the rest of the world the average is about 2 percent. Though China is far from being the largest coffee market, but many are believed that it will soon surpass many European countries and Japan, is the second largest market after the US. Our focus is a market research on coffee shops in China.
Though deeply influenced by the thousand-year-tea-drinking culture, Chinese are more and more open to western lifestyle. It is a part of the overall expansion of western food and way of life in China.
Foreign brands dominating the Chinese coffee shop market
The very first foreign brands coming to China was Nestlé (雀巢), which now owns around 75% of the instant coffee market. But according to market research in China, this segment is seen as inexpensive (1.5 RMB per packet), convenient and lower quality among Chinese.
Unlike Nestle, Starbucks targeted the high-income consumers. While China is already the largest market for Starbucks in the world, the brand will keep investing in China, aiming to have 1500 stores in more than 70 cities by the end of 2015. With an operating margin of 33,7 % in the China/ Asia-Pacific region, Starbucks dominates China’s coffee shop market with 60% share. Still, Starbuck meets some slight troubles in China. Its pricing is comparatively much higher than in the US, and Starbucks have been even criticized by CCTV (China Central Television) in 2013.
Also, Starbuck has to deal with an always more fierce competition in Coffee shops market in China. As the British coffee chain Costa Coffee entered China in 2006, the situation has slightly changed. It quickly captured public attention and now has a share of 8,9% in the retail market. By 2016, Costa aims to have 500 stores. Other brands such as 85 Degrees from Taiwan are also entering Chinese market these years; it offers coffee with lower price and it is famous also for the fresh baked bread and pastries what Chinese consumers often drink coffee with. It is estimated to have 450 stores by 2017.
Key strategies to enter into coffee shops in China
Compared with more than 400 cups of coffee for an average American on a per year basis, 4 cups per year for a Chinese is way too small to consider China market of the coffee shop as a well-developed market. Even compared to its Asian neighbor Japan, who also has a long tradition of drinking tea instead of coffee, the Chinese market for coffee still has not been fully developed. Therefore, potentiality is so huge that many other foreign brands are eying this underdeveloped market.
Some key strategies that foreign companies should bear in mind that:
Firstly, according to market research in China, Chinese consumers consider drinking coffee as a social event; seldom people drink coffee alone or on the road, they prefer to drink coffee in a comfortable environment with friends. Thus, installing a coffee shop needs a more spacious venture.
Secondly, Chinese consumers dislike the bitter taste espresso. Just like what Starbucks did, they add fruity taste Frappuccino and other sweet drinks to adapt the taste of Chinese consumers, other newcomers should not keep the old rule, innovation and localization are needed to get successful in China.
Thirdly, if companies want to launch a business in big cities where the pre-existing competition is already fierce, the pricing strategy is essential. How to keep price low while maintaining a sustainable development is a key issue worth studying.
Coffee shop market research