Wherever there are consumers, there is sure to be Starbucks. In this respect the US coffee house conglomerate is similar to many other companies – the difference is visibility. A total of 165 outlets have sprung up in China’s streets and malls since 1999 and this is just the beginning.
Fresh from winning a court battle to prevent a Chinese rival using a similar logo, Starbucks chairman Howard Schultz said in February that a China strategy would be the driving force in the company’s bid to deliver annual profits growth of at least 20% over the next three to five years.
Starbucks is not alone. With China’s tea drinkers turning to coffee in growing numbers, the likes of Coffee Bean & Tea Leaf from the US, Taiwan-based UBC Coffee, Japan’s Manabe and Canadian group Blenz are among the major players present in a market fast becoming flooded with brands, both foreign and domestic. Official figures show China currently has 2,000 hectares of coffee plantations with an annual output of more than 20,000 tonnes a year. This is expected to double by 2010, largely to satisfy the needs of a market that could include as many as 250 million people.
"This means a market as big as that of the United States, the main consumer in the world," said Nestor Osorio, executive director of International Coffee Organization (ICO), at the Second World Coffee Conference last September. According to ICO statistics, China’s coffee consumption is growing at a rate of about 15% a year, well above the 2% global average.
Instant coffee – the market for which is dominated by Nestl? with the likes of Maxwell House and Mocca Coffee making up the difference – still accounts for the bulk of the total consumption figure. But an increasing number of urban young professionals now go to coffee houses for their caffeine fix. "Coffee to me is like rice to Chinese people, it’s part of my life," said Shining Zhu, a marketing executive with a multinational company, who visits Starbucks, Coffee Bean or Dante at least four times a week.
It is sentiments such as these that make coffee house chains very optimistic for the future. "With thousands of coffee shops cropping up in cities like Shanghai, Beijing and Guangzhou, the prospects for further growth are encouraging," said Yuan Chen, a representative from French-style coffee chain Jazz Island.
However, China’s coffee craze has a different point of origin from that of the West. Coffee is seen as a symbol of the western lifestyle and China’s emerging middle class, and is associated with fashion and modernity. It is an emotional and cultural consumption as much as a consumption of the beverage itself.
"Most Chinese people don’t know much about the quality of coffee, they go to coffee houses mainly for the environment," said Sylvia Mu, research manager of Euromonitor International. "They need a quiet place with soft light and music to chat, relax from stressful daily life and hang out with friends. To some extent, what appeals to the customers is not the coffee itself."
As a result coffee houses go to great lengths in creating a relaxing and intrusion-free atmosphere, conscious of the social kudos at stake. The well-known Beijing-based Sculpting in Time Caf? chain provides books, music and movies, with almost all of its outlets opening near universities, attracting the student and intellectual communities. Another Beijing operator, Republic Coffee, is popular for its diverse library and small exhibition of artworks. "Meeting clients or friends over a delicious cup of coffee in a pleasant coffee house has become an indicator of taste and identity," said Jazz Island’s Chen.
To most people, though, the Starbucks experience is still a luxury that comes at too high a price. Euromonitor’s Mu points out that the majority of the coffee house regulars are high-income, well-educated and fashion-conscious urbanites. And with coffee coming at US$3.70 a cup against a national average monthly wage of US$107.8, this isn’t likely to change any time soon.
"Drinking coffee hasn’t become a habit for most Chinese people," said Chen. "Helping them understand coffee culture and appreciate the taste of coffee promises to be a great challenge for marketing executives."
Nevertheless, coffee has managed to gain a foothold in China – a significant achievement given the country’s time-honored tea-drinking tradition – and Euromonitor expects it to maintain annual growth of around 10% beyond 2010. Already a profitable niche market, the prospect of it spreading into other sectors of society as overall affluence increases is strong enough to give weight to Starbucks’ big ambitions. Mid-range products are also likely to emerge, further widening the target market for a dose of coffee culture.
"Rising income, changing lifestyles and eating habits as well as cultural diversification in the context of economic globalization will all drive up the coffee market," said Mu.