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Coffee battle brews in China
BEIJING: Starbucks and Nestlé are both attempting to enhance their respective positions in the Chinese coffee category, a sector witnessing a surge in demand from affluent shoppers.
"The potential for growth in the Chinese coffee market is enormous," Adrian Ho, head of coffee and beverages Nestlé, Greater China,
told the Asia Times
"Per capita coffee consumption currently stands at a mere five cups per year. In Hong Kong the figure rises to 60 cups, and in Japan 300 cups per year."
Increasing discretionary expenditure among the professional class has contributed to stimulating interest for out-of-home and instant brands in major urban centres like Beijing and Shanghai.
"For many Chinese, especially in big cities, coffee is part of a lifestyle aspiration," said Ho. "More and more young professionals are choosing to start the day with a cup or two at home.
"We are currently running the world's biggest coffee sampling project in China."
Alongside basic sachets, jars and cans of coffee, Nestlé has launched high-end gift boxes and brand extensions featuring creamer and sugar.
It also intends to boost support for its premium Nespresso capsules and machines.
"Trends are very favorable. Roast and ground coffee is getting more popular every day," said Ernest Yong, Nespresso Asia's marketing manager.
"We view Nespresso as a mass luxury product which a growing number of Chinese will learn, want and be able to enjoy."
Estimates from research provider Euromonitor International suggest Nestlé held 70% of the instant coffee category in China last year, beating Kraft's 15%, and Jiangsu Mocca Food's more modest 1%.
As well as trebling the size of its network in mainland China to 1,500 branches by 2015, Starbucks hopes to exploit the burgeoning at-home sector.
"It represents an exciting opportunity for us to expand our reach to instant coffee drinkers, China's largest coffee market segment," Wang Jinlong, Starbucks China, said.
From early April, the firm's Via range will be sold in Starbucks' 800 outlets across China, Hong Kong and Taiwan, with a plan to then introduce it into hotels, grocery and convenience stores.
"We see a big opportunity in packaged goods in China," said John Culver, president of Starbucks Coffee International.
Via has been highly successful in existing markets such as the US, but Starbucks' aspirations extend beyond this product alone.
"We will develop more drinks and cakes as well as embrace our deep coffee heritage," said Culver.
Starbucks is also boosting its R&D capabilities by setting up an innovation hub in Shanghai, with a particular focus on tea, and may consider making acquisitions to gain further ground.
"We do not grow just to grow. We grow in a way so that we protect our brand and culture," Culver added.
Nestor Osorio, executive director of the International Coffee Organization (ICO), predicted the world's most populous nation could evolve in a manner previously demonstrated by one of its Asian counterparts.
"The growth in China's instant coffee market owes a great deal to Nestlé extensive marketing and a promotional campaign by the ICO in the late 1990s," said Osorio.
"Japan was at the current Chinese consumption level in the mid 1960s but now consumes over seven million bags. It's likely that China will follow a similar growth path."
Data sourced from Asia Times Online, Wall Street Journal, China.org.cn; additional content by Warc staff, 11 March 2011
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