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- Brewing up a storm
Brewing up a storm
How Asia is changing the global coffee landscape
Greetings, Market Shakers, we’re back!
✨🎉 Wish you all a wonderful new year. 🎉 ✨
We’ll be going back to our once-a-week schedule for the newsletter.
Over the next few weeks, we’ll be diving into a few F&B categories shaping the future, as highlighted by our experts. We’re particularly going to put the spotlight on Asia as a powerhouse of burgeoning markets, rapid urbanization, and escalating spending power.
Our exploration will span categories that together form a tapestry of a few of our daily culinary experiences.
Picture starting your day with the invigorating aroma of hot COFFEE ☕…
Progressing to a lunch rich in PROTEIN 🥩…
And indulging in sweet CONFECTIONERY to combat the mid-afternoon slump 🍫
As the day winds down, we'll wind down with an ALCOHOLIC DRINK 🍸…
And for those moments when the kitchen feels too far away, we'll delve into the convenience of FROZEN FOOD for a quick dinner 🍱.
This week is going to be about coffee. So go grab some and settle in!
📰 In The News: An inflation-related breakup, unwanted ingredients, and space food…
🚀 Deep Dive: Coffee is taking over tea-drinking Asia, but through different strokes for different folks. Read on for the different regional strategies driving the next phase of growth for the coffee market.
📰 In The News
A curation of our favorite hot gossip from F&B stories from the week. Can be read in less than a 🧻 break.
Who doesn’t love a juicy celebrity breakup? The new year has started off with fireworks between French retailer Carrefour and F&B A-lister PepsiCo fighting over who broke up with whom first. Carrefour launched its name-and-shame campaign over shrinkflation last year across its stores in France. Now the battle has spread to its stores in other countries. 🍿🍿🍿
Speaking of scandals, here’s a microscopic one. Our bottled water brands may have a substance abuse issue – they seem to be hyped up on a lot more nanoplastics than previously thought. Up to a 100 times more of that teeny tiny plastic-y contraband… 🤯 At a time when image is everything, these guys might want to clean up their act before it ruins their career.
“The aliens are fooling around with crops!!” That’s what I imagine life on Mars will say if this new plan gets off the ground. A few Earthlings at the University of Nebraska are working on growing corn on Mars’ soil. There’s been a lot more action in this area than one would have thought. It looks like space is the final frontier – for farming.🌽🌌
🚀 Deep Dive: A coffee storm’s a-brewin’ across Asia
Weekly deep dive into an F&B trend. Can be read in less than a 🚋 ride.
Coffee’s popularity will keep rising, particularly across relatively nascent Asian markets.
In this article, we cover:
The phenomenal growth of coffee consumption
How younger consumers are the driving force of consumption and innovation
Asia will be the next major growth region for coffee companies
The implementation of different strategies for growth appear to be working hand-in-hand
Speed, affordability, and app-based ordering promote on-the-move convenience
Premium convenience comes from sit-down cafes that focus on experience
The second most consumed beverage
Coffee is one of the few socially acceptable addictions. Not to minimize addiction, but boy, are we fond of this bitter brew. Coffee is now the second most consumed beverage in the world, after water.
The global coffee market (including at-home and out-of-home consumption) is expected to be worth US$132.13 billion in 2024 and US$166.39 billion by 2029, growing at a CAGR of 4.72% during this period. In comparison, the global tea market is estimated to reach US$127.3 billion in 2024 and US$160.0 billion by 2028.
Coffee may well be on its way to becoming its own religion, given how seriously people take their coffee rituals. Even traditionally tea drinking nations are on their way to being converted. A survey in the UK found that coffee is the stimulant du jour, with 63% of respondents saying they regularly reach for a cup of joe compared to 59% who said they regularly had the traditional cuppa.
One main reason for coffee’s growth is that coffee drinkers are starting younger. In a survey, US adults now over the age of 35 said they first started drinking coffee between 18 and 20 years. Consumers currently aged 18-24 years on average started drinking coffee at age 15. By the time these consumers hit adulthood, they had already developed sophisticated palates for coffee and were ripe for new coffee experiences. This trajectory is playing out in many parts of the world.
Asian markets and audiences will drive growth
In 2024, coffee will plow on for dominance as new consumers fit the drink into their different needs and occasions. In fact, tea guzzling nations in Asia are already smitten by coffee, thanks to the growing café culture and the beverage’s appeal with young adult consumers. Its trendy, aspirational quality and versatility to blend well with a slew of flavors and plant-based milks has helped it along.
In fact, Asia will be the next big growth hub for coffee companies.
Cafés (OOH) are often the starting point for consumption in markets where coffee penetration is limited. International brands that introduced the café concept as we see it today may have been the pioneers in such markets, but see stiff competition from emerging local brands as coffee becomes a more established beverage in new markets.
Leading the charge in Asia is China
China is a major market for international coffee chain brands. These brands are seen as premium and experiential in the country, often with high-end stores and offerings. Branding, store locations, comfortable decor are part of the positioning to entice consumers.
But local players have been biting at global majors’ heels in this space and the battle has resulted in some fascinating market dynamics and innovations.
Domestic brand Luckin Coffee launched in 2017 and, with its mass market appeal and mobile ordering, has managed to leave global players in the dust. In 2023, Luckin became not just the largest coffee chain in the country with over 10,800 outlets, but also surpassed Starbucks in terms of revenues in 2023.
Another local player, Cotti Coffee, is a prime contender to Luckin and has plans to open 10,000 outlets in China by 2025; it currently has over 6,000 outlets. Cotti was started by the former Luckin founders.
Both have smaller tech-driven self-operating or partnership stores. Consumers can order on the app and take away or have their drink delivered.
This asset-lite model has made it easier to expand rather aggressively in China. Both brands are especially looking at expanding into lower tier cities in the country and have expanded outside of China as well, especially in Southeast Asia.
Strong marketing with deep discounts, coupons, sponsorships, and partnerships helped both chains increase their profile and consumer base.
Local players have also been able to succeed due to local innovations, such as incorporating coffee with tea, milk, fruits, berries, herbs, jelly, and a number of other ingredients to balance out the bitterness of the drink. They have also brought in new techniques to making coffee (like simmering the powder in a container) and even in terms of serving containers.
Luckin Coffee launched an alcohol-infused coffee in partnership with the Chinese luxury liquor brand Kweichow Moutai. The Moutai latte, priced at 38 yuan (or US$5.20) proved to be immensely popular, selling 5.42 million cups on the day of launch. Local flavor innovations work really well in terms of appealing to young adult consumers.
Image Source: Luckin Coffee’s Weibo account/Nikkei
The effect of Luckin’s and Cotti’s success has forced Starbucks to make some localized changes.
Introduced in October 2023, Starbucks China’s “Intenso Collection” uses double the amount of espresso for a richer taste and comes in a smaller size, similar to offerings found in boutique coffee shops.
However, the growth of these coffee chains has resulted in the market squeezing out smaller players who may not be able to compete with the ubiquity, price, product range of larger chains. Felipe said that, “…the price war between Luckin Coffee and Cotti Coffee is greatly impacting the coffee market in general, forcing many small and independent / boutique coffee shops to close down: approximately 44,000 coffee shop stores closed in China during 2023.”
Older consumers boost the South Korean market
South Koreans drink 2-3 cups of coffee a day on average and the majority of consumers are in their 40s and 50s. It is estimated that 70% of coffee in the country is consumed by this age group, perhaps because they see it as a way to take a break from their demanding work schedule. There has also been a long-standing campaign to limit younger consumers’ coffee consumption for health reasons.
The popularity of the drink has led to the country’s “hoesik” or company dinner culture shift to meetings held in cafés instead. The country has over 75,000 coffee shops and its coffee culture is becoming increasingly specialized, with a growing focus on experience.
Peter goes on to add that South Korea may be very receptive to new coffee experiences from other markets, in particular Australia. “I believe Australia is positioned favorably to meet this need as the cafés here are sophisticated and they have experience in importing, roasting, and crafting highly curated coffee bean flavors primed for export.”
Want to leverage the massive coffee opportunity in Asia? Our experts are here to help!
Southeast and South Asia are next in line for a growth spurt
Vietnam, Indonesia, India, Thailand, and the Philippines are all significant producers of coffee, but haven’t had high domestic consumption. That is rapidly changing thanks to rising incomes and urbanization. India and Vietnam in particular have been identified as the fastest growing coffee markets, with consumption predicted to grow by 37% and 32%, respectively, by 2027.
In Southeast Asia, local coffee chains have expanded primarily through a model similar to Luckin or Cotti. They have also leveraged technology and kept prices affordable through small spaces and a grab-and-go model. Consumers can use the app to order for takeaway or delivery. This has helped keep operational costs down while encouraging volumes.
Local coffee chains in this region also bring in consumers with localized menus, promotions, discounts, and various loyalty schemes. Let’s also not forget they have a significant amount of data about their consumers’ buying habits thanks to the app-first strategy.
The small, nimble model with multiple touch points (app, store, kiosk, delivery) has helped a lot of these chains expand rapidly within their home countries and even expand beyond, in some cases edging out global brands.
There’s also a lot of interest in homegrown coffee in these regions as well and we can expect to see a lot more focus on coffee originating from Asia in the coming years.
Kopi Kenangan is one of the fastest growing app-based coffee chains in Indonesia, with over 850 outlets in the country and plans for 100 locations in Malaysia in 2024.
In Vietnam, Phuc Long Coffee & Tea has rolled out a ‘hub and spoke’ model to redirect online orders to nearby kiosks during peak hours so as to enhance overall productivity. The company says this model has increased average daily sales by 40% in the first six months of 2023.
Nestlé is investing US$100 million in Vietnam to double the processing capacity of high-quality coffee products, to meet the growing demand for coffee, and to turn Vietnam into a high-value coffee production and supply center.
Like what you’re reading?
India’s coffee consumption is on the rise
India is warming up to coffee, but there are several challenges, including the fact that the country is primarily a tea-drinking nation with an over 90% penetration for tea.
In comparison, India’s coffee consumption is pretty low, at just 16% penetration. There is a huge population that has no exposure to coffee at all. However, penetration is predicted to reach 36% in the next 10 years as coffee chains grow.
Coffee is a predominantly south Indian drink (because that’s where the bulk of coffee grows) and here at-home consumption is high. As exposure to coffee grows, India’s retail coffee business is also growing. Sales grew by 20% between 2020 and 2022, and is expected to see similar growth rates in the coming few years. Fresh ground coffee prices are contained with the addition of chicory – coffee blended with anywhere between 10% to 47% of chicory is fairly common in India for domestic retail brands. This also makes fresh coffee in small eateries very affordable for mass market consumers (in the southern states).
On the other side, coffee chains are helping create an aspirational positioning for the beverage in the country. Starbucks in India says it is seeing greater growth in smaller cities versus larger metros, while a number of premium local chains have also emerged. These chains all focus on pure, high quality, locally sourced coffee, featuring different brewing techniques and flavors. The availability of places to socialize and work outside of home/office settings is also enticing for Indian consumers – and so chains invest fairly heavily on location, decor, and even free internet.
India is a major part of Starbucks’ growth plans and is one of the chain’s fastest growing markets. The chain plans to open 1,000 stores across the country by 2028.
Unlike Southeast Asian chains, Indian chains are at the higher end of the price spectrum. India is second on the list of countries where a Starbucks Tall Latte is least affordable based on price as a percentage of a country’s median daily income: 71.3% of the median daily wage would be needed to buy this drink.
As coffee’s presence in India grows, there are learnings that can be applied here from Southeast Asian countries’ success with affordable and accessible coffee.
Coffee’s extraordinary growth across Asia is definitely something for coffee brands to keep an eye on, especially as a hub of young, aspirational, and affluent consumers. Leveraging this enormous opportunity means striking when the brew is scalding with an offering that will keep consumers coming back for more.
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