In a land known for tea, more and more people are now looking for a cup of joe. Although originally introduced into this country in the late nineteenth century, coffee is just now experiencing a period of unprecedented consumption levels, both at home and in public. In fact, China is poised to overtake Germany and Japan to become the number two coffee consumer (after the United States). But what is behind this fairly sudden phenomenon?

Instant vs. Roasted Beans

First of all, it is important to distinguish the two major branches of China’s growing coffee market: instant coffee and roasted coffee. Very few people in China actually make coffee from ground beans at home, as is common in the West. Instead, they prefer packets of instant coffee (oftentimes with powdered milk and sugar already incorporated) which can simply be added to hot water or milk. This is a popular option, with almost one third of people in China drinking instant coffee at home instead of tea. Although that may seem like a lot of people, the amount of coffee each person is consuming in China is still quite small compared to other parts of the world. For example, the average number of cups of coffee consumed per capita per year in Finland is 1,459. In Sweden, another small country (at least compared to China!) consumers average 1,117 cups per capita per year. And how does China fare on this list? It’s near the bottom of the list with… five. All this tells us is that it is important to remember that this “coffee phenomenon” has just as much to do with the potential coffee drinking market as it has to do with the actual rise of coffee drinking.

That being said, China's demand for coffee is increasing at an astounding rate, with an estimated 15 to 20% a year increase compared to the world’s average of two percent. But these staggering numbers mean that at-home drinking simply cannot be the main source of coffee consumption in China. Instead, we must look outward, at the other major branch of the coffee market: freshly brewed coffee shops.

Social Benefits & Perks

The staggering popularity of coffee shops such as Starbucks and Costa Coffee attest to the fact that many Chinese coffee drinkers do it for the social and networking benefits it provides. Coffee is still very much seen as a Western concept, and as a result has that lingering association with all things wealthy or sophisticated. The area in which the coffee is served almost seems to matter more than what is actually being drunk. In China, drinking of any kind is most often looked at as a social experience – from the established rituals of drinking baijiu at business dinners to the elaborate tea drinking ceremonies still performed today, drinking in and of itself has long been a Chinese tradition. Joining family, friends, or coworkers in a coffee house – and, therefore, consuming coffee – is simply another way of interacting with different sectors of the community.

The generous use of heating and air condition, combined with the increasing availability of free internet in such coffee shops should also not be overlooked. With the internet, people have become more mobile and these coffee shops accommodate such flexibility better than, say, a traditional tea house. Asia Times recently quoted a man in his mid-30’s as saying, "I usually visit Starbucks or Costa Coffee three or four times a week. Apart from the good coffee, it's a relaxing place to meet friends, and with free wireless Internet it's also convenient for working.” When one place can meet so many diverse needs, it is not difficult to understand why coffee is enjoying such tremendous growth here.

A Hefty Profit

Many entrepreneurs are eager to jump into the coffee shop business because investments in coffee machines and other necessary equipment is relatively low-cost and low-risk, with a very solid potential for high returns. Combine this with China’s increasing globalization, and recent worldwide exposure through the 2008 Beijing Olympics and 2010 Shanghai Expo, and China has become one of the top locations for those looking to start up a business. The potential here is so vast, in part because the rate of coffee drinkers here is still so low compared to the population. Places that already have a high percentage of coffee drinkers, such as the US, don’t have a huge market on which to improve; i.e., there aren’t many people left who are not drinking coffee. But since coffee is still a relatively new phenomenon here in China, the potential market is huge. But Nestor Osario, executive director of the International Coffee Organization (ICO), warns not to get too far sighted when it comes to China’s potential coffee market. “Naturally, we cannot think of China as a 1.2-billion-consumer market. Probably, the potential Chinese market for a product like coffee would limit to 200 or 250 million people. Nonetheless, this means a market as big as that of the United States, the main consumer in the world," he said, according to People Daily.

Another reason coffee has become so popular in China is that it is becoming more profitable – not only for the multitude of coffee shops and cafes that serve it, but also for the farmers who grow it. While China still imports coffee from over 50 different countries, its small market is rapidly growing. Yunnan province is especially known for its robust coffee bean (it constitutes about 95% of China’s total coffee production) and China counts on it as one of the main ways to gain foreign cash. According to the National Coffee Association of USA, over 80% of Yunnan’s coffee production is exported out of China. The world’s top five coffee suppliers (including the ever popular Nescafe) purchase beans from Yunnan, with an annual coffee output of 29,000 tons. And with over 5,000 acres being dedicated to pure coffee bean plantations, the potential to make even more money out of this profitable export will most likely lead to even more land being set aside for the production of coffee beans in the future.

But don’t count out the popularity of tea just yet. To keep things in perspective, China’s coffee sales currently total about 20% of the hot drink market, in contrast to tea’s 70%. It is clear that tea is still king in this country, and by a healthy majority. Coffee certainly still has a long way to go to catch up to the tea drinkers, but it looks like its potential for growth has only just begun.
 

Related links
Choose Your Poison: "Coffee Flavored" Beverages
Yunnan Coffee
Nescafe & Being Addicted to Caffeine in China

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