Opportunities for store made beverage market
In recent years, “premiumisation” has become the buzzword in China market, as consumers are willing to pay more for higher quality products. This has led to the rapid development of a store made beverage market, especially for coffee and tea. “HEEKCHA”, first started in Pearl River Delta and created a tea craze where consumers can spend up to 7 hours queueing up for one cup of milk tea. It has since it made its debut in Shanghai in February and repeated the feat of generating huge publicity and queues.
Winter is peak season for store made beverage
Kantar Worldpanel’s Out of Home Panel tracks consumers purchase across 27 major cities in China and it reveals that store made beverage contributes 45% value share of the out-of-home beverage and its penetration reached 66%. In other words, two thirds of the consumers have ever bought store made beverage at least once in 2016. This is bringing a lot of value to the market as the average price of store made drink is 15.2 per unit; far higher than packaged beverage’s average price of 3.8 per unit. This fits in with a wider cross category trend towards more premium products. It will create 1.8 billion incremental sales if consumers add one more purchase per year (the current purchase frequency of store made beverage is 14.3 time in one year in the 27 A Tier cities).
Summer is undoubtedly peak season for beverage consumption as a whole, but it holds true only for packaged products. In contrast, store made drink usually peaks in winter time at the beginning of the year. Hot drinks account for 52% of the volume of store made beverage, explaining its popularity in winter. Chinese New Year is the most important festive occasion when families and friends gather to celebrate. This creates massive sales opportunities for store made beverage.
Different Consumption Behavior between Café and Tea House
Store made coffee and tea are the main drivers of the sector’s increasing popularity, but they are bought is different channels. Café takes up nearly half of store made coffee market share, while tea house dominates on-premise tea market with over 70% volume share.
For both categories afternoon is the peak time for consumption, especially for store made tea, which helps consumers relax during the leisure time, for afternoon break or weekend stroll.
Jack Ma once said in Starbucks staff meeting - “Starbucks is not just a cup of coffee, but is a lifestyle”, coffee is more and more treated as a culture and lifestyle. This is reflected in our data as habitual purchase is the most important reason when choosing coffee. Drinking in the store is the key consumption place. People enjoy the moment rather than the coffee itself, and instore atmosphere and cozy setting are more important to the core customers. Cafe should consider how to brand itself as a cafe with story to satisfy consumers’ pursuit of middleclass lifestyle.
Store made tea, on the other hand, shows a different consumption pattern. The main reason for choosing store made tea is its flavor, and it is consumed either on the go or in the shopping center. Store made tea is treated as leisure drink during free time like shopping. This means tea house should place a great emphasis on its location to attract traffic. Meanwhile, quality of tea drink should not be neglected. The success secret of “HEEKCHA” lies in its location, but also its high quality. It claims that its tea is extracted under high pressure by using 100C boiled water in 60 seconds. To maintain this quality the company has rejected franchise model where it would have less control over the end product.
CVS accelerates the growth of coffee
Convenience stores (CVS) expanded rapidly taking share from big format modern trade players as consumers look for ease in their lives. This has led to increased supply of store brand coffee, such as “Daily Café” in 7-11, “Hi Coffee” in C-store and “Par café” in Family Mart. This trend is backed up by the successful experience of setting up these brands in Japan and Taiwan. At beginning of this year, “Par Café” launched a new video advertisement with Ivy Chen as their celebrity endorser. There was a H5 campaign to encourage customers to witness happy moment together with Ivy Chen. The advertising copy aims to target Post 80s females to develop their awareness and conversion of the store made coffee.
Although the market is immense for CVS, we find that the consumption habit of CVS coffee is totally different with chained café. Thanks to competitive pricing, CVS mainly attracts Post 80s office workers. The peak of CVS coffee purchase is breakfast occasion/ mid-morning occasion and they prefer to take the coffee to workplace or drink on the go rather than in the store.
Different from café, consumers mainly buy coffee from CVS to wake them up. With large number of stores and lower price, CVS coffee meets the need of their target consumers. They need to consider how to operate in the neighborhood or office building to enhance its convenience feature and improve product quality to maintain their value for money image.
Currently the majority of Chinese consumers have not yet developed the habit of drinking coffee. This could mean there is real potential for future expansion. Larger coffee chains such as Starbucks are looking to take the lead to educate consumers on the product and create aspirational image, CVS stores like Family Mart and 7-Eleven play a different role in their market expansion increasing access for younger and more budget constrained consumers.