Coffee houses china - december 2015

© 2015 Mintel Group Ltd. All Rights Reserved. Confidential to Mintel.

Coffee Houses China, December 2015

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• This report covers those establishments where coffee is the primary sales item or the main selling point to

attract consumers. They are based on the European and North American coffee shop models, offering a

wide variety of coffee drinks, eg cappuccino, latte, mocha, etc. Other items are usually on sale, such as

pastries, pasta, tea, coffee beans etc. However, the food offer may be restricted.

• It covers coffee house chains as well as independent coffee houses. Coffee houses include venues such

as individual stores, kiosks and concessions. These may operate in a number of locations – shopping malls,

department stores as well as bookshops. However, they must be independent of the facility they are located

in.

• Mintel also divides consumers into three groups based on their monthly household income (MHI). The

table below shows the definitions of low MHI, mid-MHI and high MHI consumer groups.

• Fieldwork was conducted in September 2015, in Beijing, Shanghai, Guangzhou, Chengdu, Jinan, Handan,

Heifei, Xiamen, Guilin and Wuhan.

• A total of 3,000 internet users aged 20-49 years old were surveyed.

Definitions

Sample size Tier one cities Tier two and three cities

Low MHI 1,000 MHI = RMB4,000-9,999 MHI = RMB4,000-6,999

Mid-MHI 1,000 MHI = RMB10,000-15,999 MHI = RMB7,000-14,000

High MHI 1,000 MHI > RMB16,000 MHI > RMB14,000

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THE MARKET

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• The out-of-home coffee drinking culture is spreading rapidly in China. With the flow of premium

international coffee chains and a variety of stylish independent cafés, spending quality time socialising

and relaxing at coffee houses is no longer a niche activity. According to Mintel’s forecast, China’s coffee

houses market will increase from RMB 56.8 billion in 2015 to RMB 97.7 billion in 2020, at an estimated

CAGR of 11.5%

• In terms of number of stores, the figure is expected to grow from 41,500 in 2015 to 58,900 in 2020, at an

estimated CAGR of 7.3%

Consumers’ increasingly sophisticated tastes encourage the expansion of

coffee chains

Source: Mintel

FIGURE 1: TOTAL VALUE SALES OF COFFEE HOUSES IN CHINA, 2010-20

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Key market drivers and barriers

• There are two main reasons for the optimism in coffee houses market: potential to increase spend per

capita for coffee drinks and the ambitious expansion announced by several international coffee chains .

• However, Mintel discovers that coffee specialists are facing market volatility. Cheaper alternatives such as

bakery and fast food chains might potentially steal share from coffee specialists because of the recent

economic slowdown. In this report, a higher percentage of consumers indicate they have spent more on

bakery houses compared to international coffee chains (26% vs 24%).

• Coffee houses should then focus on the experiential aspect. As knowledge and awareness of premium

coffee houses gain momentum, sophisticated consumers are becoming more discerning and looking

beyond just tangible products to experience the pleasure of the entire consumption journey. 22% of

consumers strongly believe coffee-related events at coffee houses such as coffee making training are

worth participating in. Looking specifically into the special features that encourage respondents to visit a

coffee shop, 33% of them, in particular the Classic Affluent segment, are highly interested in coffee-related

experiential events, and this evolution to greater sensorial experience is a key strategic direction to target

more mature coffee lovers.

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KEY PLAYERS

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The share of chains is getting more powerful

• When comparing the performance of independent and chain coffee shops, it is clear that the power of

chains is gathering strong pace. The share of coffee chains has risen from 21% in 2010 to 25% in

2014. Also the year-on-year growth has seen a sustained growth of 15-16% over the last five years.

• The key underlying reason for the growth in the chain segment is twofold. Firstly, the aggressive

expansion from chains such as Starbucks, Costa, Caffè Bene, Maan Coffee and Pacific Coffee has

further increased their impact on more developed cities. Meanwhile domestic chains are suffering

difficulties due to their blurred position and the strength of international chains determined to increase

their presence.

Source: Mintel

FIGURE 2 : SEGMENT PERFORMANCE OF COFFEE HOUSES IN CHINA, 2010-14

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Market headwind for domestic coffee chains

• Coffee houses market is

becoming increasingly

consolidated towards

international chains.

• Domestic coffee chains have

struggled in the past two

years. Between 2013 and

2014, the shares of all the

major domestic chains have

declined. The market shares

of UBC Coffee and Dio

Coffee have dropped 2%

and 2.2% respectively.

FIGURE 3: SHARE OF VALUE IN BABY SUPPLEMENTARY FOOD RETAIL MARKET, BY COMPANY,

2013 AND 2014 (%)

Source: Mintel

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Who’s Innovating

Special afternoon tea set with fashion labels

• Innovative afternoon tea specially designed

under a certain theme or a crossover with different

brands is trending as well as bringing a more

luxury experience.

• Lion Rock partnered with the American skincare

brand Kiehl’s to create a New York-style afternoon

tea

Product crossover

• Strategic and novelty partnerships bring a new

twist to the creativity aspect.

• Starbucks teamed up with American fashion

label Anna Sui to launch a special coffee tumbler

Eco-friendly campaigns

• Ethical and moral brand qualities are fast

becoming expectations as affluent consumers

look for coffee brands to be charitable, ethical or

environmentally responsible.

• Pacific Coffee has teamed up with OOObject to

introduce a brand new idea of environmentally

friendly themed outlet

Greater consumer involvement

• Chinese consumers become more discerning and seek

add-on services to enhance the overall consumption

experience.

• Starbucks heavily promoted the experiential-driven

concept “Star Reserves” in China

Art and culture-related events to boost

sophistication

• More coffee houses operators are integrating art-

related activities to cater to the trend of sophistication, as

well as the perfect complement for the high-end lifestyle

proposition.

• Beijing’s Moka Bros held a temporary tattoo studio in

one of its outlets

Alcohol inspired innovation

• Alcohol-inspired flavours can add a premium touch to

appeal to affluent consumers, as well as creating more

drinking occasions, in particular the evening session

after work.

• Costa is inspired by the cocktail mixology process to

launch “Shake Coffee”, which used a mixer with ice and

coffee for creating a special drink

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THE CONSUMER

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FIGURE 4: TARGET GROUPS of ATTITUDE TOWARDS COFFEE HOUSES, SEPT 2015

Four distinct groups of coffee house consumers

Base: 2,551 internet users aged 20-49 who have visited coffee houses in the last 6 months

Source: QQSurvey/Mintel

• Mintel conducted a cluster analysis on the total sample of 3,000 internet users aged 20-49.

The data output reveals four unique consumer cluster groups that differ in their attitudes

towards coffee houses, due to their varying demographic features, lifestyles and economic

status. Based on their psychographic features, Mintel defines these groups as Disengaged,

Copying the Affluent, Non-Mainstream Aspirants and Classic Affluent.

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Coffee house consumers profile

• Disengaged – This segment has the largest ratio of

females aged 30-39. They are likely to be mid-

earners and live in tier two and three cities.

• They are likely to be practical coffee shop

consumers, which means these consumers tend to

visit coffee shops only when they are conveniently

located. They don’t show high interest in innovative

store design.

• Copying the Affluent – They are more likely to be

female in the 20s, with low monthly disposable

income and live in tier two and three cities.

• These consumers embrace the idea of unique

lifestyles associated with coffee houses as they are

very likely to imitate the behaviour of affluent

diners. They love the idea of coffee places

integrating with bookstores and designs that suit

working or studying purpose. They are also

interested in cultural and art-related events that

leverage niche and unique issues initiated by coffee

houses.

• Non-Mainstream Aspirants – This segment

has the highest percentage of male

consumers in the 20s. They have a relatively

high monthly personal income and likely to live

in tier one cities.

• They are fussy consumers, they like the

exclusiveness offered by special independent

cafés. They have a higher likelihood to visit

coffee shops for a quick meal or snack and

interested coffee places offer mini-market

selling coffee-related products or integrated

with a boutique.

• Classic Affluent– Consumers in this group

are high-earners located in tier one cities.

They have the highest percentage of

Mintropolitans.

• They have a high engagement with premium

coffee houses that can represent their social

status and sophisticated taste. Coffee places

featuring environmentally friendly designs or

integrate with fashion brands are appealing.

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FIGURE 5: CHANGES IN SPENDING ON FRESHLY MADE COFFEE AT DIFFERENT VENUES IN THE

LAST SIX MONTHS, SEPT 2015

“Compared to 6 months ago, would you say that you are spending more, spending less or about the same

per month on freshly made coffee at the following types of venues?”

Threat from bakery and fast food chains

• A slightly higher percentage (26% vs

24%) of consumers claim that they

have spent more on freshly made

coffee at bakery houses than

international coffee chains. Thus an

overpriced perception associated with

coffee chains could prove beneficial for

artisanal bakery houses.

• Female consumers in their 20s (32%),

potentially due to their interest in

healthy light lunches, they are more

attracted to freshly made coffee at

bakery houses.

• Young men in their 20s (27%) also

increase spending in fast food chains

for coffee products,

Base: 3,000 internet users aged 20-49


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FIGURE 6:ATTITUDE TOWARDS COFFEE HOUSES, SEPT 2015

“Thinking about coffee houses, to what extent do you agree or disagree with the following statements?”

Key attitudinal indicators

• Aspirational behaviour mainly

involves attraction to coffee

brands that are trendsetting and

able to enhance the overall

consumption experience with a

new twist. This factor also ties

closely with an interest in

healthy menu and exotic

cuisines.

• Experiential-driven factors

related to the agreement of

valuing ambience above the

food and drinks menu.

• Since the key attitude towards

coffee houses has struggled

between the trade-off of

ambience and convenient

location, add-on services to

enhance the overall experience

as distinct differentiators have

become of paramount

importance.



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FIGURE 7: OCCASIONS OF VISITING SPECIALIST COFFEE HOUSES IN THE LAST SIX MONTHS,

SEPT 2015

“On which of the following occasions, if any, have you visited coffee houses (including both eating in the

shop and takeaway) in the last six months?”

The importance of afternoon tea innovation



• Overall afternoon tea is the most

popular occasion for visiting

specialist coffee houses, followed by

socialising and relaxing. Currently,

innovative afternoon tea specially

designed under a certain theme or

crossover with different brands is

trending as well as bringing a more

luxury experience to Chinese

consumers. Mintel predicts that

dedicated afternoon tea sets are a

win-win strategy to attract either

more established coffee shop

enthusiasts or less affluent diners.

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FIGURE 8: ELEMENTS ASSOCIATED WITH DIFFERENT SPECAILIST COFFEE HOSUES, SPET 2015

“Thinking about the following types of coffee houses, which of the following attributes, if any, do you

associate with each of them?”

Influential marketing channels for different luxury categories



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FIGURE 9: INTERESTS IN COFFEE HOUSE MENUS, SEPT 2015

“Thinking about eating at coffee houses, which of the following options, if any, are you interested in seeing

on the menu?”

Food and drink enticements



• Coffee shop lovers from the Copying

the Affluent and Classic Affluent

segments wish to see a wider range

of bakery products and snacks

available at coffee shops. A wider

range of savoury snacks is

particularly important for members of

the Copying the Affluent group. This

result reflects the popularity of the

afternoon tea occasion as dedicated

desserts and snacks are a natural fit

to complement coffee drinks.

• Copying the Affluent consumers are

interested in made-to-order fruit juice

and smoothies as they are

determined to adopt the healthy

eating habits introduced by coffee

houses.

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• Coffee shops designed for working

or studying purpose rank number

one as the most appealing feature.

As coffee culture is spreading to

less sophisticated consumers, they

are starting to see coffee shops as

an accessible way to experience a

higher-end lifestyle. Consumers

appreciate the concept for

relaxation purposes, but due to the

preference of multitasking

behaviour in China, the desire for

coffee shops to offer practical

spaces remains significant.

• Copying the Affluent group mainly

consists of members in their 20s

and relatively low spending power,

they prefer coffee shops designed

for working/studying purpose and

integrated with bookstores.

The scope for coffee shops designed for working and studying purpose



FIGURE 10:THE TOP THREE MOST APPEALING FEATURES AT COFFEE HOUSES , SEPT 2015

“Thinking about deciding which coffee shop to go to, which of the following features, if any, would

encourage you to choose one coffee shop over another?”

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Where are different chains standing currently?

Mintel estimates more than simply defining different coffee chains into fast casual, business-oriented and

homely setting models, different coffee chains are required to further distinguish themselves with unique

images for different types of coffee house users. More crucially, they need to know how to defend their

value propositions.

European and American coffee chains are standing firm in the premium position so they need to

continuously offer healthy menu and authentic international flavours. South Korean coffee chains, they have

leveraged a stylish and homely image with a unique interior design, therefore they can further embed

artistic design and organise art-related events to attract consumers.

Independent cafés have the ability to provide a wide range of food, thus they can promote the

changeability in menu selection to bring a surprise to customers. While domestic coffee chains are closely

related to the attribute of social responsibility, products that emphasise local sources can act as an unique

selling point.

How to attract new coffee houses adopters against bakery and fast food chains

The economic downturn that has weakened consumer confidence in conspicuous consumption, therefore

Mintel predicts more consumers are switching to better value-for-money alternatives for coffee drinks.

Less affluent consumers tend to pay less attention to socialising and relaxing compared to typical coffee

house lovers. Instead, they value more the practical usage such as working and studying occasions at

coffee shops and compare the actual food and drinks offered.

To expand into new customer base, coffee specialists could widen their snack and fresh juice menus,

meanwhile incorporate facilities cater for working and studying purpose to attract early coffee house

adopters.

Issues and Insights

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Adding experience, ethical and cultural elements for coffee house enthusiasts

Classic coffee house enthusiasts are interested in coffee places feature eco-friendly design. This will

encourage more coffee places leverage ethical initiatives and campaigns to promote the importance of

social welfare topics or through corporate social responsibility or the ethicality of the products they sell.

Moreover, these established rich consumers are the most discerning group as they are actively seeking

add-ons to enhance their overall experience at coffee shops, thus coffee houses that offer coffee-related

experiential (eg coffee culture talks) are highly appealing to them.

The trend calls for coffee houses to exploit their ability to cross over with a variety of events through

strategic partnerships to boost consumer engagement.

Issues and Insights

© 2015 Mintel Group Ltd. All Rights Reserved. Confidential to Mintel. mintel.com

Esther Lau

Research Analyst

[email protected]

mintel.com

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