Reverse Wrongful Coffee Image and Stimulate Consumption In China

This article was written for International Coffee Organization in 2004 in order for ICO to take appropriate coffee promotion in China.  After six years, it has still been true and unchanged.   If international companies and China’s domestic entrepreneurs do not take necessary steps to understand this market, it may take much longer for coffee to popularize and everybody will fight harder in a very slow growing and small market.

FACTS:  Relevant information

One important scenario has to be pointed out – European and North American countries have popularized coffee differently from East Asian region.  In 17^th century, English called coffee houses “Penny Universities”, which unfolds the underlining characters of coffee: Inexpensive and Brain Stimulating.  Coffee houses were social integral places for all classes.  When Nestle, Starbucks, espresso drinks, TV ads and brand marketing were basically non-existing, coffee had conquered one country after another just because of its natural characters.  In Europe and North America, coffee played an important part to their economic growth and coffee houses gave the birth to the first stock market and insurance company.  In East Asian countries, the same phenomena, which repeated so many times in history, never happen.  Instead to play as a social integrator, coffee houses with its high prices, unavoidably served as a social divider in Asian countries. 

Coffee Business has been staggered in China

1. Historical low price of green coffee bean does not benefit Chinese consumers. High retail price has suffocated China’s coffee market growth. 
2. Fundamental misperception about coffee and opaque marketplace in China causes a huge price hike from green coffee bean to retail vendors. 
3. 5% of highest income class and foreigners are over-exploited and spoiled by coffee shops when majority of consumers are left out.
4. Surreal coffee market boom: high public profile, slow growth and low market share in beverages market.
5. International and domestic coffee farmers, Chinese consumers and China’s coffee businesses are all suffering from high retail price.

Coffee’s Identity Crisis in China – “COFFEE IS FOR LUXURY LIFE STYLE”

There is a widely accepted view about Coffee among Chinese, that is coffee is for luxury life style.  This is a misperception and has direct impact on both China’s coffee business community and its consumer groups.  Because of the misperception, business community cannot identify who their customers are and thus fails to develop workable coffee business models and effective marketing strategies.  In turn, it unintentionally denies the vast majority of consumers the opportunity to acquaintance with coffee.

Started with Japan, the earliest and still most developed Asian country, coffee has been distorted as luxury drink with its unreasonably high prices.  It takes Japan near 90 years to popularize coffee when still low in per capita consumption among coffee bean importing countries.  Japan is the look-up guy in Asia and sets the trend to its neighbors especially to its former colonies such as Taiwan and South Korea.  Taiwanese are the major investors on coffee house chains in China, such as Starbucks and Shang Dao Coffee. 

Coffee is marked with high price and branded as luxury in everywhere in China. 

Surreal Coffee Boom in China When Chinese Cannot Afford Coffee

Starbucks and blossom of new coffee shops in China’s major cities creates a surreal impression of coffee boom.  There are new coffee shops opening in Beijing and Shanghai everyday.  Nevertheless, almost all coffee shops fight for 5% of highest income class and foreigners in a few major cities.  There is a market vacuum for 95% consumers.  Green coffee bean import has been on decline in recent years based on ICO data.

Average Chinese cannot afford a cup of smallest size coffee at coffee house per day.  For instance, Starbucks Beijing prices small size coffee (8oz) for RMB 12 yuan, which is equal to US$1.5 (same as sold USA).  When average Chinese urban income is RMB 8000 yuan per year, 55% of salary would be spent to drink a small cup of coffee per day.  The income in Beijing and Shanghai are higher than average but still not even close to afford it.  A typical Beijing taxi driver has average gross monthly income of RMB 2000 yuan and a Starbucks barista makes RMB 1000 yuan.  Although Starbucks by no means is the most expensive coffee house in China and give slight higher salary than its competitors, we can be sure that Starbucks’ barista cannot afford Starbucks coffee.

Maybe China has 1 billion people; maybe Beijing and Shanghai alone have more than 30 millions in population; maybe China’s economy is growing fast; maybe there are more than 5 coffee shops opening in Beijing and Shanghai everyday; maybe China is the biggest potential coffee importer, but the truth is that majority of Chinese just cannot afford a cup of coffee everyday.  If the situation continues, it will also take China 90 years to popularize coffee.

Leadership Vacuum in Coffee Business Community

So far, international coffee companies have difficulty to develop China’s coffee market and are unlikely to provide leadership and direction either.  With more than 300 years of coffee history, western coffee giants know better how to gain more market share in a mature and coffee-drinking society than to develop an immature one.  They know better about marketing than coffee.

As the first major player in China, Nestle owns soluble coffee market.  Nestle has produced popular TV and media ads by targeting at a group of so-called ‘young middle class Chinese’.  However, that class of Chinese basically never exists and in reality if they would exist, these healthy neat family-oriented young Chinese couples couldn’t be possible to be the hardcore coffee drinkers either.  Without understanding the true characters of coffee and China, any kinds of campaigns may generate a lot of buzz with little effects.  In addition, without coffee shops and other means to start people drinking coffee, it is really hard for soluble coffee to expand its market.  Considering how many years for soluble coffee to win Japanese market, do we all want to wait for that long for China’s market?

Starbucks has increased the awareness of coffee house more than anyone else in China and in the world.  By providing better quality and environment, Starbucks has a good reason to hit big in USA, but requires a different strategy for China’s market, something that KFC has done quiet successfully in China.  As a trendsetter, Starbucks would also do more harm than anyone else.  Starbucks Beijing may never make much of money for years, and Starbucks Shanghai’s success is hardly exemplary and sustainable.  Its strength is in management, brand name and financial mightiness.  However, for a primary market like China, a little bit entrepreneurship is critical to advance the market.

International Coffee Organization had done generic coffee promotion in China in 1997-2001.  Nevertheless, coffee festivals and design and fashion award hardly worked because the consumers didn’t understand the drink and couldn’t afford coffee at the first place.  Concerts, festivals and award even in the name of coffee diverted the focus from coffee to, again, life style.  In addition, these expensive concerts and fashion awards just reaffirmed the misperception of coffee and luxury life style.  History shows the grass-root is always the best way to popularize coffee.  Chinese won’t start to drink coffee because Vanessa Mae or any acclaimed celebrities drinks or endorses coffee.

Local coffee business community is loose, sporadic and directionless in China.  Although there are many entrepreneurs, it is difficult for them to identify market when market itself is quiet muddy.  Coffee shops dilute coffee business by adding too many side businesses such as foods, fruit plates, spirits, music band, ultimately luxury environments and so on.  They are in bad need for knowledge and information about coffee and also need business guidance and substantial helps to develop their own coffee business models.  It is absolutely critical to realize that the local Chinese business community knows the market better than anyone else.  Once if they find ways to win rest of 95% consumers into coffee, it can definitely set a new record of coffee consumption worldwide.

Coffee and Coffee House

Coffee is a SPEICAL drink.  It stimulates people’s brain so to be more focused, excited and creative, extends their working hours and doesn’t hurt people’s health at the same time, not to mentioning it tastes bitterly sweet and smells like heaven.  Coffee is also quite inexpensive when coffee farmers have been on the verge of bankruptcy for years because of low green coffee bean price.  In addition, coffee is an addictive drink, which keeps loyal consumers.  Based on first hand observation and research, whoever has chance to drink coffee 3 times a week for two continuous months is addicted to coffee.

All in all, the economic trend since 400 years ago shows that the maximizing brain utilization becomes important to develop personal wealth and intelligent.  History also shows ‘inexpensive’ coffee stimulates the brain; the active brain creates wealth and the wealthy people drink coffee.  East Asians and even some international coffee giants may forget history and take the coffee cycle backward.

Coffee’s popularization has always been grass-root.  Coffee house, since early in the history, has served the purpose to promote coffee.  Before consumers are accustomed with coffee and move onto soluble or ground coffee, they need get chance to drink and feel the effects of the coffee.   All coffee cultures gain momentum from coffee shops.  Once momentum is generated, the market can grows like snowball rolling down from mountain.  Coffee shop can be seated place or just coffee carts and stands.  The point is to let people start to drink coffee, which cannot be done by soluble or ground coffee.

Coffee is a special drink with special effects on human body that play important parts on today’s society.

China’s Consumers Are Ready For Coffee

Tea has become a scapegoat for unsuccessful coffee promotion in China.  It is heard so often that ‘China is a traditional tea country and coffee has no market here’.  During 80’ and 90’s in China, the first group of coffee shops was born to meet the needs of foreigners living in China (normally they are richer than Chinese).  Coffee shop business has since evolved around foreigners and Chinese new riches.  Ordinary Chinese basically have no chance to enjoy all the benefits of coffee and coffee house.  Soluble coffee is really not something to start coffee drinking habit. 

A study has done on China’s illegal immigrants working in construction sector in the United States.  Most of these constructors are poorly educated and born in the peasantry.  The study results show that a majority of construction workers are faithful coffee drinkers and add less milk to coffee everyday.  Chinese today are as acceptable to coffee as Europeans 400 years ago or Arabians 500 years ago. 

In China, there are no marketing campaigns from tea industry; there are no dominant tea companies to rival with international coffee giants such as Nestle and Starbucks and there is nobody fighting in the name of saving tea from coffee invasion.  Everyone says coffee and coffee house are good thing to happen.  One of the best excuses for people who cannot afford coffee house is coffee may be harmful for the health.

 

Snowball effect

The best coffee promotion is to let people drink coffee and more coffee.  Anyone who drinks coffee more than 3 times a week for 2 continuous months wins the ticket to coffee club.  Therefore, coffee shop openings and intense marketing have to be around the places where the same group of people will revisit everyday such as universities, office buildings and so on.  This can bring the marketing and promotion to the best result.  When one WHOLE group of people becomes loyal to coffee, the snowball is formed and rolling down the mountain to expand its own consumer groups. 

Coffee already has a high profile in China.  Measurable and pinpointed generic promotions in harmony with private sector’s marketing campaigns will effectively increase public awareness and, more importantly, consumption. If any companies can adopt more direct, continuous, measurable and detail-driven promotions on specific group of consumers, another beautiful coffee story will be born in China.