China Food

The fictional trillion coffee market

“ 
The refreshing effect of
coffee is not as good as that of functional drinks, the pleasure is not as good as milk tea, and the palatability is not as good as ordinary tea. Apart from “historical reasons”, there is no reason for a “brand new market” to become popular with coffee.  ”
In October 2017, lucky was founded. With the trend of “consumption upgrading” and “consumption degradation”, Ruixing has rapidly become one of the retail brands most concerned by media and capital in recent years.
Objectively speaking, even if we exclude the part of the sales volume of Ruixing that cheated last year according to the data audited by China’s Ministry of finance, it has indeed brought more Chinese people into the ranks of coffee consumption.
In addition to itself, Ruixing ignited the coffee market in China. Since 2017, the number of coffee related financing mergers and acquisitions in China has been 49, much higher than in previous years.
Similar to the saying that “China’s coffee is a trillion market”, it has appeared in various research papers more than once from 2018 to 2020. If you have paid attention to the domestic coffee market, it must be no stranger. Ruixing’s story is also the story of China’s coffee market. Until Ruixing’s fraud scandal, there were a large number of reports on China’s coffee market.
The only difference is that the time points given by various analysis institutions to reach the trillion scale are not the same. Some think that it can be achieved in 2025, while others think that it can be achieved in 2030

However, contrary to the predictions of these studies, the closure of Costa stores, the transformation of even coffee shops and a large number of independent coffee shops have never recovered from the hibernation of the epidemic. All coffee retailers in China are suffering from the pain of lucky.
From the retail industry as a whole, the epidemic is an accelerator, exposing many potential problems quickly. The reason why coffee is difficult to recover from the epidemic is that the bright prospect of China’s coffee market may not exist at all.

“万亿”预测大概率基于统计口径错误
We have seen much about the nature of “trillion”, but how did this prediction come from? The statistical caliber and calculation process are not very clear in various reports.
The process of dismantling and tracing the source is complicated. The first conclusion is that almost all the calculations and forecasts on the growth of the coffee market have not considered that coffee beans can not only make coffee, but also make coffee flavored food.
Let’s first look at the predictive description in a random report:
Well, just looking at this prediction, it seems reasonable, right? But how does this “coffee market size” data come from?
First of all, we should separate the objective data, forecast data and forecast data in the coffee market research report. Generally speaking, domestic research and newspaper associations demonstrate the growth of coffee market through several quantity increments: consumption of coffee beans, consumption of coffee cups (or number of coffee cups per capita per year), and total coffee sales (i.e. market size).
The consumption of coffee beans in China is basically an objective data. Because our relevant statistical departments will count the annual production of coffee beans, and the customs will count the import and export volume of coffee beans.
China’s coffee cup consumption, this is a calculated data. Most reports describe China’s estimated consumption of coffee cups in 2018 as between 8 billion and 10 billion cups. This statement was originally derived from Frost & Sullivan, who predicted the market size of lucky coffee’s prospectus
According to a report provided by Frost & Sullivan, China’s coffee market capacity in 2018 was 56.9 billion yuan, the sales volume was 8.7 billion cups, and the per capita consumption was 6.2 cups. By 2023, China’s coffee market capacity is expected to reach 180.6 billion yuan, with sales volume of 15.5 billion cups and per capita consumption of 10.8 cups.
Li Siyi, official account: Tencent technology is lucky to be listed. How big is the cup of coffee?
Most subsequent reports did not give a clear explanation of the source of the data. But in Europe billion, a report gives the calculation method of coffee cup consumption:
——”Deciphering the Valuation Code of lucky coffee — China coffee market data report in 2019″
In this report, the coffee market size calculated by this calculation method is similar to that of Frost & Sullivan and several other institutions that have predicted the “trillion market”. This means that the calculation method should indeed be universal logic.
Through the objective data of coffee bean consumption, we can calculate the coffee cup consumption in the Chinese market. The figure of 8.7 billion divided by 1.3 billion people gives a very low per capita cup consumption of coffee, which is usually used to compare with Japanese, Korean and European and American markets to demonstrate that China’s coffee market has broad prospects.
Next, there is the market size, which is also a calculated data. By dividing the coffee market into ready to drink, instant, freshly ground and other different categories, and by means of market research, an average price per cup is assigned to each category of coffee, and the total number of cups is multiplied to obtain the total share of China’s coffee market.
Let’s abstract the calculation process
  1. Consumption of coffee cups per category = (consumption of coffee beans * sales proportion of each category) / average consumption of beans per cup of coffee of the category
  2. Market size of each category of coffee = consumption of coffee cups per category * average price of each cup of coffee of the category
  3. Total scale of coffee market = ready to drink coffee market size + fresh ground coffee market category + instant coffee market size
But, so far, what we have obtained is a static quantity. How can we predict the size of the coffee market in the next year, the next year and the next five years?
Among all the above parameters, only the most primitive coffee bean consumption has objective, real and reference growth statistics.
In short, China’s consumption of coffee beans increased from 117000 bags (60kg per bag) in 2003 to 3.25 million bags in 2019, with a compound growth rate of about 25.7%. (provided by the U.S. Department of agriculture, it is calculated from three objective data of China’s coffee bean import, export and self production)
According to this growth rate, after the above series of calculations and amplification, by 2025 or 2030, we can get a trillion coffee market size. The main difference between the reports is whether coffee beans are used to make more expensive instant coffee or cheaper instant coffee.
You may have begun to doubt whether the result is reliable after such complicated calculation based on only one objective data? Of course not reliable.
Even in the field of coffee, the first extrapolation data has caliber defects. The consumption of coffee cups in China is calculated based on the consumption of raw coffee beans and the average consumption of coffee powder per cup.
According to the research report, all coffee beans in China are used to make drinks, without considering that coffee is an important raw material for packaging snacks, baking cakes and substitute food.
This means that the real formula of coffee cup consumption in China is as follows:
Consumption of coffee cups = (coffee beans consumption – consumption of coffee beans used in other foods) / average consumption of each cup of coffee
If you search again, you will find that the consumption of coffee beans for other foods is an unknown factor without statistics from any department or industry association, so this formula cannot be calculated.
In addition, in the logic of the research report, coffee beans can only be used to make coffee, so the number of coffee beans consumed means the number of cups of coffee. However, in reality, if coffee flavored food grows fast, it may even appear that coffee beans are used more, but coffee drinks are consumed less.
And guess what?
In 2018 and 2019, when China’s baking, snack and meal substitute markets (the three typical “other food” industries that use coffee beans) are growing rapidly, the consumption of coffee beans in China is almost the same as that in 2017, and the growth has stagnated.
The actual curve of coffee bean consumption is as follows:
If you use the data from 2003 to 2019, the compound annualized growth is still very high. But since 2016, growth has slowed sharply and stagnated, and it is not similar to the forecast of the size of China’s coffee market at the beginning of this section.
There is no trillion. There is no such thing.
all growing coffee is not coffee
Starbucks is the third space. Starbucks is the gift card, Starbucks is the star ice music, Starbucks is tea wana, Starbucks is cat claw cup, Starbucks is moon cake coupon, and Starbucks is Star Ice dumpling.
Starbucks in China’s growth, only by coffee.
At the beginning of the launch of Ruixing, some people compared Ruixing with Starbucks. At that time, the mainstream view was that Starbucks did not succeed in China by selling coffee. Leaving aside the third space, if you look at Starbucks outlets across the country with muddy water, you may find that the sales of coffee drinks are less than half.
After all, bingle has contributed 15% of global Starbucks’ revenue, and the proportion in China will only be higher than that. What’s more, the Starbucks latte that Chinese consumers like most is not coffee, because many flavored lattes of Starbucks are not lattes, and there is no coffee in them, so they should be regarded as milk tea.
Ruixing has always been a challenger of cheap and high-quality coffee, which is also the core story of its early start-up. In the past, Chinese consumers did not drink coffee because good coffee was too expensive. With us, China’s coffee market will take off!
Lucky’s success seems to indicate the bright future of China’s coffee market. So many brand-new coffee brands have been put into this field, thinking that China’s coffee market is “about to explode”.
But now it seems that lucky may have discovered that coffee doesn’t work.
According to the investigation of Ruixing incident by the Ministry of finance, Ruixing started financial fraud in April 2019, and the fraud continued until the issuance of short report at the end of 2019. During this half year, Ruixing’s dominant action was to start selling snacks and groceries in April, to launch deer tea and canned fruit juice in September, and to sell nuts in November.
According to the last financial report released by lucky, their non coffee SKUs accounted for 45% of their total revenue in December 2019. This strategy is obviously a little higher, you can say to investors, “we don’t make coffee.”. This means that lucky may have realized earlier, in the second half of 2018, that there is no bright future for China’s coffee market.
Low price or even free coffee is only a means to attract customers. Snacks and simple meals are retained and realized. This is the strategy KFC and McDonald’s began to push in the Chinese market a few years ago, which can greatly increase the number of non dining hours and promote related consumption.
This also became the wishful thinking that Ruixing failed to make. Financial fraud happened. In the short report, we can see that Ruixing’s non coffee SKU income may only account for 6% of the total revenue.
But as a result, the status of a number of new coffee brands that have been tropical by lucky has become embarrassing.
Because, the success of lucky and China’s coffee market is a circular argument. If Ruixing fails, or Ruixing does not collapse but transforms, the only argument for the argument that “China’s coffee market is about to explode” will disappear.
This has a small impact on online coffee, but a great impact on offline coffee. Because online coffee is often a stock competition, consumers who already have coffee drinking habits pursue better or cheaper coffee. In a popular word: the coffee market is already rolling in.
On the one hand, Starbucks continued to maintain a slow but stable growth in China by relying on non coffee products, and the rapid rise of e-commerce type three and a half meals has replaced Ruixing as a new “coffee unicorn”; on the other hand, offline stores that only sell coffee, such as Costa, and independent coffee shops that repose countless dreams of the middle class, all suffered Waterloo.
Therefore, if Ruixing firmly uses deer tea and snacks to compete with Xicha Naixue, it may end up better than those brands that don’t have financial fraud but insist on selling only coffee.
After all, the price of Xiaolu tea after 3.8% discount is basically the price of mixue ice city, which can be saved in the sinking market.
the Chinese coffee market is not just starting, but has peaked
In fact, the conclusion of this subheading can also be seen from the data in the first section.
In the cycle of rising overall consumption level, the growth of coffee beans, the raw material of coffee drinks, has stagnated, which means that the coffee beans that are made into coffee flavor food may have been declining.
But why?
In the international market, the main reference for China’s coffee market forecast is Japan. In 2000, the International Coffee Organization (ICO) published a paper coffee consumption in Japan and prospects for China. This paper takes Japan as a model and uses GDP Growth rate, population structure, coffee import and export volume and other parameters, the conclusion is: in the tea culture circle of Japan, the coffee market has taken off, so Chinese people will not drink coffee just because they like tea.

some examples

In many domestic research papers, although there is no rigorous model, but also to express a similar point of view: tea, do not affect the drinking of coffee, see Japan.
Hehe, that’s because there is no love of tea in the early 21st century.
Comparing coffee with traditional tea is a false benchmarking. The main audience of coffee in China is at least the post-80s, who are not the main force of tea drinking. The tea in the mouth of the post-80s generation is represented by milk tea, new style milk tea and Yuanqi forest burning tea. Coffee can only compete with these new tea drinks for Chinese born 80 years later. You can’t expect a person over 50 years old to drink it all his life. Xinyang Maojian suddenly loves to drink Arabica.
But competing with these new drinks, coffee is simply unpleasant.
The refreshing function of coffee can be replaced by functional drinks. Its taste is only understood by “adults”. Its price is not as good as happy water. When the consumption power of a market without coffee drinking tradition began to increase, coffee and other drinks were not on the same starting line – Coffee lagged behind other drinks.
The only chance that coffee will win is that it is an addict like cigarettes, alcohol, and betel nuts: a potential consumer may not drink coffee for a long time. Once he drinks coffee, he may drink it all the time, and coffee is not as serious a health problem as other addicts.
However, in the face of the new style milk tea, which was born in 2016, the addiction of coffee is just a younger brother.
As for how addictive the new style milk tea is, I will not describe it in this article. Anyway, sugar, salt, fat and caffeine are all available, and even the content of caffeine is higher than that of coffee. You’ve seen a lot of relevant reports and reviews. The new type of milk tea is basically the most addictive food that can be legally prepared by human beings.
Take a specific question: do you miss coffee or milk tea during the epidemic?
In a data100 report, coffee consumption was reduced by 23% at the beginning of the outbreak, almost one of the most affected foods. But in the middle and late stages of the epidemic, only 18% of people intend to increase coffee consumption.
It is equivalent to that a single epidemic has caused many people to completely quit coffee, and tea drinking is much better in this set of data: it dropped by 9% during the epidemic period, but increased by 22% after the outbreak.
Most of the reports on coffee mentioned that the consumption of coffee drinks in China is concentrated in the first tier cities, and suggested that with the development of economy, there will be a coffee black horse like pinduoduo or famous and innovative products, which will open up the vast sinking market in China.
But in fact, after Ruixing, the price is no longer the main factor affecting whether Chinese people drink coffee. The American style of 8 yuan per cup is enough for consumers in second and even third tier cities to try. Lucky’s subsidy is true, but the sales are fake. This proves that the sinking market of coffee is much smaller than you think.
As a large category, coffee can only sink from high-end office buildings in first tier cities to low-grade office buildings in first tier cities, and can never sink any more. In the real second and third tier cities, Xiangpiao, mixue ice city and ancient tea still firmly control the “workshop afternoon tea” market, and coffee has no chance.
Because the refreshing effect of coffee is not as good as functional drinks, the sense of pleasure is not as good as milk tea, and the palatability is not as good as ordinary tea. Apart from “historical reasons”, there is no reason for a “brand new market” to become popular with coffee.
Speaking of this, another controversial issue that has to be mentioned is the cultural significance of coffee, which involves the first reception and retention of coffee as a beverage category.
It can also be seen from the chart of consumption of raw coffee beans in China that the peak growth rate of Chinese coffee exceeded 55% twice, one was the 2008 Olympic Games, the other was the mass entrepreneurship and innovation in 2014, which shows the influence of cultural trends on China’s coffee market.
Many white-collar workers in the first tier cities now watch friends, the big bang or silicon valley as students. Coffee and coffee cups in these American dramas are like mobile phone props in the hands of actors. This potential cultural influence will make the post-80s and 90s more willing to try the first cup of coffee and endure the unpleasant taste in the initial stage.
However, as for 00, who grew up watching domestic TV dramas and TV dramas, later said that this cultural symbol was replaced by milk tea. It’s not a desirable thing to try coffee. To say “too good” after the first sip of coffee can’t be a boastful identity.
This is a bit like 2002, after the launch of the American native functional drink magic claw, it co branded itself with many extreme sports and E-sports stars, packaging itself as a cultural symbol of American street culture. Red Bull quickly lost its dominant position in the North American market.
Red Bull didn’t do anything wrong. It’s just not cool. So is coffee.
Author: Comments on corpse; akashio: akashio, ID: akashio, reprinted with authorization.
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