Coffee is Booming in China, How Would You Invest?

I love a good cup of coffee. But over the past few weeks with long hours at the office like I know all of you have as well, I’ve been having a true love affair with my coffee. Many times a day and barely coming up for air. And so it got me thinking more about coffee in China...

Over the past two years or so, it’s just starting to become a big thing over here. Yes, in 2011 there was a new Starbucks opening every four days in China, but as of late, it seems like there’s a new coffee joint popping up at every corner. I can even buy fresh coffee beans from two separate places just one block away from my apartment in central Shanghai.

China’s new obsession with coffee stands at odds with its long tradition of tea drinkers, but the coffee addicts are slowly gaining momentum. Spurred on by fast-food chains such as KFC and McDonalds (which sells the second largest amount of coffee in China – only behind Starbucks), coffee drinkers find it easier to find their fix.

Could this be the time to get into the coffee industry in China? Right now China’s 1.3 billion people drink an average of only 5 cups a year each – or about 1% of the world’s coffee consumption. With the pace of new openings of Starbucks, McDonalds, and investments by companies like Nestle in cultivating beans in the south of China, signs may point to yes.

Drinking coffee in China is more than just a caffeine fix though, it is a sign of appreciation of western culture and modernity – a showing of one’s sophistication and worldliness. Furthermore, as buying a cup of coffee signifies a middle-class background or above, it’s a status symbol. I have never seen the Chinese hold onto anything as long as they do their Starbucks cups. If the coffee was finished at 9 a.m., the cup will be in the hand until after lunch.

I’m not invested in the industry here, but how do you all think is the best way to get involved in this trade? Equities in coffee shops with China exposure (Starbucks)? Buying commodities of beans from Vietnam (which is the largest coffee importer by a factor of 15)? Investing in local Chinese JVs with government support (Nestle or Kraft)? The straight importer/exporter play? Perhaps the roasters and refineries?

 

interesting, when I was there in the 2006 coffee was nothing. there was one starbucks in my city suzhou of xmillion people and it was mainly only visited by american and korean expats (the prices were extremely expensive for the average chinese citizen)

buenos aires has seen the same boom of starbucks here. dozens have opened up in the last 5 years. funny because there's coffee shops EVERYWHERE but sbucks offers several things these cafes don't: larger sizes, to go cups, frappucinos (big hit here, even in the winter), and don't bug if you if you come and just sit on a couch for hours (the teens here lovvvvvvvvvve hanging out there after school), i stopped going to one in particular (alto palermo) after i'd look up from my laptop just to see 2 or 3 couples locking lips nearby, even one time next to me on the same couch!

definitely a sign of changing times

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Shanghai had a few Coffee Beans last time I went. It's a tough thesis to play out though. There isn't really a pure play Chinese coffee player. There are some chains that do sell coffee (such as all the bakeries). Starbucks was the first name that came to mind but it's really tough to invest in a global company based on one country alone (granted, it is a large country).

Another idea is Green Mountain but that is waaaaaaaaaaaaay down the road. As of right now the Chinese consumers are just getting used to the drinking, but not yet into the brewing/DIY-ing at home just yet as far as I'm concerned.

 

Short laxatives.

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From what I've witnessed, it seems like there's been a massive boom in some major chains (Starbucks by default, The Coffee Bean is now a strong rival). Then you have the "hippie" cult followers who swear by those boutique coffee shops (notably in those nooks and crannies in Shanghai, used to be mostly concentrated near the former French Concession).

But whereas Starbucks in the U.S. (at least in Chicago) symbolizes "time to work and slave away", Starbucks in China is a status symbol. Given that premise, the coffee market in China seems more brand driven than commodity driven.

 

I completely agree with you on Starbucks being a status symbol in China. But you will notice it's mostly not coffee (derivatives) being consumed. Instead, my observation was that many Chinese seem to enjoy drinks like Chai Tea Latte or other dodgy innovations that are sold to lure locals in the "coffee" place.

 

I'm not sure, coffee is only accesible to a certain part of the population. The price gap is so ridiculous! While you can get a meal for about 3$, it's impossible to get a cup of coffee under 5-6$!

 
GreedIsGuud:

I'm not sure, coffee is only accesible to a certain part of the population. The price gap is so ridiculous! While you can get a meal for about 3$, it's impossible to get a cup of coffee under 5-6$!

The only vendors I've seen with $5-6 coffee are Starbucks and a few high-end boutiques. In general, 15 RMB is more than enough for coffee.

 
Best Response
Toshi83:

From what I've witnessed, it seems like there's been a massive boom in some major chains (Starbucks by default, The Coffee Bean is now a strong rival). Then you have the "hippie" cult followers who swear by those boutique coffee shops (notably in those nooks and crannies in Shanghai, used to be mostly concentrated near the former French Concession).

But whereas Starbucks in the U.S. (at least in Chicago) symbolizes "time to work and slave away", Starbucks in China is a status symbol. Given that premise, the coffee market in China seems more brand driven than commodity driven.

Interesting take Toshi - I'd largely agree that coffee appears to be more brand-driven. Perhaps then it makes it a tougher market to parse because the utility consumers get from their coffee is tougher to justify quantitatively.

 

IMHO such trend does not exist anywhere in the country but 2-3 major cities (obviously shanghai's included among them), which is nothing considering how large is China. Besides that, as some people pointed out, most of the products consumed by locals at those chains are tea and all other kinds of 'chai'.

I would not be bullish on the idea of coffee being a major thing in China

 

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