STiR coffee and tea magazine

54 STiR coffee and tea / Issue 5, 2017 (October / November) Japan is a traditional tea market often cited for developing a vibrant cof- fee culture. Consumption increased 800% following the introduction of instant coffee by western multinationals. Coffee production is non-existent yet Japa- nese drinkers averaged 11.13 cups per week in 2015, according to the Japan Coffee Association. Per capita consumption is 207 cups compared to 369 cups per person in the US (2014). China's per capita average is less than 4 cups per year. In Japan, the trend is toward greater variety and taste with sales of fresh coffee climbing to 155 billion yen ($1.4 billion) at the expense of instant. Nestlé Japan holds a 34% share of the total market and 60% share of the instant coffee segment, according to Euromonitor International. "It is hard to dismiss the similarities contributing to the rise of coffee in Japan to the current transformation China is undergoing," concludes Semin- ski: "Now the bad news, it took nearly 40 years for coffee to be a broadly distributed product in Japan. China is also a giant land mass relative to Japan which could slow progress. Good news is, if China can match Japan's con- sumption that equates to 88 million 60-kilo bags," he said. Beginning in 2004 China went from consuming 386,000 60-kilo bags of coffee to 1.9 million bags in 10 years, a 489% increase. "That means in an- other 10 years it could increase another five times," says Gurel. "Right now, according to USDA, China is the ninth largest consumer of coffee in the world. A five-times increase will make it the fourth largest coffee market in the world, behind only the European Union, the US, and Brazil." Coffee shop density The fortune tellers are convincing, but careful analysis of coffee economics raises questions as to whether current consumption trends can be sustained. Shanghai is home to 4,509 cafes, Beijing has 3,489, and Chengdu 3,051. First-tier cities average a coffee shop for every 6,000 residents. Chengdu, with a population of 14.4 million, has a shop for every 4,729 residents. New York City, in contrast, has 8,692 coffee shops, an average of 102 per 100,000 resi- dents (about 1 shop for every 1,000 residents). New York, however, attracts 600,000 commuters a day. The challenge for China is that Americans each drink 400 cups of coffee per year – the Chinese average four cups. In his April presentation "Dissecting the China Coffee Market" at the Specialty Coffee Association's annual convention in Seattle, Gurel cautioned that in China exceeding a ratio of 1:20,000 people, at 3 cups per person is unwise. "The market is saturated at that point, making it difficult for individual cafes to sell the minimum 400,000 cups of coffee per year," he said. There are 1,692 coffee shops in Seattle, the fastest growing major city in America and the city with the greatest density of coffee shops in the US at 253 shops per 100,000 residents (one shop for every 400 residents). Ten American cities, mainly in the northern reaches of the country, average more than 100 shops per 100,000 residents but this average quickly falls outside the most populous cities. Seattle coffee shops serve a much larger metropolitan area that houses 3.7 million people and those coffee drinkers consume 100 times more coffee than the Chinese average. Euromonitor estimates the market size for coffee served in Chinese ca- fes reached 20 billion yuan ($2.9 billion) in 2016. About three fourths of café sales are by Starbucks, which charges a premium price that exceeds the same drink when priced in the US. McDonald's has not fared nearly as well. The company sold 80% of its business in mainland China and Hong Kong to Chinese owners who embraced the McCafe concept at 2,640 locations with plans to expand in the country's mid-sized cities. Gurel cites a recently completed market survey by the Sustainable Cof- fee Institute to illustrate the retail segment's vulnerability. When asked to rate cafe performace, 44% of respondents indicated an increase in perfor- mance while 37% indicated a decrease in performance with 19% indicating that performance is flat. Rent on the average 1,950 sq. ft. (182 m 2 ) shop is the biggest strain, cited by 32% of respondents. This is probably because shops are selling an average of only 34 kilos of coffee per month. Coffee shops in major Chinese cities Coffee market growth in Japan vs China Chinese president Xi Jinping with Starbucks executive chairman Howard Schultz

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