CHINA BUBBLES UP
Five key trends in on the Chinese beverage market
Words: Siân Edwards
“Let China Sleep, for when she wakes, she will shake the world” - Napoleon Bonaparte
While it’s unlikely Monsieur Bonaparte had bubbletea in mind when he made this prediction over 200 years ago, he might – inadvertently – have been on to something where the Chinese beverage market in 2023 is concerned.Consumer spending in China reached an all-time high in2022, reflecting a healthy recovery post-COVID, deemed ‘revenge spending’ by McKinsey. Driven by factors such as urbanisation, rising incomes swelling the upper middle classes , the rise of social media and the intersection of western and eastern foodservice trends, the Chinese beverages market has never been such an exciting prospect.Here are five key dynamics to watch:
Chinese foodservice operators are in an outlet arms race. So far this year, Luckin’ Coffee has opened 13 outlets per day, reaching a milestone 10,000 stores in June 2023. Starbucks, China’s second largest chain, is targeting 9,000 outlets by 2025, from a base of 6,000 at the end of 2022. Bubble tea giant Mixue, however, leads the way, operating more than 21,000 outlets across China, making it the fifth largest QSR chain worldwide behind McDonalds, Subway, Starbucks and KFC . One thing’s for sure, the Chinese market offers unprecedented opportunities for scale.
Half a billion Chinese people used online food delivery services in 2022 . Beverages represented over a quarter of all deliveries, with products such as bubble tea particularly popular among younger consumers. E-commerce giant, Meituan even trialled drone delivery in 2022, completing 100,000 drone-flown food orders, signalling the future of food and beverage delivery. This makes a wider range of beverage products accessible to consumers, but also places pressure on brand owners to make beverages suitable for delivery – whether that’s the packaging or the product itself.
We’ve talked about the growth of Western chains in China since KFC first entered the market in 1987, but today the dial is shifting, as Chinese operators eye up global growth. Bubble tea appears to be leading the way with Chatime reaching 3,000 stores across 60 countries, Gong Cha expanding into 1,900 outlets across 21 countries[ and Mixue, building on phenomenal growth in China with 600 stores across 11 international markets. Not only will this drive major growth in Chinese outlets, but also the popularity of traditional Chinese ingredients and flavours, so we may see growth of flavours such as nashi pear and winter melon in markets worldwide.
China was the second largest market and the only major market to see continued growth in product launches in 2020 during COVID-19. Consumer demand for new product experiences is fuelling high launch activity and driving high growth in limited time offers (LTOs) and seasonal launches. In 2023 so far, 6% of all beverage launches in China carried a seasonal claim, up from 4% last year and just 1% in 2019. This is placing increasing pressure on brand owners to innovate and invest in NPD, to meet Chinese consumer demand for new flavours, new products and new experiences.
Tea has been an integral part of Chinese culture for millennia, and today, China is the largest producer and consumer of tea globally. Coffee might be a comparatively new addition to the Chinese market but is steadily gaining ground with double-digit growth across hot and RTD/iced variants. You might expect that coffee would be stealing share of spend from tea, but in fact, Chinese consumers find occasions for both beverages. Perhaps that’s because, rather than being seen as a more traditional beverage, China’s young consumers are thirsty for tea innovation, seeking products like Xiangpiaopiao instant tea, bubble tea and visiting foodservice outlets experimenting with preparing tea in a syphon.
As we continue to watch the phenomenal growth in China’s beverage industry, one thing’s for sure – it’s one of the most exciting places to be in the tea and coffee industry right now.
The race for outlet numbers
Food delivery
Global expansion of Chinese brands
High rates of innovation
The coffee revolution
References: McKinsey, 2023 / World Coffee Portal, 2023 / Statista, 2023 / Verdict Food Service, 2023 / Chatime, 2023 / Gong Cha, 2023 / World Coffee Portal / Mintel GNPD, 2023 / Mintel GNPD, 2023
