China turf war looms for coffee makers

PUBLISHED : Thursday, 18 October, 2012, 12:00am
UPDATED : Thursday, 18 October, 2012, 4:47am

Nestle rules the high-end coffee market in Europe with Nespresso capsules. Green Mountain Coffee Roasters dominates the US, leaving China as the biggest market grab for premium portioned coffee.

Nestle has prepared for rising demand with Nespresso machines celebrating the year of the dragon decorated by Hong Kong-based luxury brand Shanghai Tang. Starbucks said in April it planned to introduce its Verismo single-serve system in China next year.

With Chinese consumers drinking only three cups of coffee per capita each year, compared with 604 for the French, the companies are betting that there is latent demand in cities such as Shanghai, where rising wealth is whetting appetites for western luxuries.

Mondelez International, the snacks and coffee business spun off from Kraft Foods, is also considering introducing its Tassimo coffee maker in China.

"There may be a bit of a fight in China as the coffee market there generally is embryonic," Jon Cox, an analyst at Kepler Capital Markets, said.

Sales of coffee pods in China climbed 50 per cent last year, compared with 19 per cent growth for standard ground coffee, according to researcher Euromonitor International. Still, they represent only about 0.1 per cent of the country's coffee market, illustrating the scale of the opportunity for manufacturers.

"The number of middle-class consumers in China is expected to increase five-fold between now and 2030, so it could be that coffee companies think the inflection point for single-serve in China is now," Warren Ackerman, an analyst at Societe Generale in London, said.

Nespresso, which entered the country in 2007, has three boutiques there. Its expansion plans haven't been disclosed.

Nestle, whose Nescafe instant brand is the source of two-thirds of all coffee in the country, may say today that organic revenue increased 6.3 per cent in the nine months to the end of September, according to the average of 12 analysts. Excluding price increases, sales gained 3.2 per cent, the estimates show.