---
title: "Is the Coffee Market, Crowded by Coca-Cola and Nongfu Spring, a Good Business for Brands?"
description: "Coffee, tea, and cocoa are known as the world's three major beverages. In 2019, while tea drinks were selling like hotcakes, the coffee market was equally active. Luckin continued its rapid expansion, Starbucks partnered with Nestlé and Alibaba, Coca-Cola acquired Costa, and many players entered the ready-to-drink (RTD) segment, including Coca-Cola's Georgia, Nongfu Spring's Tanbing, Uni-President's Yaha, Want Want's Bond, Yili's Saint Rest, and Mengniu's Daily Fresh Cold Brew Latte, creating a sense of fierce competition. Like tea, coffee can refresh the mind and is a natural and healthy functional beverage. Globally, the Chinese coffee market still has vast room for growth."
author: "澄韵"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-03-15"
categories: "Brand Marketing, Consumer & Categories"
language: "en"
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citation: "澄韵. “Is the Coffee Market, Crowded by Coca-Cola and Nongfu Spring, a Good Business for Brands?.” New Distribution, 2020-03-15. https://xinjignxiao.com/en/articles/is-the-coffee-market-crowded-by-coca-cola-and-nongfu-spring-a-good-busin-a8bee96f/"
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---

# Is the Coffee Market, Crowded by Coca-Cola and Nongfu Spring, a Good Business for Brands?

> Coffee, tea, and cocoa are known as the world's three major beverages. In 2019, while tea drinks were selling like hotcakes, the coffee market was equally active. Luckin continued its rapid expansion, Starbucks partnered with Nestlé and Alibaba, Coca-Cola acquired Costa, and many players entered the ready-to-drink (RTD) segment, including Coca-Cola's Georgia, Nongfu Spring's Tanbing, Uni-President's Yaha, Want Want's Bond, Yili's Saint Rest, and Mengniu's Daily Fresh Cold Brew Latte, creating a sense of fierce competition. Like tea, coffee can refresh the mind and is a natural and healthy functional beverage. Globally, the Chinese coffee market still has vast room for growth.

**Coffee, tea, and cocoa are known as the world's three major beverages.**
In 2019, while tea drinks were selling like hotcakes, the coffee market was equally active. Luckin continued its rapid expansion, Starbucks partnered with Nestlé and Alibaba, Coca-Cola acquired Costa, and many players entered the ready-to-drink (RTD) segment, including Coca-Cola's Georgia, Nongfu Spring's Tanbing, Uni-President's Yaha, Want Want's Bond, Yili's Saint Rest, and Mengniu's Daily Fresh Cold Brew Latte, creating a sense of fierce competition.
Like tea, coffee can refresh the mind and is a very natural and healthy functional beverage. Looking at the global market, **the Chinese coffee market still has vast room for growth**. According to data, the average annual coffee purchase per person in China is 5-6 cups, while in the US, Japan, and South Korea, this figure can reach 400 and 200 cups respectively. It makes sense that giants are flocking into the Chinese market.
**2019 can be seen as a revolution in the surging Chinese coffee market. The emergence of new species, the fusion of categories, and the restlessness of the capital market have all added fuel to the Chinese coffee market. However, while everyone is diving into this blue ocean, few have verified the market's capacity.**
In this vast market, there is a stark contrast between ice and fire.
**-01- The Current State of the Chinese Coffee Market**
Before we understand the development history of coffee in China, let's first look at the current state of the Chinese coffee market. **Coffee categories can be mainly divided into the following: instant coffee, ready-to-drink (RTD) coffee, and freshly ground coffee.** Currently, the market share of instant coffee, RTD coffee, and freshly ground coffee in China is 72%, 10%, and 18%, respectively.
**1. Instant Coffee**
Instant coffee is mainly divided into traditional instant and freeze-dried instant. The market share of instant coffee in China is as high as 72%, and it still maintains a growth rate of 8%.
In China, **with Maxwell's gradual exit, Nestlé has become the absolute king in the traditional instant coffee category.**
In addition, we see the emergence of some new coffee consumer brands, such as Satuday, Yongpu Coffee, Shicui Coffee, and Wow Coffee. Their products are mostly based on upgrades of previous instant coffee products. Satuday and Shicui Coffee have transformed from traditional instant to freeze-dried instant, Yongpu Coffee uses cold brew liquid form, and Wow Coffee targets the more segmented instant white coffee category.
**The emergence of new technologies is seizing the existing market of traditional instant coffee and part of the incremental market, but due to the large market base, the increment is still not to be underestimated.**
**2. Ready-to-Drink (RTD) Coffee**
China's RTD coffee market is gradually transitioning from functional consumption to tasting consumption. **The composition of RTD coffee is very simple: one is coffee beverage, and the other is beverage coffee.** Looking at the naming, the one with coffee at the end has a stronger coffee attribute. Take Nongfu Spring as an example: the left one, Tanbing, is a coffee beverage, and the right one is upgraded to beverage coffee.
The continuous emergence of new RTD coffee brands will inevitably bring new impacts to the market. However, whether the market pattern of RTD coffee can be broken and break through between instant and freshly ground coffee is still unclear.
**3. Freshly Ground Coffee**
**Freshly ground coffee is divided into two major segments: one is pre-packaged products**, such as the common drip bag coffee, capsule coffee, coffee beans/powder; **the other is freshly brewed coffee**, mainly including chain coffee shops, self-service coffee machines, catering coffee, and convenience store coffee. Among them, chain coffee shops are further divided into fast coffee shops, social coffee shops, and specialty coffee shops.
When it comes to representative enterprises of freshly ground coffee, Starbucks must be mentioned. In 1999, Starbucks entered China, committed to developing and promoting the coffee industry in China. Starbucks has made many achievements and contributions, cultivating the earliest batch of consumers in China. Subsequently, coffee shops represented by Starbucks have opened across the country.
In 2010, C-store launched freshly ground coffee, marking the rise of affordable convenience store coffee. In 2018, FamilyMart's Picc coffee sales exceeded 40 million cups, showing strong momentum. In the same year, Luckin Coffee launched and Starbucks started delivery, marking that coffee shops no longer only provide space but are moving towards new retail integration of online and offline.
**-02- The Abnormal Development of the Chinese Coffee Market**
Next, the author will take you through the development history of the entire coffee industry. Western coffee-consuming countries, represented by the United States, have experienced three waves of coffee.
> 1940-1960: The first wave of coffee. During this stage, coffee was consumed as a refreshing drink, mainly instant coffee. Representative companies: Nestlé, Maxwell.
> 1966-2000: The second wave of coffee. Coffee became a social way, with coffee shops as the carrier, emphasizing the "third space" Italian coffee shops began to be popular. Representative company: Starbucks.
> 2003-present: The third wave of coffee. Coffee itself became the core element, emphasizing origin, variety, harvest month, altitude, and processing methods. Mainly specialty coffee, products surpass experience, and consumers re-emphasize the core elements. Representative company: Blue Bottle.
**The three waves of coffee have gradually formed a rich coffee consumption culture, and the coffee industry has formed a multi-level, multi-type value system to meet various consumption needs. In target markets of different maturity, the three waves represent three consumption choices that promote and iterate each other.**
In China, coffee is an imported product. If we count from Nestlé's entry into China in 1988, the development time is only three to four decades. **China has a large population, unbalanced economic development among regions, and consumption stratification, which makes the time interval between the three coffee waves in China shorter, and the overlap time longer.**
In just three to four decades, the impact of the first wave of coffee has not yet faded, and the second wave has already begun rapidly. In recent years, following the global shift in coffee consumption trends, China has gradually seen specialty coffee shops influenced by the third wave of coffee.
In addition, **driven by the rapid development of China's internet business and with the help of new retail, the Chinese coffee market has also welcomed new species.** In 2018, Luckin Coffee emerged, vowing to let Chinese consumers drink low-priced but high-quality coffee. With capital entering the market, it had enough confidence to rely on low-price subsidy strategies to re-educate Chinese consumers.
With Luckin's crazy subsidy war and hype, under the surging tide, China's coffee market has seen chaotic and intertwined interactive development. At this time, the RTD coffee market took the lead in a big explosion.
**-03- The Explosion of RTD Coffee: Is It a Good Business for Brands?**
China's RTD coffee market has not yet nurtured a truly benchmark brand, so there are many new forces emerging in RTD coffee. Although Nestlé still dominates the market share, there are many powerful teams among the newcomers: Coca-Cola's Georgia, Uni-President's Yahha, Ting Hsin International's Starbucks, Huiyuan's Suntory Rich, China Resources Kirin's Fire Coffee, Want Want's Bond, Baijia Sizhou's Sizhou, Wei Chuan's Bernachon, Yili's Saint Rest, Mengniu's Daily Fresh Cold Brew Latte, Nongfu Spring's Tanbing, etc.
If this fiery scene is driven by new species like Luckin, then behind this fiery scene, **due to the abnormal development of the Chinese coffee market, it is not yet time for territorial competition. How to enlarge the market and find a breakthrough for RTD coffee development is a common task for brands.**
**1. The Opportunity Point for RTD Coffee Has Not Arrived**
Take Nongfu Spring as an example. In just 1-2 years, after entering the coffee market, Nongfu Spring has basically covered all categories of products. Self-service coffee machines, two iterations of the Tanbing series RTD coffee, and the recently launched Tanbing drip bag. The speed is so fast that it feels like charging forward to capture a piece of land.
We also see that when major brands launch new products, whether they want to sell beverages or coffee, they always add the word "coffee" to the product. Whether it's coffee beverage or beverage coffee, everyone seems to think that the coffee trend has arrived, and if the product raises the banner of coffee, it can catch up with new consumption trends and sell better.
The entrants driven by the trend seem somewhat blind and hasty. **Because at this stage, for RTD coffee, there is no good opportunity point, or its opportunity point has not yet been stimulated.**
RTD coffee has both beverage and coffee attributes. Compared with other forms of coffee products, RTD coffee has the highest gross margin, reaching 70%-80%. It is more likely to explode before other forms of coffee products. However, the development timing of RTD coffee in China has been disrupted by the advanced development of freshly ground coffee.
Comparing with the US and Japan, in the US, freshly ground coffee is far ahead with a market share of 91%, while RTD only accounts for 3%. This is closely related to the development of American coffee culture and the number of coffee shops. Looking at Japan, which is similar to China, Japan was originally a tea-drinking country, but after coffee was introduced, it still achieved rapid development. Due to Japan's extremely developed convenience store and vending machine systems, RTD coffee accounts for more than instant and freshly ground coffee in the Japanese market, reaching 43%.
Drawing lessons from the coffee development history of the US and Japan, we can know that if RTD coffee is to develop, it is closely related to the development of the country's retail formats and consumer habits. China's current retail formats still cannot catch up with Japan's development, and consumers' coffee drinking habits have not yet been popularized. But paradoxically, China's coffee development has skipped the development process of the global coffee wave and directly leapfrogged to a situation where a hundred flowers bloom.
**It is worth noting that during the development and maturity of RTD coffee in Japan, Japanese convenience stores were not simultaneously selling freshly ground coffee.** This is exactly different in China. The RTD coffee market in China has not yet started to heat up, but a large portion has already been harvested by the freshly ground coffee in convenience store systems. In convenience stores like FamilyMart, 7-Eleven, and Lawson, a self-service coffee machine can meet the immediate drinking needs of white-collar workers. Its convenience and high cost-performance ratio have enabled rapid expansion.
Therefore, the explosion of RTD coffee in China is currently competing with the affordable convenience store coffee that has already taken shape and is rapidly rising. According to industry insiders, it is currently difficult for RTD coffee to seize the market of office white-collar workers who have formed purchasing habits, and this part of consumers is also the key target group for coffee products under China's current consumption upgrade. **At present, the only possible breakthrough may appear in the cold drink section, where RTD coffee has convenience that instant and freshly ground coffee cannot achieve.** Brands can think about how to use this.
**2. The Differentiation of RTD Coffee Has Not Yet Emerged**
In 2020, due to the outbreak of COVID-19, Starbucks, the leader in chain coffee, had to admit in its latest announcement that same-store sales in mainland China in February fell 78% year-on-year. Affected by this, Starbucks estimated that China's second-quarter sales might be "halved."
The same dilemma, as the epidemic spreads globally, the temporary downturn in coffee shop business will no longer be limited to China. Some say this should be a good time for instant coffee and RTD coffee to develop.
That's not wrong. Office white-collar workers and consumers who need caffeine will not stop drinking coffee just because they go out less. So we see that pre-packaged coffee products are selling well online. For example, Viya's live broadcast for 4 hours achieved sales of over 30 million yuan for Maxwell's instant coffee and Yunnan coffee, selling out 1.3 tons of pre-packaged Yunnan coffee in 2 seconds.
Li Jiaqi also brought Satuday instant coffee and OTC Japan capsule coffee in his live broadcast, bringing concentrated traffic exposure like a targeted blast for new brands. These have given instant coffee an opportunity to re-enter the user's vision and significantly increase traffic exposure.
RTD coffee is a bit different. Currently, the taste of most products has not yet been recognized by consumers, and there is still a difference in taste compared with instant or freshly ground coffee under new packaging technology. Facing affordable instant or freshly ground coffee, **RTD coffee, which also does not have a price advantage, still faces an extremely difficult path. It needs to ensure coffee quality while taking a differentiated competition path to further tap potential consumers.**
For brands, unless you are ready to educate consumers for a long time, have enough patience to nurture such a category, and insist on continuously developing differentiated new products, do not easily enter the market. Product innovation and polishing are not as simple as chasing trends.


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## Citation metadata

- Publisher: New Distribution
- Author: 澄韵
- Published: 2020-03-15
- Canonical: https://xinjignxiao.com/en/articles/is-the-coffee-market-crowded-by-coca-cola-and-nongfu-spring-a-good-busin-a8bee96f/
- Original source: https://mp.weixin.qq.com/s/E_kF8H409hV1CyhsBWCPOg

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