Is ready-to-drink coffee a new track? The emergence of Luckin Coffee in 2018 stirred up the landscape of China's coffee market and accelerated coffee consumption in the country. But it wasn't just fresh-ground coffee that benefited. Unbeknownst to many, in convenience store coolers, more and more ready-to-drink coffee brands are taking up more shelf space. In the industry's view, convenience and moderate pricing have driven ready-to-drink coffee into a period of rapid growth, which has attracted giants like Coca-Cola, Yili, and Mengniu to pile in. New battles in ready-to-drink coffee are ongoing Over the past six months, ready-to-drink coffee has become a new battleground for major food and beverage giants. A Yicai reporter's tally found that more and more brands have announced entry into the ready-to-drink coffee sector, yet few are bona fide coffee companies. At the end of September, Mengniu Dairy added a cold-brew coffee latte under its Daily Fresh brand. Although it is more like a coffee-flavored flavored milk, Mengniu aims to capture young consumers' demand for ready-to-drink coffee. Just two months earlier, Yili quietly launched its first coffee product, Shengruisi, on e-commerce platforms. The product uses Arabica coffee beans and New Zealand imported milk, and features young idol Chen Linong as spokesperson—clearly not a casual endeavor. Not just dairy companies: in the first half of this year, Coca-Cola, a year after acquiring COSTA, announced its first ready-to-drink coffee product. Mineral water company 5100, snack food maker China Want Want, and walnut milk producer Yangyuan Beverages have all launched their own ready-to-drink coffee products. Why is the ready-to-drink coffee category so favored? In the view of Wang Zhendong, chairman of Shanghai Feiyue Investment Management Co., Ltd., in terms of launch timing, this wave of ready-to-drink coffee heat has much to do with Luckin Coffee's "pace-setting" last year. Luckin used capital to achieve rapid expansion and sparked a boom in domestic coffee consumption. Ready-to-drink coffee has thus "basked in reflected glory," because the beverage industry is currently facing saturation, with very limited space for new product development. The coffee craze has undoubtedly shown all parties new opportunities. For beverage companies, adding a coffee product using existing production equipment is not difficult, and the cost of ready-to-drink coffee is inherently low. Wang Zhendong gave Yicai a breakdown: industrial instant coffee powder often uses cheaper coffee beans, and extraction is more intense, with extraction rates reaching 30%. Therefore, the landed duty-paid price of a kilogram of coffee powder is mostly only around 20 yuan per kilogram, with the expensive ones around 30 yuan. Based on coffee water-soluble substances accounting for about 30%, and deducting 18% processing loss, 246 grams of coffee liquid can be produced. At an average concentration of 1.3% for coffee beverages, one kilogram of coffee powder can produce about 20 liters of coffee beverage. Without considering other ingredients, it can fill 54 bottles of 350ml ready-to-drink coffee. Thus, the pure production cost is not much higher. In contrast, the current price of ready-to-drink coffee is generally around 5-10 yuan, with profits far higher than ordinary ready-to-drink beverages. Moreover, in terms of refreshing effects, ready-to-drink coffee, due to inferior coffee beans, actually contains higher caffeine—several times that of specialty coffee—so the refreshing effect may be even better. Also, the sweeter formulation of ready-to-drink coffee suits the Chinese palate, which prefers sweet over bitter. Is ready-to-drink coffee a new track? Historically, the domestic coffee market has comprised three segments: instant coffee, ready-to-drink coffee, and fresh-ground coffee. According to the 2018 Coffee Industry Research Report released by Jingzhun Research Institute, the market shares of instant coffee, ready-to-drink coffee, and fresh-ground coffee in the domestic market are 71.8%, 10.1%, and 18.1% respectively, with ready-to-drink coffee at the bottom. However, the industry believes that with the diversification of coffee consumption, ready-to-drink coffee will have the opportunity to gain a larger market share in the future. Data shows that Nestlé holds a 68.3% market share in ready-to-drink coffee, ranking first, and Nestlé is also feeling the changes in the ready-to-drink coffee market. Jiang Shan, head of Nestlé China's ready-to-drink business, told Yicai that the ready-to-drink coffee category is growing well in China, with convenience playing an important role. Consumers of ready-to-drink coffee are mostly young people who pursue a high-quality and fashionable lifestyle, like innovation and trying new things, but are unwilling to wait or make coffee themselves. Therefore, ready-to-drink is becoming one of the important development trends in Nestlé's China market, and Nestlé will pay attention to more ready-to-drink categories in the future. According to Euromonitor International forecasts, global bottled ready-to-drink coffee will achieve a growth of $3.1 billion by 2022, with a compound annual growth rate of 7.5%, far higher than the expected growth of soft drinks and even bottled water. This is also related to the changing demands of the younger generation of consumers. In China, the young groups born in the 1980s and 1990s have become the mainstream consumer groups. Due to rapid social development, modern youth work under high pressure and often stay up late needing refreshment, so the rigid demand for coffee is continuously increasing. The 2018 Coffee Industry Research Report believes that current coffee consumption has three demands—physiological, emotional, and social. Affordable instant coffee meets physiological needs, fresh-ground coffee represented by Starbucks meets social needs, and ready-to-drink coffee sits between physiological and emotional needs, where there happens to be a gap—an opportunity for ready-to-drink coffee. In the view of Zhu Danpeng, a researcher at the China Brand Research Institute, the current rise of ready-to-drink coffee also aligns with the needs of the new generation of consumers. Overall, domestic coffee consumption is still in its infancy, and the market still has significant room for growth. For ready-to-drink coffee, there is also an opportunity to further expand. If we look only at the number of cups of coffee consumed, the per capita annual coffee consumption in the US and Japan is 269 and 188 cups respectively, while in China it is 4.5 cups. However, in tier 1-2 markets, coffee consumption is developing faster and has become somewhat saturated. In tier 3-5 markets, fresh-ground coffee is relatively expensive, so ready-to-drink coffee may have greater opportunities. However, Wang Zhendong believes that in China, the consumer groups for ready-to-drink coffee and ready-to-drink tea are almost identical, and domestic consumers do not have a clear-cut choice between coffee and tea. If the two markets are combined, the ready-to-drink market is still highly saturated, so how fast this track can run remains to be seen. Source: Yicai Tips will be paid 400-2000 yuan once adoptedChina FMCG + Internet professional new mediaCommitted to FMCG manufacturer and distributor transformation and channel digital solutionsCopyright issues | Business cooperation | Project consultation | Reader submissions