Click to read the original article for details. "In the billion-level coffee market, who will dominate? This article analyzes and compares various types of coffee products, including instant coffee, ready-to-drink coffee, and freshly ground coffee, to explore the competitive landscape of the coffee market. For brands, it is not yet time to fight for territory; the current task is to grow the market, transform users from drinking tea and beverages to coffee, and establish the correct awareness of coffee consumption." In 2018, influenced by the new retail industry, the coffee sector witnessed a boom. Luckin Coffee expanded rapidly, completing its IPO within a year and a half in 2019. Lian Coffee leveraged a mini-program activity called "Pocket Coffee Shop" to tap into the category market and reap significant gains. Even Starbucks, which had always differentiated itself with the "third space" concept, began offering coffee delivery. For more on new retail coffee, see my other article "Internet Coffee: How to Build Brand Power and Marketing Power?" In 2019, competition in the coffee market escalated further as Heytea and Naixue Tea joined the fray, launching cross-category new products. Even e-commerce platforms like Miss Fresh introduced their own "Little Red Cup" coffee. Coffee has become the second explosive category after tea drinks. The freshly ground coffee market is booming, and the coffee beverage market is not far behind, with new brands emerging like mushrooms after rain. In addition to existing products like Georgia Coffee and Uni-President Yahah Coffee, Nongfu Spring launched "Tan Bing," Yili introduced Saint Rest coffee, both making significant entries into the coffee beverage market. Coca-Cola and PepsiCo have also entered the coffee market. Currently, the main force in the coffee market remains instant coffee, with 90% of sales dominated by major brands like Nestlé and Maxwell. However, with consumption upgrading, instant coffee urgently needs optimization and adjustment. The current mainstream coffee market is polarized: instant coffee targets the low-end market, freshly ground coffee targets the mid-to-high-end market, and there is a lack of strong new products in the middle ground. This article dissects the overall coffee market from perspectives such as market environment, category analysis, and consumer positioning, hoping to provide some insights and inspiration. Rapidly Growing Market, Embracing the Young Coffee, tea, and cocoa are the three major beverages. Compared to tea, coffee has a relatively short consumption history in China. If we count from the opening of the first coffee shop near the Thirteen Factories in Guangzhou around 1836, Chinese coffee has a history of nearly 200 years; if we count from 1984 when Maxwell House (later renamed Maxwell) entered China and coffee became a household name, the history is only about 30 years. Coffee and tea both have refreshing effects, but in terms of user acceptance, coffee and tea are treated very differently. Tea culture has a long history in China, with regional representatives like West Lake Longjing and Xinyang Maojian. However, coffee cultivation in China is relatively small and concentrated, and due to its bitter taste, some users are resistant. The physical sensations after drinking coffee, such as increased heart rate, also hinder some users' preference for coffee. Nevertheless, as an addictive beverage, some users develop a dependency and form consumption habits. 1. Large Market, High Growth As an "imported product," coffee has relatively low acceptance in China. Compared to the United States, per capita coffee consumption is only 1.7%. Even compared to Japan in the Asian market, per capita consumption is only 2.4%. Even in first- and second-tier cities, coffee penetration is lower than in foreign markets. Insufficient per capita consumption stems from a lack of category promotion, but the overall market is growing healthily. Data from 2011 to 2018 shows a steady upward trend in coffee consumption, with a CAGR (compound annual growth rate) of 35.1%. Currently, China's coffee consumption is around 100 billion yuan. As young users gain economic independence, the tea category appears aging in their eyes, failing to satisfy their pursuit of trends and individuality. New tea drinks are primarily sold through offline stores, with taste attributes stronger than functional attributes. The market demand for coffee products remains substantial. 2. Unreasonable Category Structure, Obvious Upgrade Demand In the domestic coffee market, 72% is instant coffee, freshly ground coffee accounts for about 18%, and ready-to-drink coffee about 10%. Compared to the U.S. market, the proportion of instant coffee is too high (U.S. instant: fresh ground = 87:13, ready-to-drink share not shown, possibly due to its small market size. The U.S. has a very high proportion of fresh ground coffee, as evidenced by the number of Starbucks stores; as shown in the figure, the number of coffee shops in the U.S. is about five times that of China, not to mention other American brands like COSTA). Future competition in the coffee market will be a battle for users driven by the upgrade of instant coffee consumption. Comparison of Starbucks store counts by country 3. Consumers Are Becoming Younger Data shows that among coffee consumers in first- and second-tier cities, women are relatively more numerous, accounting for about 59%; among potential users, men have increased from 41% to 48%. Current users are mainly concentrated in the 20-34 age group, with the 25-29 age group having the highest proportion at about 35%. Among potential consumers, the proportion of the 20-24 age group has significantly increased. Both in terms of spending power and consumption demand, young consumers are the key focus for the future coffee category. The main coffee consumer group is highly educated, mainly distributed in industries with high work intensity and frequent overtime, such as finance, advertising/media, real estate, and internet/IT. Users have high functional needs for coffee and also have good income and convenience to obtain coffee drinks. Domestic coffee consumers' motivations for drinking coffee generally remain at the functional and social levels, mainly focusing on using coffee to refresh and eliminate fatigue (83%), relax and relieve stress (68%), and socialize (37%). Overall, domestic consumers have weak awareness of the nutritional aspects of coffee, and many still view coffee as unhealthy. The proportion of people drinking coffee for health reasons is relatively low, and 13% of consumers still see drinking coffee as a symbol of personal taste. What Exists Is Reasonable, but the Market Is Upgrading The "Trio" of Coffee Consumption The consumption needs for the coffee category can be divided into three levels: First Level: Physiological Needs. Pure caffeine needs for refreshment; substituting other beverages to quench thirst and hydrate; Second Level: Emotional Needs. As a form of identity recognition, conveying a desire for a refined life and pursuit of elite status; Third Level: Social Needs. The "third space," where users can socialize, relax, and entertain. Instant coffee satisfies users' first-level needs, while freshly ground coffee meets the second and third levels. If Zhong Xue Gao and Zhongjie 1946 represent an upgrade for ice cream consumers, then the popularity of coffee products is a downgrade and popularization of the coffee category, maximizing the simulation of freshly ground coffee, originally a lifestyle product, into a convenient retail FMCG, gradually evolving from a spiritual consumer product to a daily necessity. 1. Instant Coffee: Low-Barrier Entry Current coffee users are mainly concentrated in instant coffee. According to statistics, the domestic instant coffee market is about 70 billion yuan, with Nestlé as the main brand, holding about 28.5% market share. The advantages of instant coffee are low price and easy purchase. Users who buy instant coffee value its functionality—refreshing and improving work efficiency; limited by the number of coffee shops, instant coffee meets users' need for convenience, and its low price effectively competes with functional drinks like Red Bull. 2. Ready-to-Drink Coffee: Fashion and Convenience Go Hand in Hand Instant coffee has achieved category popularization, with users moving from unfamiliarity to acceptance, forming a certain scale of dependency. However, the drawback of instant coffee is its inconvenience: users need to brew it and it's not easy to carry after brewing. In non-indoor and high-temperature environments, new products are needed to meet user needs, thus the ready-to-drink coffee category was born. The ready-to-drink coffee market is currently around 10 billion yuan, with Nestlé holding the highest sales share, accounting for nearly 70% of the category. Ready-to-drink coffee is made by mixing instant coffee powder with milk powder and other ingredients before filling. Due to packaging constraints, flavor substances are severely lost during production, and to ensure product stability, many additives are needed. For example, Nestlé's original smooth coffee flavor has the following formula (as shown): water, white sugar, milk powder, instant coffee (≥1.0%), food additives (stabilizers (339iii, 500i), emulsifier (473)), food flavoring, caffeine content ≥200mg/kg. Compared to freshly ground coffee, there is still a significant gap in taste and mouthfeel. Ready-to-drink coffee is mainly sold through offline supermarkets and traditional channels, with a unit price of around 7 yuan. Its competitors include functional drinks like Red Bull and other beverages. Compared to regular beverages, coffee's functionality is somewhat limited; non-coffee enthusiasts and those seeking simple thirst relief have many other options. Therefore, sales growth of ready-to-drink coffee relies more on the overall increase in consumer base, expanding the category boundary from functional to regular beverage choice. New coffee brands launched in 2019 are challenging Nestlé and other existing brands, while also working together to expand the overall market share. New Product 1 in 2019: Nongfu Spring Tan Bing Nongfu Spring Tan Bing is a sparkling coffee drink suitable for summer, offering a sense of getting two things for the price of one. The formula is simpler than Nestlé's (Tan Bing formula: water, fructose syrup, Arabica coffee beans, concentrated lemon juice, carbon dioxide, vitamin E). The coffee is extracted using low-temperature Italian extraction technology, featuring a carbonated + coffee flavor combination, using pure Arabica beans. The shelf life is only 6 months, relatively short for beverages. (Image from brand official flagship store) New Product 2 in 2019: Yili Saint Rest Yili Saint Rest offers four flavors: rich latte, toffee caramel latte, strong latte, and hazelnut latte. The products are mainly lattes, highlighting Arabica coffee beans and imported New Zealand milk powder, emphasizing high-quality ratio and rich taste. The product specification is 270ml per bottle, with a shelf life of 9 months. Yili Saint Rest has partnered with popular idol Chen Linong as brand ambassador, aiming to attract young consumers of ready-to-drink coffee. The JD.com official reference price is 103.5 yuan per box of 15 bottles, about 7 yuan per bottle. Taking the rich latte as an example, the formula is: water, whole milk powder (>6.5%), white sugar, instant coffee powder (>1%), stabilizer (460i), thickener (466, 407), acidity regulator (500ii, 331iii), emulsifier (473), food flavoring. To achieve latte flavor stability, many additives are needed. Comparing several ready-to-drink coffees, as follows: ready-to-drink coffee prices range from 4-7 yuan, while Coca-Cola Georgia Coffee is around 9 yuan per cup. Products often highlight extraction technology and raw material origin, with American and latte being the most common flavors. 3. Freshly Ground Coffee: The Standard for a Refined Life "All Is Well" made Su Daqiang famous, and also made the meme "I want to drink hand-ground coffee" popular across the country. The charm of freshly ground coffee lies in its quick availability after production, no need for additional stabilizers, and effective retention of coffee flavor substances, making it the ideal coffee experience. Of course, freshly ground coffee requires high standards for raw materials, coffee beans, and baristas, and also provides a venue for consumption, socializing, or entertainment. Starbucks accounts for 50% of offline store coffee sales (excluding internet coffee). Freshly ground coffee shops also meet users' need for a "third space," with the ambiance reflecting a certain lifestyle. Starbucks has spent over two decades educating Chinese users, satisfying their emotional and social needs. For consumers, Starbucks represents a display of lifestyle taste. In addition to established coffee brands like Starbucks, KFC, McDonald's, and 7-Eleven convenience stores have all launched freshly ground coffee products to share the market. Due to consumption environment constraints, they mostly offer high-value coffee drinks. 4. Delivery Coffee: The Disruptor of Freshly Ground Coffee The "catfish effect" is best exemplified by Luckin Coffee. A sudden coffee movement aimed at shifting China's coffee consumption from a niche lifestyle to a daily necessity, accelerating the industry's development. Luckin Coffee used free customer acquisition and aggressive promotions, positioning itself as a master-level coffee on par with Starbucks, but at about half the price, increasing the popularity of freshly ground coffee. Whether Luckin Coffee's taste is truly better than Starbucks is debatable. However, it is undeniable that through Luckin's aggressive marketing, users have accepted Luckin Coffee and shown strong repurchase rates. According to Luckin's prospectus, within 15 months, Luckin Coffee accumulated 16.87 million users and sold 90 million cups; repurchase rate was 54%; and customer acquisition cost dropped from an initial 103.5 yuan to 16.9 yuan in Q1 2019. 5. Premium Instant Coffee: The Upgrade of Instant Coffee As mentioned earlier, instant coffee and bottled coffee have certain drawbacks that cannot meet current users' demand for coffee upgrades. However, users still need convenience and good taste. Offline stores are limited by location and delivery range, so users need an alternative product. Now, users have a new choice: premium instant coffee. Mainly e-commerce brands, such as Satuday, Yongpu, and Guokr. Premium instant coffee uses high-quality coffee beans; for example, Satuday uses Arabica coffee powder and has high requirements for taste. Using cold brew as the main process, freshly produced, it retains the aroma and unique taste of coffee, closer to freshly ground coffee, but at less than half the price of a Starbucks cup. Premium coffee has the following characteristics: (1) Easy to Prepare: A major feature is high solubility, low water temperature requirements, and some products even recommend brewing with cold water, faster than regular instant coffee, and can be added to bottled water; (2) High Fidelity: Cold brew technology preserves the unique taste and aroma of coffee, restoring the flavor details after brewing; (Satuday coffee brand introduction, screenshot from official flagship store) (3) No Additives: Premium coffee uses water and coffee as main ingredients, extracted through brewing, without sugar or other substances, aligning with the current "sugar-free" trend, and fewer additives also better reflect the true taste of coffee. (4) Rich Mixing Possibilities: Unlike 3-in-1 instant coffee, premium coffee can be seen as a base, allowing users to add juice, soda, milk, and other ingredients, providing a richer combination experience and stimulating repurchase. (5) Fresh Production: Currently, premium coffee sales are still small, and brands fully consider freshness in production and sales, using freshly roasted beans. Some products, like Yongpu's cold brew liquid, even consider that offices are not open on weekends, so they do not ship on Fridays and Saturdays to ensure product quality and taste. With a small user base, brands are putting great effort into user experience. (Yongpu coffee brand introduction, screenshot from official flagship store) We compare the four types of coffee in the table below. The four types of coffee meet user needs in different scenarios. As consumption upgrades, the coffee market landscape will inevitably change. Instant coffee is shrinking, while other categories are converting users from instant coffee as consumption needs shift. Summary: Whether it's affordable instant coffee or high-end freshly ground specialty coffee, for users, functional attributes currently outweigh emotional attributes. Users rely on coffee to refresh themselves. As young people enter the workforce, work pressure may gradually turn coffee into a necessity. The post-90s, post-95s, and even post-00s are becoming the backbone of the workplace, and their gradually cultivated coffee consumption habits will drive the coffee industry into a rapid growth phase, just like the post-80s' dependence on coffee. For brands, it is not yet time to fight for territory; the current task is to grow the market, transform users from drinking tea and beverages to coffee, and establish the correct awareness of coffee consumption. Reference articles:

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