Asia's Coffee Craving
How do the coffee markets of Japan, South Korea and China stack up to each other?
📣 Hello readers: Do you like what you read today? Click the 💟 “Like” button at the bottom of this page and share insights with your colleagues and friends:
About us: Market Brew is curated by GourmetPro. We help F&B brands and companies enter or expand in Japan by providing bespoke matching to our exclusive network of bilingual consultants. Exploring opportunities in Japan's F&B industry? GourmetPro has the perfect expert to guide you. Explore our services.
A belated happy International Coffee Day to you Market Brewsters! In celebration of October 1st, Coffee Day, we’re bringing you a special feature about the bean that makes the world go round.
This week, we explore the coffee market in Asia by comparing Japan, South Korea and China. You will gain an overview of the current state of coffee consumption and the trends driving future growth in each market.
This article has been co-written with coffee industry maestro, Felipe Cabrera who provides insider insights about coffee in South Korea and China!
Introducing Felipe Cabrera
Felipe is the CEO and founder of Ad Astra Coffee, a coffee consulting company based in Shanghai, China. His company specializes in consulting services for a wide range of topics related to Chinese coffee market and the foodservice industry. Felipe has been working in the Chinese coffee industry since 2015.
Asia has not historically been a big coffee-drinking region, but their java addiction is starting to grow - and fast. An exciting race to consume the most bean is brewing between Japan, China and South Korea. As the thirst for coffee grows, unique cultures and trends are emerging, bringing with them exciting opportunities. Without further ado, let’s dive in!
🇯🇵 Japan
Coffee first entered Japan through Dutch traders in the 18th century. It wasn't until the late 19th century, however, with the spread of kissaten (Japanese coffee store) culture, that consumption really began to grow.
Since then, Japan has risen to become the world’s third largest coffee market. The beverage is now the go-to energy topper upper for students, salarymen and beyond.
The consumer landscape is increasingly sophisticated with independent craft coffee stores and chains vying to cater to the nation’s demands for new flavours and ever higher quality.
So, what are the patterns of consumption and who are the players quenching Japan’s thirst for coffee?
What is the size of the coffee market in Japan?
The Japanese coffee market was the third largest in the world in 2021. Total annual revenues equalled $38 billion dollars, with annual per capita consumption of 2KG per head.
According to the latest data from Statista, the coffee market in Japan is expected to grow at CAGR 8.6% between 2021 and 2025.
What are the patterns of coffee consumption in Japan?
Japan roasts the majority of the beans it imports (99.3% in 2021). But how are these consumed?
Let’s start with who drinks coffee. The millennial generation and above are the main demographics consuming coffee. Hot, black coffee has long been the preferred way to drink coffee, though younger generations prefer iced. It should be noted that tastes for espresso and milk-based coffees are growing!
Consumers in Japan prefer brew-it-yourself-type coffees. Instant coffee, ground coffee and single-use drip bags are the most commonly consumed products. Ready-to-drink coffee is also a major category in Japan, with convenient bottled and canned coffee being at the fingertips of consumers here more than anywhere else in the world.
Coffee culture in Japan is also well developed. Artisanal cafes abound in metropolitan areas, and Japan has produced several world champion baristas. Third and fourth waves of coffee culture have already swept the nation, with chains like Blue Bottle Coffee and Starbucks Reserve Roastery offering novel, almost scientific new ways to enjoy coffee.
Let’s explore how coffee is consumed in Japan a little further.
Cafes
Japan currently boasts around 180,000 coffee shops. Starbucks has the most branches of any pure coffee store in Japan, followed by Dotour, Komeda’s Coffee, and then Tully’s.
Pour over connoisseurs
Japan has a profound love of brew-it-yourself coffee. Between 2018 and 2021, the market for self-prepared coffee has grown 10% year on year. The sale of beans increased by 25% from the year before in 2020, spurred on by COVID-19 lockdown restrictions which encouraged consumers to make their own coffee.
Ready to Drink
Japan is arguably the father of the ready-to-drink coffee market, which was popularized in the 1970s with the launch of Coca-cola Japan’s Georgia brand of canned coffee. Japan now accounts for over half the global RTD coffee consumption. The enormous number of vending machines in Japan is a key factor in the popularity of RTD coffee.
Like what you’re reading?
Which are the leading brands in Coffee in Japan?
The Japanese landscape is dominated by three local roasters. In 2021, UCC Ueshima Coffee roasted 15.6% of beans, Key Coffee - 11.9%, and Ajinomoto 5.4%.
In terms of imports, Brazil, then Vietnam and Colombia are the leading countries where Japan gets their beans.
By sales, Japan’s coffee market is led by UCC Ueshima Coffee Company Ltd., with annual sales of over $760 million. Second place is hotly contested by Japan’s Key Coffee Company ($440 million) and Nestle Japan ($480 million).
As we get into different categories of coffee, pour-over, stick-type, ready-to-drink, etc., different brand leaders have naturally emerged:
Pour Over Coffee/ Beans
Drip-on: A Key-Coffee brand, Drip-On is the best-selling pour-over brand in Japan. The product comes in packs of individually wrapped servings.
Blendy: Blendy is a popular brand of drip coffee by Ajinomoto. Blendy also produces Blendy-Stick, the second most popular instant coffee. It comes in a variety of flavours, including a vegan-friendly “Nut-Latte” type, launched in 2021.
Instant/ Soluble Coffee
Gold Blend and Nescafe Excella: Nestle has over 60% market share of Japan’s instant coffee space according to an EU report, ahead of Ajinomoto. The company has labelled their products as “regular soluble coffee” rather than instant since 2013.
Ready to Drink Coffee
Boss Coffee: Japan’s leading brand of canned and bottled coffee produced by Suntory and famously advertised by Tommy Lee Jones.
Georgie Coffee: Georgia Coffee is Coca-Cola Japan’s original canned coffee brand. It is credited with making RTD coffee popular in Japan. The brand has over 30 ready-to-drink products. Popular ones include Georgia Summer, Georgia Royal, and Emblem Black
Costa Coffee: Also owned by Coca-Cola, Costa Coffee entered Japan in 2019 through pop-up stores. They expanded a RTD lineup of bottled coffee which has quickly earned a top spot on consumers’ lips. Coca-cola owns almost 40% of all vending machines in Japan, helping them to put Costa in front of consumers.
Trends in Japan’s Coffee Industry
In 2020, coffee sales declined year-on-year as COVID-19-era lockdowns led to reduced consumption outside of the home. Sales of make-it-yourself products like pour-over coffee increased, however. We are seeing a reverse of this trend as COVID-19 restrictions ease.
Coffee drinkers in Japan now seek novel coffee experiences and new flavours. Retailers and food services are increasingly stocking premium coffee brands. Kreis, Blue Mountain and Lavazza are popular brands in international supermarkets for example. Meanwhile, Blue Bottle, Fuglen, and local Sarutahiko Coffee are some well-known cafes serving up premium coffee experiences. In short, Japanese consumers’ thirst for high-quality brews is on the rise!
Seasonal products continue to be an important trend in Japan’s cafe industry. Top chains including Starbucks, Dotour and Tully’s launch special seasonal coffees every two months. Some recurring staples include Sakura-flavored lattes in Spring and pumpkin or sweet-potato-flavoured drinks in Autumn. If you seek to launch a cafe business in Japan, seasonal products are a must.
Due to havoc wrought by the COVID-19 pandemic, small and medium roasters are increasingly selling directly to consumers rather than going through retail or selling to cafes/ restaurants. This remains something of a white-space, however.
Finally, decaffeinated coffee, while currently a tiny market in Japan, is surely about to boil over. Import of decaffeinated coffee beans reached peak volumes in 2021. A recent trend in Japan towards health consciousness means decaf brews are a segment to watch.
🇰🇷 South Korea
What is the coffee market size in South Korea?
The South Korean coffee market is one of the world’s largest consumers of coffee. Total annual revenues are around US$14 billion dollars according to the latest data from Statista, and annual per capita consumption is 2.12 Kg.
In 2020, in the midst of the pandemic, coffee imports in Korea broke all previous records and stood at around 176,000 tons and a value of 737.8 million dollars. According to Lucy Kim, Project Manager of Cafe Show Seoul, the coffee industry in South Korea is expected to grow at a rate of 8.04% per year (CAGR 2021-2025).
Does South Korea follow similar patterns of Japanese coffee consumption?
South Korea has its own coffee consumption patterns, with some similarities to other Asian coffee markets, such as Japan and China.
In general, the South Korean coffee market has all the trends of the different waves of coffee (first, second and third waves of coffee). Conventional coffees, such as Colombian Supremos and Excelsos coffee beans, Brazilian Minas Gerais and Cerrado coffee beans and other commercial grade coffees, are highly appreciated by South Korean roasters, coffee shops and consumers.
Be a source of inspiration to someone today:
According to Marcela Martínez, International Marketing Director of El Cafetal in Korea, these conventional coffees are easy to find in commercial cafes with oversized bags from brands like MegaCoffee, The Liter coffee shops, Banapresso and others, targeting young consumers (students) and white-collar employees (salarymen) who constantly need their caffeine fix for long hours of study and work.
Cafés
There are over around 76,000 coffee shops in South Korea (most of them located in Seoul). This is a great increase since the Korean dabangs (coffee shops) started to open in the early 20th century as places for foreign diplomats, Korean politicians, and members of the elite.
Growth of Korean coffee shops started in the 1970s, when young people and university students began frequenting them. After South Korea’s rapid economic growth in the 90s’, coffee shops became a popular date spot, a trend which is still present and easily identifiable in Korean movies and TV shows.
Some of the most recognizable coffee shop brands in South Korea are Starbucks (No. 1 in number of stores), CAFEE BENE in second place, Angel-in-us Coffee from Lotte Group and A Twosome Place from CJ Group.
Instant Coffee and RTD in South Korea
First introduced to Korea by Americans during The Korean War, instant coffee became very popular and affordable for the Korean middle-class during the sixties after a domestic company (Dongsuh Food) started distribution of Maxwell House's instant coffee products (locally produced) in the market.
Currently, instant coffee is the biggest chunk of the South Korean coffee market’s annual revenues. The estimated value of the segment is US$3.5 billion dollars, forecasted to reach US$5 billion dollars by 2026. The top brand players in the instant coffee market are Nescafe (from Nestle) and local Maxim (from Dongsuh Inc.) and Namyang French Cafe (from Namyang Dairy Products Co.)
In addition to instant coffees, consumption of cold brews is also increasing, followed by capsules/pods (mostly for offices). Coffee capsules/pods are very convenient to use and have attractive packaging, localized to the expectations and tastes of Korean consumers. Drip coffee bags are also popular, and selections are usually based on different origins (coffee-producing countries and regions) or coffee profile notes.
Trends in South Korea’s Coffee Industry
As with other regions here in Asia, South Korea also saw a decline in coffee consumption during the first months of the pandemic. However, according to a recent report from GlobalData, “instant coffee has seen a rise in consumption, bolstering the growth of the hot drinks sector in the country” after many Koreans returned to workplaces, schools, universities and other work and study environments.
Sales in brick-and-mortar coffee shops and restaurants rose as consumers went back to their usual pre-covid consumption habits.
Another trend in the South Korean coffee market is sustainable coffee. Korean consumers are beginning to look for coffees with stories of sustainability, in accordance with UN Sustainable Development Goals and ESG global market initiatives. Sustainable certifications such as Rainforest Alliance (RFA), Organic (Korean certification) and Fairtrade are increasing accordingly.
The number of cafes and coffee beans (for retail) catering to consumers of the third wave and speciality coffees are increasing. These consumers seek coffee with new processes. “Anaerobic fermentation” is a process in vogue recently, which creates coffees with differentiating and unique profile notes. Washed and natural coffees with traceability (coffee grower, farm, variety) remain important in the market too.
These new processes in the coffee industry (in contrast to the traditional Washed, Natural or Honey processes) have been warmly received by Korean and other East Asian markets, as coffee producers can give or enhance very distinctive and special flavor/profile notes within the coffee beans.
The result are coffees with profile notes of whiskey, rum, or winey aftertastes (usually only present in African Natural processed coffee beans); or fruity notes and aromas such as coconut, passion fruit or tangerine, which pair very well in the Asian markets and its consumers which are always looking for new things.
🇨🇳 China
What is the coffee market size in China?
The Chinese coffee market is the biggest in terms of annual growth. In 2021, China imported 106 thousand tons of green coffee beans from around the globe, and 10.8 thousand tons were from Colombia (10% of the global total imported).
In terms of sales inside the Chinese coffee market, the numbers are also vast. Coffee retail sales in 2021 were 66 thousand tons (97%), and fresh coffee sales accounted for 2 thousand tons (3%). Although the fresh coffee segment is small, the growth rate of the fresh ground coffee market in China was 20% ($15.6 billion dollars) in 2021, bigger than the total of South Korea’s coffee market’s recent annual revenues!
The fact that annual per capita coffee consumption in China accounts for 9 cups only, an average of the total domestic coffee consumption, can be misleading.
China’s annual per capita consumption is best divided based on the Chinese city tier system (a classification of Chinese cities based on income level and other measures):
First-tier cities (Shanghai, Beijing, Guangzhou and Shenzhen): 326 cups of annual per capita consumption
Second-tier cities: 261 cups of annual per capita consumption
For reference, the United States has an annual per capita coffee consumption of around 330 cups (Deloitte China, 2021).
What are the patterns of coffee consumption in China?
China’s coffee consumption patterns, while similar to that South Korea and Japan in some ways, are unique for being relatively new. This brings frenetic energy and great potential to the market, which favoured tea until 1999 when Starbucks opened its first store in China.
Although instant coffee consumption is quite strong (especially outside main and cosmopolitan urban centers), freshly brewed coffee is increasing thanks to the growth of coffee chains such as Starbucks and Lucking Coffee.
Chinese millennials are the ones pushing the coffee culture upward in China. This group tends to have a higher disposable income in comparison to previous generations, so they can afford coffee cups for around 30 RMB (approx. 600 Japanese Yen or US$4.2 dollars).
Consumers of this group are usually professionals in first-tier cities, ages between 20 and 40 years old, with university degrees and experience studying or working abroad. They are high-income consumers, averaging 18,000 RMB (approx. 366 thousand Japanese Yen or US$2.5 thousand dollars) per month.
Chinese Millenials mostly consume Lates, Cappuccinos, Flat Whites and Dirty (popularized by Manner Coffee). Coffee delivery is very popular with consumers (Luckin Coffee started it in 2017) too as a convenient way for your favourite coffee to make its way to you.
In general, we can find four key influencing factors when Chinese coffee consumers choose a coffee brand: Taste, Convenience, Brand identity and Culture, and Store Environment.
Which are the leading brands of Coffee in China?
China has around 108,500+ coffee shops, of which small and independent stores represent around 87% of the total, with large chains taking nearly all the rest.
As in other Asian countries, Starbucks is one of the top players and it has a vast presence in the Chinese market, as it was the first to come to China. In 1999, it opened its first store in Beijing, and currently is celebrating the opening of its 6,000th store in mainland China, around 5.5% of the total market.
However, due to the pandemic and ongoing zero-covid measures and policies in China, Starbucks is having a difficult time. According to MakeCoffee.cn, around 940 of Starbucks stores in Shanghai were temporarily closed during the city’s two months’ lockdown. During this time its store sales fell by 44% in the third fiscal quarter, resulting in a 40% loss in revenue in China.
Luckin Coffee (瑞辛咖啡), which is said to be Starbucks’ main competitor in China, is number one in the number of stores, with more than 7,195 stores (6.6% of the total market) at the end of Q2 2022.
In contrast with Starbucks 2022 results, Luckin Coffee is enjoying strong growth in China. Their latest total net revenues in Q2 2022 were US$ 493 million dollars, representing an increase of 72% from last year. Their success is thanks to their R&D and fast adaptation to current trends inside the market, and bringing a new menu each season, highly influenced by researched trends.
Trends in the e-commerce coffee market are also interesting, with more and more consumers willing to buy coffee products online, especially in cities like Shanghai which experienced a strict two-months lockdown. As Chinese coffee consumers are very active in buying coffee or coffee products on e-commerce platforms such as Taobao (淘宝), Jingdong (京东) and others, there is growing and fierce competition in instant and soluble coffees and RDT coffee products. Below are the top players by these categories.
E-Commerce Market
Nescafé, with 70% of the market (including sales of Starbucks products in physical supermarkets)
JDE (Jacos Douwe Egberts), with approx. 5%
Illy, with approx. 2%
Instant/ Soluble Coffee
Nescafe (60%)
Maxwell House (5%) from South Korea
Saturn Bird (3%), a local brand
Kopiko (2%) from Japan
Ready To Drink Coffee
Nestle, 73%
Suntori (from Japan), 8%
Coca-Cola (through Costa Coffee RTD products), 7%
Kirin (from Japan), 5%
Trends in the Chinese Coffee Industry
The Chinese coffee culture and market are vibrant and competitive. Both are evolving to be unique, blending each wave of the coffee industry with local influences such as regional cuisine and milk tea brands.
Current visible trends in the Chinese coffee industry are the move and expansion of speciality coffee into cities outside the well-developed east coast area. Young baristas working in China’s main cities are going back to their hometowns, bringing, adapting, and emulating the skills, knowledge and cultures they learned into fourth and fifth-tier cities.
Another strong trend in China’s coffee industry is the continuous development of its online B2C market through live streaming platforms like TikTok (called 斗音 in China) and Chinese social media platforms such as Red (小红书).
An increasing trend of professionalization of the coffee industry is happening in China, which now has around 4.2 thousand Q Arabica Graders on the mainland. Local coffee production of green coffee beans in Yunnan province is also growing.
Yunnan coffee producers are experimenting with different varietals and processes (Natural, Honeys, Anaerobic, etc.). Intrigued, many coffee brands in China are using more Yunnan coffee beans as replacements for Colombian or Brazilian coffee beans in their blends due to the high costs of these imported coffees.
Finally, the expansion and development of a coffee culture with “Chinese characteristics” and its signature coffee drinks (called 特调咖啡 in Chinese) are worth mentioning. Coffees with unique aromas and tastes achieved using non-orthodox processing methods such as anaerobic and fruit fermentations, along with elements of mixology and cold brew coffee extractions, are the near-future tendencies in the Chinese market.
That’s all folks
So, who’s ready for a coffee? We hope you found today’s deep dive into coffee in Asia as stimulating (both mentally and in terms of coffee cravings) as we did.
We’d like to say a huge thank you to Felipe Cabrera for co-writing today’s post and filling the article full of rich, fascinating details about the coffee markets in China and South Korea.
See you soon.
Made with ❤️ by GourmetPro - Food & Beverage experts in Japan.
💌 If you have any questions, you can directly answer this email. We read and answer all messages.
💖 And if you think someone you know might be interested in this edition of Market Shake, feel free to simply forward this email or click the button below. 💖
Asia's Coffee Craving
Many thanks to Toby and GourmetPro team for have reached out to me, quite the honor to have collaborated for this article in celebration of International Coffee Day.
As a true coffee fan, very interesting and Asian coffee is of a much higher quality than it is in Britain.