Nestle to further tap China market with new drip coffee

Chinese consumers' rising awareness of coffee varieties, their demand for beverages made of freshly ground beans, with an emphasis on convenience and low price, have accelerated the development of drip coffee products in the market.

Global food and beverage producer Nestle unveiled its first drip coffee product in China last month.

Drip coffees, or small cones or cubes containing ground coffee that "hang by the ear", to use Chinese consumers' preferred phrase for them, allow fresh brews to drip through them when immersed in hot water in a mug.

Nescafe's gold drip coffee series have launched two products in the emerging market segment. The hand-brew master drip coffee, in turn, has two kinds-dark roast and medium roast, mixing coffee beans grown in Yunnan province with those from Colombia, Brazil and Ethiopia.

Coffee is the mainstay of Nestle's beverage business that boasts three brands: Nescafe, Nespresso and Starbucks.

While full-year coffee business figures for 2019 are yet to be finalized, Nestle China said it grew in double digits in 2018 on the back of innovation.

The new drip products have been launched in response to the fast-growing market trend in China. Ground coffee has the potential to become a further growth driver, just as instant coffee varieties became popular a few decades back, according to Nestle.

Nestle is also the world's largest coffee producer, taking up 23 percent of the $77 billion global coffee retail consumption market. Nescafe is available in more than 180 countries. Nespresso has over 600 boutiques and attracts about 465,000 daily visits to its e-commerce platforms.

Adrian Ho, senior vice-president, coffee business unit, Nestle China Ltd, said China has big potential for coffee consumption. To exploit opportunities brought by the rapid development of the Chinese market, brands must keep changing and innovating, he said.

Nestle is not the only company that has taken a shine to drip coffees. Luckin, which operates coffee houses that compete with Starbucks, has jumped on the drip bandwagon. Its mobile app as well as its e-stores on JD and Tmall are seeking to capitalize on its large database of consumers. To further endear itself to coffee connoisseurs on its app, Luckin rolled out its snack business as a bonus in November last year.

The coffee chain store operator-turned-retailer established its coffee bean roasting factory in Fujian in July last year. For the purpose, it collaborated with two entities: Japan's Mitsui Foods, one of the world's top three coffee bean traders, and Yeuan Yeou Enterprise, a prominent professional coffee roaster in Asia.

The Fujian factory can annually produce some 30,000 metric tons of roasted coffee beans worth 1.5 billion yuan ($215.2 million).

Zhu Danpeng, an independent food and beverage analyst, said it is no surprise that drip products are emerging as a growth point in the coffee market that was tending toward homogenization. Drip coffees are cheaper and offer more convenience compared with hand-brewed coffee consumed at coffee houses, he said.

According to Mintel Group Ltd, China's hand-brewed coffee house market sales were worth 64.7 billion yuan in 2018, up 7.5 percent over 2017. Mintel estimated the market is expected to rise at 6 percent year-on-year between 2019 and 2023.