Coffee culture percolating in popularity

Coffee culture is rapidly percolating in popularity in the Chinese market, fueled by a boom in cafes and takeout orders that has sparked fierce price wars and rapid innovations.

Yet, amid the froth and buzz, a quieter trend is brewing — at-home and workplace coffee consumption.

As for the capsule coffee sector, it holds steady promise, as more consumers embrace the convenience and quality of making coffee on their own.

Brands like Nespresso, a coffee unit of Nestle, are capitalizing on this shift, aiming to establish capsule coffee as a staple of daily life — whether at a desk, a living room table, a corner table in a restaurant or a hotel lounge.

Bernie Gao, a research analyst specializing in food and drink at the Mintel Group, a research institute, believes the capsule coffee market has ample growth potential, driven by rising coffee consumption and demand for consistent quality.

"Capsule coffee is increasingly appealing to office workers and younger consumers, penetrating further into various-tier cities," said Gao.

Viviana Sun, an event moderator in Shanghai, said that having a capsule coffee machine at home offers a more unique experience than coffee shops or take-out orders.

"I enjoy making coffee for friends when they visit. It is a gesture of hospitality and courtesy," she said. "Capsule coffee is great for preserving freshness and flavor, and it's easy to make. The used pods can also be recycled. It doesn't take up much space in the kitchen."

Nespresso, the capsule coffee business of Nestle, has adopted a strategy of premium positioning and embracing local touches in the Chinese market, aiming to have an edge amid the competition with the country's on-premise coffee and tea sectors.

One of its flagship stores in Shanghai is situated in a crowded corner with Starbucks and Manner, two coffee chains in the country, representing a vivid "triangle" of on-premise beverage brands.

"We were here first," Matt Lu, business executive officer of Nespresso Greater China, said with a smile, seemingly amused yet unfazed by the competition.

The density of coffeehouses in Shanghai is now among the highest globally and continues to grow, he said.

But the increase in coffee consumers and consumption rates in China signal potential for Nespresso, he said.

Those who order coffee at cafes are likely to enjoy it at home or at the office as well, Lu said, adding: "This opens up more opportunities for us. I'm optimistic about our potential as a coffee machine and capsule business."

Having seen the growth potential, Nespresso has scaled up its retail strategy since September.

Nestle's third quarter fiscal report shows that coffee was the largest growth contributor with mid-single-digit growth, supported by the three leading coffee brands — Nescafe, Starbucks and Nespresso.

The company operates 42 directly owned stores, with more than 10 opened this year alone.

"Next year we plan to open more stores across more cities, especially in southern and western China," said Lu.

At its store in Shanghai, the ambiance is set with beige-painted walls, soft lighting and vibrant capsules displayed like rows of crayons.

"In-home coffee solutions, the core of our business, have been a way of life in Europe for years. But when we entered the Chinese market, it was still a novel concept," said Lu.

"Now, 12 years since I joined the company, Chinese consumers are becoming more aligned with their peers in Europe and the US," Lu said.