Project Café East Asia – Executive Summary, November 2020

DISCLAIMER

Copyright: Allegra World Coffee Portal, November 2020

All rights reserved. No part of this executive summary may be reproduced or stored in a retrieval system, in any form or by any means, electrical,
mechanical, photocopying or otherwise without the prior consent of the publishers.

This executive summary is taken from Project Café East Asia 2021, and is provided for industry professionals who have helped assisted Allegra World Coffee
Portal in their research process by undertaking an interview or completing the industry leaders survey.

The views and forecasts presented in this executive summary represent independent findings and conclusions drawn from a study of the East Asian retail
coffee shop market by Allegra World Coffee Portal.

Great care has been taken to ensure that all information contained in this sample report is accurate, free from bias, and fully describes the latest
developments in the UK retail coffee shop market. However, Allegra World Coffee Portal can accept no responsibility for any investment decision made on
the basis of this information or for any omissions or inaccuracies that may be contained in this report.

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Project Café East Asia

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1.1 / EXECUTIVE SUMMARY
EXECUTIVE SUMMARY – HEADLINES

EAST ASIAN COFFEE SHOP MARKET ROBUST IN THE FACE OF COVID-19

The East Asian coffee shop market is a priority region for many major multi-national chains. Allegra has identified 578 branded coffee shop operators in the
region at present, totalling 74,535 outlets at nearly twice the size of the European branded coffee shop segment. Starbucks Coffee Company is the largest
regional operator with 9,970 outlets. South Korea is the largest market with 24,905 outlets, remarkable for its high coffee shop density (482 per million
population). Growth has been tempered by the Covid-19 pandemic, yet 13 of the 17 markets featured have increased in outlets over the course of 2020.

RAPIDLY EXPANDING MARKETS FACILITIATE GROWING COFFEE CULTURE

The region is in a moment of transition, rapidly moving towards highly professionalised, mass market operations. Foreign brands are prevalent in markets
where consumers are welcoming of Western branded concepts, yet there is also a strong domestic presence, including Luckin Coffee in China (4,272
outlets), Ediya Coffee in South Korea (3,200 outlets), and Milano Coffee in Vietnam (1,436 outlets). The emergence of specialty coffee is still at a nascent
stage in East Asia, with few major 5th Wave operators trading at scale; however, specialty is anticipated to be a major trend over the next 5 years.

DAWN OF A NEW ERA OF OPPORTUNITY IN CHINA

With the Chinese economy predicted to surpass the USA within the next decade, and the highest amount of operators across East Asia, China is a hub for
growth and innovation. Digital technology is at the forefront of a rapidly changing Chinese consumer experience, characterised by the high adoption of
mobile and app based ordering and payment options. This helped to support sales during the early 2020 Covid-19 lockdown, and helped facilitate a quicker
recovery as cases fell. Luckin Coffee has been a pioneer in bringing delivered coffee to the mainstream in China, prompting rival operators to follow suit.

EAST ASIA EXPECTED TO SURPASS 100,000 BRANDED OUTLETS OVER NEXT FIVE YEARS
Allegra predicts the East Asian branded coffee shop market will exceed 103,500 outlets by the end of 2025, representing five-year growth of 6.8% CAGR.
The coffee-focused branded chain sub-segment is predicted to grow at 7.5% CAGR over the next five years to exceed 84,500 outlets, while the food-focused
branded chain sub-segment is predicted to grow at 3.9% CAGR, exceeding 18,900 outlets. Growth will be driven by the continued expansion of the middle
classes across East Asia, with higher disposable incomes, alongside a greater desire for high quality espresso based beverages out-of-home.

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1.2 / EXECUTIVE SUMMARY
EXECUTIVE SUMMARY – OVERVIEW & INDUSTRY INSIGHT
The East Asian branded coffee segment has grown by 8.8% CAGR over the last five years. While Covid-19 has impacted the region comparatively less than
Europe and the Americas, disruption felt in early 2020 is partly responsible for annual growth reducing to 5.1% over the last 12 months. The East Asian
branded coffee market now exceeds 74,500 outlets as a result. In China, Luckin has been responsible for the majority of outlet growth between 2017 and
2019. However, a focus on business restructuring over the last 12 months means growth has predominantly been sustained by Coco Fresh and Starbucks.
MARKET OVERVIEW
• The East Asian coffee shop segment comprises
58,864 coffee-focused and 15,671 food-focused
outlets for a total market size of 74,535. This has
increased by 3,630 over the last 12 months,
representing 5.1% growth
• 13 of the 17 markets featured in this report have
increased in outlets over the last 12 months, with 7
markets displaying growth of 5.0% or more
• The majority of outlets in the East Asian coffee shop
segment belong to multi-national operators (63%),
although several major markets are characterised
by the presence of a major national brand
MARKET FEATURES
• South Korea has the most developed branded
coffee shop market in East Asia with 17,895 coffee-
focused and 7,010 food-focused outlets for a
combined market size of 24,905
• Cambodia is the fastest growing market in East Asia
over the last 12 months (27.8%), ahead of Indonesia
(17.6%) and Macau (12.2%)
• Brunei saw its market contract the most over the
last 12 months (-5.0%), while Singapore and Taiwan
contracted by -3.3% and -2.2% respectively.
Mongolia saw no change over the period
KEY PLAYERS
• Starbucks is the largest branded coffee chain in East
Asia, with 9,970 outlets across 14 markets, with 608
additional outlets over the last 12 months to reach
a total regional share of 13.4%
• Luckin Coffee is the second largest branded coffee
chain, operating only in China with 4,272 outlets,
down from 4,507 over the last 12 months. This
represents 5.7% of the total East Asian market
• Seven operators have presence in ten or more East
Asian markets – Starbucks, McCafé, Illy Caffé,
Häagen-Dazs Café, The Coffee Bean & Tea Leaf,
Krispy Kreme, and Gloria Jean's Coffees
FUTURE OUTLOOK
• Allegra predicts the East Asian branded coffee shop
segment will exceed 79,700 outlets over the next
12 months, at growth of 7.0%. The market is
expected to exceed 103,500 outlets by November
2025, displaying five-year growth of 6.8% CAGR
• The coffee-focused branded chain sub-segment is
predicted to grow at 7.5% CAGR over the next five
years to exceed 84,500 outlets
• The food-focused branded chain sub-segment is
predicted to grow at 3.9% CAGR over the next five
years to exceed 18,900 outlets
Project Café East Asia
Strategic Analysis, November 2020 ©
INDUSTRY INSIGHT CHINA
• Allegra’s research into the Chinese coffee shop
market reveals that 67% of industry leaders believe
that current trading conditions are positive, with
Covid-19 disruption mostly contained to the start of
the year during the lockdown period
• The majority of leaders (56%) feel that the model
underlying Luckin Coffee’s rapid expansion since
2017 is unsustainable, with 23% believing it to be a
viable option for growth
• Traditionally a nation of tea drinkers, the rapid
increase in coffee shop openings across China, and
their popularity with younger, trend setting
demographics, means that 54% of industry leaders
think the nation will transition to predominantly
coffee-drinking over the next five years
• Coffee via delivery is a major characteristic of the
Chinese coffee market, and only 20% of leaders
think most consumers will purchase coffee in
person in five years time
• Chinese industry leaders believe that consumers
are more likely to be concerned about their coffee
being ethically sourced (55%) than the industry
itself (41%), despite only 27% of leaders believing
that improving sustainability practices comes at the
expense of higher profits
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1.3 / EXECUTIVE SUMMARY
EXECUTIVE SUMMARY – CONSUMER INSIGHT CHINA
As a nation synonymous with tea production and consumption, coffee has been a relatively modern influence, with Starbucks first establishing its presence
in 1999. The brand is held in high esteem by Chinese consumers, significantly greater than in the USA according to Allegra research. Many major domestic
players have been established since 2010, and the real explosion of outlets has occurred over the last five years. These homegrown brands are Western
inspired, but with greater influence of Chinese cultural characteristics, leading to a rich, diverse coffee culture which continues to evolve.
GENERAL BEHAVIOUR
• Allegra’s consumer survey of 4,000 Chinese
consumers found that more people drink tea,
bubble tea and yoghurt drink at least once a year
than coffee, but for those who consume these
beverages on a daily basis, coffee is the most
popular (30%)
• 86% of consumers indicate they have previously
ordered coffee to be delivered to them. The main
motivations for doing so are to save time (45%) and
convenience (39%)
• The addition of dairy milk is the most popular
means of customising a beverage in China, with
skimmed milk the most common option. Coconut
milk is the most popular dairy alternative, ahead of
oat milk
• The majority of consumers (75%) believe that
coffee served in coffee shops generally represents
good value for money, and 60% believe this is the
case for food choices
• Consumers in China are open to trying new
beverage products, with women typically being the
most adventurous (85% vs. 78% of men)
• Although most consumers typically order a regular
10-12oz beverage, 79% indicate they prefer a range
of cup size options to choose from
BRAND PERCEPTIONS
• Starbucks (69%) is the nation’s favourite coffee
chain, ahead of Luckin Coffee (10%) and U.B.C.
Coffee (6%). The American multi-national chain is
significantly more popular among the under 30s
(74%) than the 40s and over (59%)
• 80% of consumers said they had visited or ordered
from a Starbucks outlet over the last 12 months,
ahead of McCafé (36%)
• 90% of consumers had a favourable opinion of
Starbucks, compared with 5% unfavourable.
McCafé is more divisive (55% and 21% respectively)
LATEST COFFEE SHOP VISIT
• Cappuccino was the most popular beverage on last
coffee shop visit (34%), ahead of latte (33%) and
americano (19%)
• Consistency across outlets is the primary reason for
coffee shop selection among consumers (32%),
while coffee quality (30%) and convenient location
(26%) are also important factors
• The majority of consumers were last motivated to
visit a coffee shop for reasons of indulgence (70%),
while social considerations had the least attraction
• The average consumer spent ¥53.81 (US sS7.92) in
total on their last coffee shop visit
Project Café East Asia
Strategic Analysis, November 2020 ©
CONTEMPORARY COFFEE TRENDS
• The majority of consumers believe that coffee is
good for their health (68%), although this is less the
case among the under 30s (58%) than the 40s and
over (78%)
• 64% of consumers indicated that country of origin is
important when purchasing coffee, with Brazilian
sourced coffee the preferred option (43%) ahead of
Chinese (37%) and Cuban (28%)
• Most respondents have previously downloaded a
coffee shop app (64%), and of these, 50% felt that
deals and voucher integration are the most useful
functionality. Delivery (43%) and loyalty points
(36%) also featured highly
• 70% of consumers have previously ordered coffee
from a premium vending or self-service machine,
with the fast service (42%) and lack of queue (34%)
being the major motivating factors underlying use
• Visiting a coffee shop with friends is more popular
among the under 30s (35%) than for the 40s and
over (26%), whereas the opposite is true for visiting
alone (43% vs. 52% respectively)
• With the rise of automation in coffee shops, only
17% of consumers indicated that the skill of the
barista was one of the most important factors
contributing to great quality coffee
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FURTHER INFORMATION

PROJECT CAFÉ EAST ASIA 2021

Project Café East Asia 2021 is now available and is priced at £6,000

CONTACT INFORMATION

For further information please contact:

Matthew Hill Hannah Heath

Commercial Executive Marketing Manager
Allegra World Coffee Portal Allegra World Coffee Portal
mhill@allegra.co.uk hheath@allegra.co.uk
+44 (0) 20 7691 8844 +44 (0) 20 7691 8836

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Project Café East Asia

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Strategic Analysis, November 2020 ©