In early September, the joint coffee "Soy Sauce Latte" launched by Luckin Coffee and Guizhou Maotai hit the market, creating a buzz on Chinese social media platforms. This resulted in a single-day sales achievement exceeding RMB 100 million for Luckin Coffee.
For Chinese consumers, coffee is no longer an unfamiliar commodity but has become an everyday necessity. China's coffee market is in a rapid growth phase. According to Statista, by 2023, the coffee market (excluding Ready-to-Drink coffee beverages) will reach a total revenue of USD 1.7 billion. Between 2023 and 2028, China's coffee market is projected to grow at a compound annual growth rate (CAGR) of 7.58%, exceeding the global average of 4.61%. Instant coffee dominates the market, accounting for about 72% market share, with a market size close to USD 10 billion, as pointed out in a report by Zhongyan Pu Hua Research Institute.
With the rising coffee affection among Chinese consumers, several local coffee brands have emerged. These brands, appearing predominantly in first and second-tier cities, not only share the market with established international brands like Nestlé and Starbucks but also bring diverse products and marketing strategies. However, China still lacks globally recognized coffee brands. The number of Chinese coffee companies listed is much fewer than in countries like the USA, Germany and Italy. This discrepancy can be attributed to factors such as consumer habits, market foundation, brand building, and capital investment.
EqualOcean notes a growing global trend: consumers are increasingly concerned about corporate sustainability and social responsibility. They expect not just a tasty coffee but one that represents respect and responsibility towards the environment and society. This article will discuss the potential secondary business value for coffee brands from a circular economy perspective.
The Circular Economy in the Coffee Industry
In mature coffee markets, sustainable development offers businesses new avenues for value growth. The concept of a circular economy is intrinsically tied to sustainability and is a vital component of corporate ESG (Environmental, Social, and Governance).
The circular economy aims to eliminate waste from the outset and avoid overuse of resources. This economic model contrasts with the traditional "extract, manufacture, consume, dispose" linear approach. The primary goal is to ensure resources remain within the economic system for as long as possible.
Applications of the circular economy include waste minimization, designing products for longevity, recycling, the sharing economy, and biological and technical cycles. Every aspect of the coffee industry can apply these principles. Practices like reusing coffee grounds, sustainable packaging, reutilizing coffee pulp, and other waste, as well as ongoing agricultural practices, are already underway. Leading coffee businesses, such as Nestlé and Starbucks, have launched various sustainability initiatives globally, like using recyclable materials for coffee capsules and partnering with third-party organizations for coffee product waste recycling and reprocessing. These practices align with the circular economy and support the brands' business growth.
In China, a few coffee brands have initiated actions in line with the circular economy. For instance, the specialty instant coffee brand Saturnbird Coffee launched a recycling project "Return Plan" in 2019. They set up collection points in cities on designated days to recycle used coffee capsules and turn them into lifestyle products. By February 2023, Saturnbird Coffee had collected over 13 million used coffee capsules. They've also developed a new recycling material called AFTERESSO. Meanwhile, Manner Coffee, which operates both roasted coffee and offline ready-to-drink coffee, offers discounts to customers who bring their own cups.
Marketing or Environmental Protection? Rethinking "Green Transformation"
Comparing the practices of international leading coffee brands with Chinese ones reveals clear differences in quality, brand numbers, and the duration of sustainable practices. But the most fundamental distinction is whether the companies have strategies and business positions related to environmental protection and sustainability. In other words, the underlying motivations behind various circular economy practices.
For instance, Nespresso, a subsidiary of Nestlé, prominently features sustainability on its official website. It frames its recycling initiative as a core aspect of its circular ethos, partnering with environmental organizations, local farms, and artists. According to data disclosed by the brand, since 2009, Nespresso has reduced the carbon footprint of each coffee cup by 20%. Saturnbird Coffee, on the other hand, views its coffee capsule recycling initiative, the "Return Plan", as an opportunity to "encourage people to explore new paths and experience diverse lifestyles," collaborating mainly with urban coffee shops.
In essence, while Nespresso positions sustainability as a dedicated business module and growth direction, formulating tangible ESG-related targets, Saturnbird Coffee employs sustainability more as a marketing keyword, leaning towards green marketing activities.
These differing motivations have implications for the brands' development. Firstly, with increasing emphasis on sustainability, ESG, and the circular economy in global policies, public opinion, and investment decisions, positioning sustainable development as part of corporate growth will benefit companies in global brand perception and ESG evaluations.
Secondly, different motivations result in varied focus areas during project execution, leading to different outcomes. While green marketing focuses on brand building and repurchase rates, the circular economy aims to reduce waste and environmental pollution, emphasizing sustainability and resource efficiency throughout a product's life cycle.
Future Challenges and Opportunities
China's coffee market, while growing rapidly, has unique characteristics that set it apart from more mature markets. Companies can optimize sustainable practices for the local environment, thus achieving greater efficiency and impact. But while brands like Saturnbird Coffee and Manner Coffee have made a start, it's essential for more brands to adopt a genuine commitment to sustainability, not just a marketing gimmick.
Brands can leverage the momentum of the growing market, combined with the increasing focus on sustainable practices, to create a stronger position both domestically and internationally. The challenges they face can also become opportunities to innovate and reshape the industry, both in terms of products and operations. Embracing a genuine "green transformation" can set the stage for Chinese coffee brands to compete effectively on the global stage.
Chinese coffee brands, to become global leaders, must rethink their sustainability strategies and ensure they are not only innovative but genuinely dedicated to creating a better, greener future.