China’s booming coffee culture

Jonathan Wright
Jonathan Wright
Fidelity Personal Investing7 December 2017

Believe it or not, every 15 hours Starbucks opens a new store in China. In a country that boasts the world’s largest population, it should be no surprise that the company has just opened its largest store ever in Shanghai, a city which already has more Starbucks than any other on the planet - over 600 at the last count.

Roughly the same size as a supermarket, the 30,000 square foot ‘Roastery’ is the second Starbucks’ Roastery to open in the world and is twice the size of its flagship store in Seattle.

Based on Shanghai’s Nanjing Road, in the heart of the shopping district, the super-sized coffee shop looks more like a bar in a trendy, upmarket hotel. It can serve up to 7,000 customers per day and is open from 7am to 1am. It also serves beer, wine and spirits, making it a destination in itself for socialising in the evenings, as well as a place to grab a quick coffee on the way to work.

Since opening their first store in China in 1999 - at a time when coffee shops in the country were virtually non-existent - China has become the fastest growing market in the world for the company. As the US market matures, comparable-sales growth in China is outpacing that of the US. Last quarter, China posted an 8% increase, compared with a 3% gain in the US, excluding impacts from Hurricanes Harvey and Irma.

It’s easy to see why Starbucks is focusing on China for future growth. The latest figures from the International Coffee Organization suggest that total coffee consumption in China has been growing at an average annual rate of 16% over the past 10 years and market analysts predict this will continue. The potential for this historically-considered nation of tea drinkers is still enormous.

As China continues to focus on developing its domestic economy, the Chinese consumer will be a key focus for many Western brands. According to the Economist Intelligence Unit, China will become a middle-class society by 2030, based on income measures. Currently around 40% of the population is classified as low-income. By 2030 that figure is likely to drop to 11% and, around 75% of the 1.4 billion population will be considered middle-income.

This growing middle-class is especially attractive for Western retailers with consumer-focused international brands. Luxury brands such as Burberry and LVMH have particularly benefited lately, helped further by the fact that China has a lack of well-known luxury brands of its own.

Despite being home to some of the world’s most innovative digital retailers such as Alibaba and JD.com, only 7% of Chinese luxury sales occur online according to McKinsey’s 2017 China Luxury Report. This represents further opportunity for Chinese e-commerce, already celebrating record sales of over $25bn generated in last month’s Singles Day shopping bonanza.

For investors, the growth in the Chinese consumer offers many opportunities. Investing in a fund that focuses on companies in the region is an easy way to access this potential. Our Select 50 range of recommended funds features a number of funds investing in China. The Fidelity Emerging Markets Fund and Old Mutual Asia Pacific Fund both include Alibaba in their top 10 holdings.


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