‘Third Wave’ Market Emerging as Southeast Asia’s Chain Growth Booms

Starbucks China. Creative Commons License 4.0. March 2011 photo by dunhilaryu.

China is adding approximately four new branded coffee shops per day, representing a 37 percent increase in branded coffee retail growth over the past 12 months, according to a new report from World Coffee Portal, a faction of the London-based Allegra Group.

The Allegra report echoes another recent report from the International Coffee Organization suggesting that the Chinese market — with a population pushing 1.4 billion people — is poised for exponential growth in the coffee retail segment in the coming years. What that growth might mean for the green coffee market remains a question mark.

The Allegra report — which drew from interviews with more than 80 CEOs, managing directors, senior managers and store managers of coffee industry players involved in the Southeast Asia market — suggests that branded retail growth throughout the nine countries identified in the region has accelerated through 2015 by some 14 percent year over year. Specifically, the report measured “coffee-focused American-style chains” in the markets of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam — identifying the greatest opportunities for future growth in China, Indonesia, Thailand and Malaysia.

The report predicts that the Southeast Asia branded coffee shop market will exceed 24,000 outlets by 2020, representing overall growth at 11 percent. “There will be some consolidation, with weaker brands closing more outlets as international chains become more dominant, but there are exciting growth opportunities for chains in brand-embracing markets such as Indonesia and Malaysia,” Allegra said.

As might be expected, major international retail brands are dominating the growth and the overall market share in Southeast Asia — brands including Starbucks, Dunkin’ Donuts, Coffee Bean & Tea Leaf, McCafé, Costa Coffee (UK), Café Amazon (Thailand) and Caffé Bene (South Korea). The Allegra report suggests these brands, many of which are continuing to expand throughout the region, have created a challenging landscape for newcomers. However, it does note an emerging trend throughout many of the nine countries toward higher-end “third wave” coffee.

“More coffee enthusiasts, evident among Southeast Asians as third wave of coffee becomes established in key markets, [are] encouraging growth in emerging markets,” Allegra says in an analysis of the report. “Café culture in Southeast Asia is seen as aspirational and this is fueling the sector, particularly among younger consumers who are influenced by international branded chains. Consumers are now more knowledgeable about speciality and good quality coffee, which is also driving the sector alongside the development of a strong artisan coffee shop scene in key markets including Singapore, Malaysia, Taiwan and Thailand. This market is less developed in Hong Kong, China, the Philippines and Indonesia, but a third wave scene is emerging.”

The full report delves into country-by-country market share data for the aforementioned chains, includes country-by-country growth reports over the past year plus future growth predictions, and addresses drink localization as a catalyst for growth throughout the tropical hot region, where Allegra’s own numbers suggest iced drinks outpace hot drinks in a 4-to-1 ratio.