There is an innovative collision between coffee and milk tea displaying in Reel, a shopping mall not far away from XNode’s Jingan Space. The Shanghai pop-up store was opened together by the globally hot Kyoto Arabica Coffee and Hey Tea. Together, they recently launched a crossover product “Arabi-Boba”, a creative drink made of brown sugar boba and mixed with Arabica Coffee and fresh condensed milk.
Why would those two giants from the coffee and tea industry work together for innovation? Let's start by looking at the coffee market for inspirations.
According to Coffee Industry report from Guoxin Securities, in 2017, China’s coffee consumption market was around 70 billion yuan. Though only covering 0.5% of the global market, the annual growth rate of the market is around 15%. It is also estimated that the sales of that market will reach 300 billion yuan in 2020, and is expected to exceed 1 trillion yuan in 2025. What is the story behind the fire in the coffee industry?
01 | New types of coffee: the truth behind drip bag coffee
Although in China instant coffee still remains the most popular type of coffee, its market share and growth rate both declined in 2017. On the contrary, filter coffee is gaining increasing acceptance.
Due to freshness, portability and brewing simplicity, filter coffee is considered as a fabulous opportunity for boutique coffee brands moving away from the store and toward scenarios like office and home brewing.
By hanging the package of coffee powder on the cup and pouring boiling water through the filter paper, the making of a cup of drip bag coffee is complete.
According to the data breakdowns of coffee outside of first-tier cities, China has good potential to become one of the largest coffee consuming countries (based on population). Coffee culture has gradually been popularized under the influence of Starbucks, Costa, and other coffee chains, but there is still a long way to go before regular coffee consumption becomes a habit for the Chinese people.
In the Chinese market, the sales of drip bag coffee are mainly online, with a few from supermarkets and cafes. So, despite the popularity of it, drip bag coffee is still a relatively small market. Therefore, opening up offline channels and through live interactions may attract new customers, especially entry-level coffee lovers, to the category of drip bag coffee.
02 | What is the story behind the popularity of the coffee industry?
During Tmall’s 6.18 Mid-Year Shopping Festival period in 2020, Saturnbird surpassed two giants, Nestle and Starbucks and ranked number one in sales of brewing coffee. What’s the story behind Saturnbird’s commercial miracle?
Labeling itself as a boutique coffee company, Saturnbird’s specialty is “super instant coffee”.
Instant coffee processing technology is divided into two main categories: "high-temperature spray drying" (mist drying) and "freeze-drying". The former has high efficiency and low cost; the latter process is leaner and achieves the maximum retention of coffee flavor, which is the preferred choice for new boutique instant coffee brands like Saturnbird.
The core value of Saturnbird’s product design is “diversity” and “transformation”.
Featuring "appearance" + "DIY", Saturnbird abandons the traditional plastic bag packaging and chooses the stronger identity of the "cup" to create a super symbol for the brand. Customers can also reuse Saturnbird’s package for DIY decorations, such as planting greenery.
Saturnbird also seized the opportunity of transformation. Founder Jun Wu said, "Chinese youngsters crave for drinking coffee anytime, anywhere, and anyway they want. It doesn't matter what form it takes. We need to make boutique coffee more grounded and offer high-quality coffee to more people at a relatively cheaper price".
It can be seen that the story behind Saturnbird’s hit reflects contemporary youngsters’ changing consumerism and multifaceted demands for products.
03 | Small brand Manner Coffee competes for beauty
In addition to the innovation of coffee-making technology, more and more niche coffee shops choose to stay ahead through their in-store experience and decoration styles. In the process of coffee development, consumers have created four levels of demand for coffee, namely physical, emotional, social, and experience. Sellers are pushed to consider how to run offline stores uniquely.
- Located at the pricey Huahai Rd., Manner Coffee is one of the representatives of small brand coffee. Being a rebuilt Meiqi Theatre’s ticket office, Manner Coffee (No. 999 Huaihai Middle Rd.) offers a half coffee and half cocktail menu. One can easily find themselves falling back into an old Shanghai extravagant trap the moment they push through the retro gates, and catch the historical red paper wall, wooden flooring, and hear the nostalgic music playing from the vinyl records.
- Machine Coffee, located at Chengdu, Sichuan’s Memory Music Park, was converted from an abandoned 600 square meters glass manufacturing factory. The sunken indoor park and high ceilings were designed and industriously decorated, standing out among the many other coffee shops. The store also retained the factory's large steel machinery, decorated with elements such as twine and light bulbs to give the space a softer look.
04 | An innovative combination of coffee and environmental protection
Coffee production, as we all know, isn't that green. The production process will produce lots of pollution and damage to water resources. Consequently, the coffee industry has rising awareness of environmental protection. For example, UTZ CERTIFIED, a global coffee supplier, has long since built and put into use multiple wastewater reuse systems. Meanwhile, Habtamu Lemma Didanna, from the University of Wolaita Sodo in Ethiopia, has been investigating the possibility of using fruit waste (which is left after production) of small quantities in livestock farming since 2014.
Have you ever tried an edible coffee cup? To reduce waste and achieve environmental sustainability, Air New Zealand united with Twiice to launch an edible coffee cup. The cup itself is made from vanilla cookies and is leak proof and heat resistant. Customers can enjoy the vanilla coffee cup after finishing drinking.
We are all in the business of minimizing the coffee industry's waste. Many shops now encourage customers to take coffee grounds home and use them as a natural fertilizer or applying them to their eyes to help remove dark circles.
05 | “7” by S. Point
Chinese consumers are no longer satisfied with simply drinking coffee, but are becoming picky about coffee-making technology, environmental and other factors that go into making coffee. 7 works on improving product design and refining user experience. It solves the problem of incompatibility of taste and convenience of ordinary home coffee machines at a lower cost; the design has been further enhanced to make the product compact and mobile. In just 3 minutes, you can enjoy a cup of coffee that’s as good as one you can buy in the shop, whilst also having the opportunity to DIY a fancy coffee.
If you want to know more about the story and product design ideas behind Seventh Power, please review the online sharing session between XNode and Guide on September 16th about “How Startups Can Achieve Accurate Product Design”.
We also welcome you to sign up for our [product design] workshop on October 21st.
How Start-ups Combine Supply Chain to Optimize Product Design @In Your Shoes
XNode Innovation Insights
Chinese consumers’ appetite for coffee is growing by more than 15% year on year. As consumer segments get more and more niche, industry players are increasingly experimenting with different product innovations. More and more cross-category collaborations will happen as consumer goods brands face rising competition.
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