Market Research Report : Coffee Market in China 2012

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Coffee Market in China

February 2012

2COFFEE MARKET IN CHINA 2012.PPT

Executive Summary

Market

Drivers & Challenges

Competition

Coffee is one of the fastest growing segments of the beverage sector in China projected to grow with a CAGR of x% to y tons by 20‐‐ from z tons in 20‐‐

Low coffee consumption at only 5 cups per capita per year provides robust growth opportunity for coffee in China

Major Players

Company 1 Company 2 Company 3 Company 4 Company 5 Company 6

Drivers:

Rising Population and Urbanization

Rising Disposable Income

Changing Lifestyles

Young Population Drive Coffee Demand

Low Per Capita Consumption

Challenges:

Rising Labour Costs

High Taxes and Duties

Health Hazards

Retail Chain Expansion

Rising Demand of Instant Coffee

Investment Plans

Trends


•Market Overview• Global

• China

•Supply Chain

•Exports and Imports

•Drivers & Challenges

•Trends

•Mergers & Acquisitions

•Competition

•Key Takeaway


Source:

Global coffee production with a greater emphasis on ‘Arabica’ variety is expected to witness a steep rise

•Global coffee production is expected to increase to x mn (y kg) bags by 20‐‐

• South America accounted for z mn bags of the global coffee production in 20‐‐

•Global coffee production is dominated by the Arabica variety of coffee• Arabica coffee accounted for x% of the coffee produced

in 20‐‐

Global Coffee Market ‐ Overview Growth in Coffee Production

Regional Production (20‐‐)

0

50

100

150X%

20‐‐e

x4

20‐‐

x3

20‐‐

x2

20‐‐

x1

mn bags

Production by Variety

0

20

40

60

B

z2

A

z1

mn bags

D

z4

C

z3

0

20

40

60

80

100

y2

20‐‐

x2

20‐‐

y1

x1 x3

y3

mn bags

20‐‐

y4

x4

20‐‐

BA


Source:

Despite a relatively low share of coffee sales Chinese coffee market is expected to witness a robust growth

•Coffee market in China is expected to grow from x thousand tons in 20‐‐ to y thousand tons by 20‐‐Coffee demand in China is increasing at a rate of z% to y% per year compared to a a world average of mere x%

• X Province is the major coffee growing region in China producing only Y variety of coffeeX accounts for y% of the coffee bean production in China

_ Z Province is the major producer of X coffee with an annual production of y tons

Domestic Coffee Market ‐ Overview Coffee Market Growth ‐ Production

Hot Drinks Market Share (20‐‐)

0

100

200

300

‘000 tons

20‐‐

x1

Z%

20‐‐e

x2

x1

x2

x3B

C

A

X

Z

Coffee Production Hubs in China


Source:

Chinese coffee market accounted for a trade surplus of over USD y mn in 20‐‐

Coffee Market – Exports under HS Codes

Coffee Market – Imports under HS Codes

0

50

100

150

USD mn

Y% Z%

20‐‐

x4

20‐‐

x4

20‐‐

x3

20‐‐

x2

20‐‐

x1

x8

x7x6x5x4

x3

x2

x1

Country 1 is the largest importer of coffee accounting for x% ofChina’s coffee exports

Country 1 is the largest exporter of coffee to

China accounting for x% of China’s coffee

imports

0

20

40

60

80

USD mn Z%Y%

20‐‐

y5

20‐‐

y4

20‐‐

y3

20‐‐

y2

20‐‐

y1

y8y6

y7y5y4

y3

y2

y1

Country 8

Country 7

Country 6

Country 5

Country 4

Country 3

Country 2

Country 1

Countrywise Segmentation


Country 8

Country 7

Country 6

Country 5

Country 4

Country 3

Country 2

Country 1


Source:

In volume terms, 20‐‐ witnessed a trade surplus of mere x tons in China coffee market

Coffee Market – Exports under HS Codes

Coffee Market – Imports under HS Codes

0

10

20

30

40 Y%x4

20102008

x5

x3

20092007

‘000 tons

x2

2006

x1 x4x1x3

x2

x6

x5

Coffee export volumes remained almost stagnant during 20‐‐ ‐20‐‐, however registered a growth of x% value wise, indicating price

increase

Coffee import volumes rose by x% between 20‐‐and 2010 attributing to a

rise in demand

0

10

20

30

40

‘000 tons

y2y1

2006

y3

y5

2007 2009

Y%

20102008

y4

Z%

y4y3y2

y1

y6y5

Country 5

Country 4

Country 3

Country 2

Country 1

Country 6



Country 5

Country 2

Country 4

Country 1

Country 3

Country 6

Note:


Drivers & Challenges – Summary

Low Per Capita Consumption

Drivers

Rising Population and Urbanization

Rising Disposable Income

Changing Lifestyles

Young Population Drive Coffee Demand

Challenges

Rising Labour Costs

Taxes and Duties

Health Hazards


Rising population and rapid urbanization to act as the major growth driver for the coffee market in China

•Finding 1

• Finding 2

• Finding 3

• Finding 4

Rising Population and Urbanization Impact

Source:

Rise in Population Increase in urbanization leads to growth of the

coffee market

0

500

1,000

1,500

mn Z%

20‐‐e

z4

y4

x4

20‐‐e

z3

y3

x3

20‐‐

z2

y2

x2

20‐‐

z1

y1

x1

A B


Rising disposable income leading to greater spending increase demand from branded retail outlets

•Finding 1

•Finding 2

•Finding 3

•Finding 4

Rise in Disposable Income Impact

Source:

Urban Disposable Income Urban Consumer Spending

0

5,000

10,000

15,000

20,000

USD bn

Z%

20‐‐e

x3

20‐‐e

x2

20‐‐

x1

0

1,000

2,000

3,000

4,000

5,000

Z%

20‐‐e

y3

20‐‐e

y2

20‐‐

y1

USD bn


Rapidly changing lifestyle is a major contributor to the growth of coffee market in China

•Finding 1

• Finding 2

• Finding 3

• Finding 4

Changing Lifestyles

Source:

Share of Spending

Impact

20‐‐ 20‐‐e

%

0%

x1

y1

60%x2

y2

40%

100%

80%

20%

A B


Low level of per capita consumption provides a huge opportunity for growth to the coffee market in China

Low Per Capita Consumption Impact

Per Capita Coffee Consumption

• Finding 1

• Finding 2

• Finding 3

Source:

0

500

1,000

1,500

x11

Japan

x10

USA

x9

Germany

x8

France

x7

Austria

x6

Denmark

x5

Norway

x4

Netherlands

x3

Sweden

x2

Finland

x1No. of Cups

China

x12

Korea

China’s per capita coffee consumption is the lowest

offering substantial opportunity for growth

Coffee Consumption = Per capita per year


Favorable demographics in China to lead to the growth of the coffee market

Young Population Drive Coffee Demand Impact

Demography ‐ Age Split (20‐‐)

• Finding 1

• Finding 2

• Finding 3

Source: International Coffee Organisation

99%

x3

x2

x1

CBA

Young population is the primary target of the coffee retail outlets in China

A B C

X Y

Major Attractions of Coffee Outlets

Major Purposes Served


High cost of labour is one of the major challenges faced by the coffee market in China

•Finding 1

• Finding 2

• Finding 3

Impact

Source:

Rising Labour Costs

Labour Costs – Emerging Asia

Note: :Per capita Average Annual Salary has been considered

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000

USD

Country 9 x9

Country 8 x8

Country 7 x7

Country 6 x6

Country 5 x5

Country 4 x4

Country 3 x3

Country 2 x2

Country 1 x1

Xxx


Trends – Summary

Key Trends


Investment Plans Rising Demand forInstant Coffee


High end retail chain expansion has emerged as a major trend in the coffee market in China

•Finding 1

• Finding 2

• Finding 3

• Finding 4


Major Coffee outlets to expand their operations in the China market

Source:

Starbucks Expansion Plan Growth of Retail Segments (20‐‐)

0

10

20

30

40

Furniture

x7

Building

x6

Electronics

x5

Food

x4

Clothes

x3

Jewelry

x2

Total Retail

x1

% Retail food sales is one of the highest growing

segment

0

500

1,000

1,500

Outlets

Z%

20‐‐e

x2

20‐‐

x1

Note:


Coffee market in China is witnessing a rapid rise in demand for instant coffee

•Finding 1

• Finding 2

• Finding 3

• Finding 4

Rising Demand of Instant Coffee

Source:

Rising Popularity of Instant Coffee

Product Innovation

Company A Brand X

Company B Brand Y

Instant Coffee Market (20‐‐)

x2

x1 B

A


‐10,000

‐5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Total Income18,00017,00016,000

Net Profit

15,00014,00013,00012,00011,00010,0009,0008,0007,0006,0005,0004,0003,0002,0001,0000

x2x1

Source: Note:

Size of the Bubble represents Market Capitalization in USD bn

Company 2Company 1

Major Public Companies ‐ Summary


Domestic Company – Company 1

Key People

Source:

Products and Services

Company Information Locations – China

YyyStock Exchange

Corporate AddressAddress Line

Tel No. ‐‐‐‐

Fax No. ‐‐‐‐

Website ‐‐‐‐

Year of Incorporation 19‐‐

Ticker Symbol Xxx

Category Products/Services

Beverages Product 1, Product 2, Product 3

Instant Noodles Product 1, Product 2, Product 3

Services Service 1, Service 2, Service 3

Name Designation

Person 1 Designation 1




Headquarters


Source:

Financial Snapshot Key Ratios

Financial Summary


• The company incurred a net profit of USD x mn in FY 20‐‐, as compared to net profit of USD y mn in FY 20‐‐

• The company reported total Income of USD y mn in FY 20‐‐, registering an increase of x % per cent over FY 20‐‐

• The company earned an operating margin of y per cent in FY 20‐‐ a decrease of x percentage points over FY 20‐‐

• The company reported debt to equity ratio of x in FY 20‐‐ an increase of y per cent over FY 20‐‐

Financial Summary

YA

0

1,000

2,000

3,000

0

50

100

150

20‐‐

x4

20‐‐

x3

20‐‐

x2

20‐‐

x1

ProfitUSD mn

Total IncomeUSD mn

Indicators Value (dd/mm/yy)Market Capitalization (USD) x1

Total Enterprise Value (USD) x2EPS (USD) x3PE Ratio (Absolute) x4

Particulars y‐o‐ychange (20‐‐ ‐‐‐)

20‐‐ 20‐‐ 20‐‐ 20‐‐

Profitability RatiosOperating Margin ‐‐ ‐ ‐ ‐ ‐Net Margin ‐ ‐ ‐ ‐ ‐

Profit Before Tax Margin ‐ ‐ ‐ ‐ ‐Return on Equity ‐ ‐ ‐ ‐ ‐Return on Capital Employed ‐ ‐ ‐ ‐ ‐Return on Working Capital ‐ ‐ ‐ ‐ ‐

Return on Assets ‐ ‐ ‐ ‐ ‐

Return on Fixed Assets ‐ ‐ ‐ ‐ ‐

Cost Ratios

Operating costs (% of Sales) ‐ ‐ ‐ ‐ ‐

Administration costs (% of Sales) ‐ ‐ ‐ ‐ ‐

Interest costs (% of Sales) ‐ ‐ ‐ ‐ ‐

Liquidity Ratios

Current Ratio ‐ ‐ ‐ ‐ ‐

Cash Ratio ‐ ‐ ‐ ‐ ‐

Leverage Ratios

Debt to Equity Ratio ‐ ‐ ‐ ‐ ‐

Debt to Capital Ratio ‐ ‐ ‐ ‐ ‐Interest Coverage Ratio ‐ ‐ ‐ ‐

Efficiency Ratios

Fixed Asset Turnover ‐ ‐ ‐ ‐ ‐

Asset Turnover ‐ ‐ ‐ ‐ ‐

Current Asset Turnover ‐ ‐ ‐ ‐ ‐

Working Capital Turnover ‐ ‐ ‐ ‐ ‐Capital Employed Turnover ‐ ‐ ‐ ‐ ‐

Improved Decline


Source:

Key Business Segments Key Geographic Segments


Key Recent Developments

Description News

Overview• Company is primarily a manufacturer of beverage and instant food products. It operates in x provinces of China through different channels of sales and distribution points.

New business

• Company plans to raise its distribution channels in China from x1 to x2

•Due to increased production capacity and distribution channels capital spending of the company is estimated to be around USD z mn

Share Holding pattern • Company 1 operates as a subsidiary of the Y

0%

20%

40%

60%

80%

100%

20‐‐

n3n2

n1

20‐‐

z3z2

z1

20‐‐

y3y2

y1

20‐‐

x3x2

x1

CBA

100%

50%

0%20‐‐

X%

A

The company’s geographic reportable segment is ‘A’


Growing popularity of instant coffee and rapid expansion of retail outlets will lead to robust growth of coffee market

Coffee production is expected to grow with a CAGR of Z% from X tons in 20‐‐ to Y tons in 20‐‐

Rising population and urbanization coupled with a rise in disposable income are major growth drivers for the coffee market in China

Opportunities in the Market Market Size Competitive

Landscape

Challenges

Changing lifestyle and rising demand among young population are major contributors to the growth of the coffee market in China

Low per capita coffee consumption provides a scope for growth thus acting as a major growth driver for the coffee market in China

• Rising Labour Costs

• High Taxes

• Health Hazards

Coffee market in China is dominated by foreign retail coffee players

With retail coffee chains gaining rapid popularity, retail players dominate a greater share of the coffee market in China

Players are diversifying into instant coffee with a view to capture greater market share

0

100

200

300

‘000 tons

Z%

20‐‐e

x2

20‐‐

x1


Thank you for the attention

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