If I asked you what people mostly drink in Asia, chances are that you’d say “tea” & whilst that’s true, it’s not the whole story by a long way anymore. So what’s Asia’s coffee industry outlook? What trends are affecting the growing coffee industry in Asia, and how has this all grown out of a darker past?
Table of Contents
Coffee Production in Asia started out with Colonialism & Slavery
The coffee industry, a global powerhouse, has a rich and complex history. However it’s roots are deeply intertwined with colonialism and slavery, particularly in Asia.
Asia’s coffee industry, like many others around the world, is a product of colonial history. The Dutch, French, and British colonial powers introduced coffee cultivation in the 17th and 18th centuries. They saw the potential of the fertile Asian land & climate, particularly in Indonesia and Vietnam, to grow this valuable cash crop. However, the introduction of coffee was not without its dark side.
The colonial powers often used the local population as forced labour to cultivate coffee. The Dutch, for instance, implemented the ‘Cultuurstelsel’ system in Indonesia, forcing the locals to dedicate a portion of their land to growing coffee for the Dutch East India Company. The system was exploitative and led to widespread poverty and famine.
Similarly, in Vietnam, the French colonists used the ‘Corvée’ labour system whereby local Vietnamese were forced to work on plantations, often under harsh and inhumane conditions. The echoes of this oppressive past are still felt today, with many coffee farmers in these countries living in poverty.
Fast forward to today & emerging coffee markets in Asia include also Thailand and the Philippines
Despite this dark history, Asia has emerged as a significant player in the global coffee industry. Vietnam is the second-largest coffee producer globally, trailing only behind Brazil. The country is known predominantly for its Robusta coffee, which is used in instant coffee and espresso blends.
Indonesia, another major Asian producer, is the fourth-largest in the world. The country is renowned for its Arabica coffee, particularly the Sumatran Mandheling and Sulawesi Toraja (although “java” as a synonym for the drink has passed into the English language at least). The unique flavours and high quality of these coffees have garnered international acclaim.
Other Asian countries, such as India, Thailand, and the Philippines (& increasingly also China), also contribute significantly to the global coffee supply. India, with its famed Monsooned Malabar, and Thailand, with its unique Doi Chaang, have carved out niches in the specialty coffee market.
Coffee Culture in Asia
What about drinking coffee though?
Like in other regions, coffee isn’t just a beverage in Asia; it’s a cultural ritual that kicks off the day for many. From the bustling streets of Singapore to the serene corners of Malaysia, the day often begins with a steaming cup of “kopi.” Meanwhile, the urban youth can often be found in modern, minimalist cafes sipping on lattes. Across major Asian cities, independent shops and domestic chains flourish alongside international giants.
Japan leads the region in consumption, boasting a staggering $34.45 billion in sales in 2020. Notably, China has emerged as the second-largest coffee market, with a market value of $14.25 billion, surpassing South Korea ($12.6B). The Chinese market’s near double-digit year-on-year growth suggests that it may soon rival the United States as the world’s largest consumer market for the drink.
Indonesia, beyond its role as a bean producer and exporter, has seen a surge in domestic consumption. In June 2021, Indonesia’s domestic consumption exceeded that of coffee-loving nations like Australia and the UK. The country’s love affair with the caffeinated beverage is on the rise, according to the USDA’s Coffee: World Markets and Trade report.
Of course, these values are all in total and the consumption per capita for say China vs South Korea looks very different.
Trends in the Growing Coffee Industry in Asia
The industry is experiencing a dynamic transformation driven by consumer preferences and global trends. Here are some key trends shaping its future:
Specialist coffee shops
Starbucks in the most famous of the chains in the region, however there are also home grown brands such as Trung Nguyen or Highlands Coffee in Vietnam, or Luckin Coffee or Manner Coffee in China.
Looking at the CAGR (compound annual growth rate) in the chart above, you can see why Asia’s coffee industry outlook seems rosy.
It’s not just the chains though, there’s a huge upswing in small independent shops all trying to differentiate themselves from their competitors in whatever way they can!
Increasing Popularity of Speciality Drinks
The Third Wave of Coffee has swept across Asia, bringing with it a demand for speciality brews. This movement emphasises higher coffee quality, direct trade, traceability, and sustainability, as well as innovative brewing methods. The Asia-Pacific region is poised to become the world’s fastest-growing speciality coffee market, with an expected annual growth rate of 15.3% until 2030, according to Research and Markets.
First wave of coffee: democratisation of the drink starting in the 1960’s
Perfect Daily Grind
Second wave of coffee: Quality of coffee readily available increased. Rise of companies like Starbucks
Third wave of coffee: making the customer feel special with high quality beans of known origin, ethically and sustainably sourced. It’s about the experience.
Speciality coffee, as defined by the Specialty Coffee Association (SCA), refers to coffee scoring over 80 points on a 100-point scale. These beans are considered the best, grown under optimal conditions, and handpicked for premium coffee traders and roasters.
Cross Over Collaborations
Luckin coffee in China has made headlines recently with a new latte infused with the famous Chinese spirit “baijiu”. This collaboration with China’s most valuable brand Kweichow Moutai saw first day sales of around $14 million. It wasn’t their first foray into brand collaborations though, as Luckin already had an earlier collaboration with the Coconut Palm Group, a producer of coconut milk.
At least in China, consumers are looking for interesting experiences, which could be in the form of innovative flavours, IP collaborations with famous series or stars or serving products in new forms of packaging such as bamboo cups.
Luckin also isn’t the only company to have combined coffee and alcohol recently – it’s been enjoying a bit of a moment this year in China, with mixes such as Irish coffee also being popular.
Demand for High-Quality Ready-To-Drink (RTD) Products
Convenience reigns supreme in the coffee industry (& in Asia generally!). Canned and RTD products, including cold brew and milk-based beverages, have gained popularity. The emerging “fourth wave” of coffee focuses on the availability of high-quality products such as coffee beans, cold brew, instant coffee, and capsules. Major brands like Lavazza are stepping into the premium RTD market, making premium coffee accessible on the go.
Consumers have ESG concerns and consume more sustainably
Consumers are increasingly conscious of the origins of their coffee. In 2020, nearly half (48%) of all new coffee product launches worldwide carried an ethical or environmental claim, according to research from Mintel Global New Products Database (GNPD). Certification programs like Fairtrade, USDA Organic, 4C, UTZ, and Rainforest Alliance have gained traction, with the Fair Trade Certified label trusted by 78% of consumers.
Younger consumers, in particular, are embracing environmental consciousness and demanding more sustainable coffee products, including recyclable coffee pods and less single use plastic.
Companies such as Starbucks have recognised that they need to SHOW (rather than just telling) consumers about their green credentials and have recently opened in September 2023 their China Coffee Innovation Park. This is their largest investment in a production and distribution facility outside of the US.
Shift to Plant-Based Milk Alternatives
A shift away from traditional dairy has been underway for years, but it gained momentum during the pandemic as consumers became more health & environmentally conscious. Plant-based milk alternatives, such as oat milk, have seen surging popularity, especially among the younger generation. Brands like Blue Bottle Coffee and Flash Coffee have made oat milk the default choice for their milk-based drinks.
The demand for oat milk continues to rise, with brands like Oatly seeing significant revenue growth in Asia, particularly in mainland China, Hong Kong, and Taiwan. Of course, as I mentioned in my post on alternative proteins, there are also local regional contenders such as Oatside.
Growing At-Home Consumption of Premium Coffee
The pandemic has accelerated the trend of enjoying premium and speciality coffee at home. With remote work becoming the norm, more consumers are investing in coffee-making equipment. Mintel research reveals that a third of remote workers own a single-cup brewer such as a Nespresso machine, indicating opportunities for retail coffee brands and complementary categories such as coffee additives and appliances.
With apartments often being tiny, and people preferring to go out to eat rather than preparing things at home, this represents a significant shift.
Consumption Trends are Evolving
Whilst you can see a number of evolving trends in Asia’s coffee market listed here you shouldn’t forget that this isn’t a homogenous region and each of the countries mentioned have their own individual or regional trends that should be taken into account when thinking about Asia’s coffee industry outlook.
“Traditional” ways of enjoying coffee vary immensely across the region & if you’re a casual traveller you may be hard put to actually define what is the local taste. Many’s the time I’ve wrinkled my nose at being handed a 3-in-1 Nescafe in Indonesia or a really weak latte in China. Although general taste is also evolving, as for example Chinese consumers learn to appreciate the bitter notes of a good coffee, rather than drowning it in milk.
A Vietnamese coffee on the other hand, has traditionally always been something much stronger, albeit with the edge taken off by the addition of condensed milk… In Vietnam the regional taste has changed hugely over the past 2 decades as coffee used to be something mainly consumed in the south part of the country, but now you can find a plethora of coffee shops throughout the country.
Asia’s Coffee Industry Outlook
In the light of present trends, the growing coffee industry in Asia is poised for not only significant growth but also transformation. The region’s coffee production has been on an upward trajectory, with countries like Vietnam and Indonesia leading the way. This growth is not only in quantity but also in the quality of coffee produced, as Asian countries continue to gain recognition in the global speciality coffee market.
The consumption patterns within Asia are also changing. With the rise of a burgeoning middle class and the influence of western culture, coffee consumption is growing exponentially in traditionally tea-drinking nations like China and India. This shift has resulted in a surge in coffee shops and cafes, creating a vibrant coffee culture that appeals to the youth more than traditional tea houses.
Moreover, Asian consumers are becoming more discerning, demanding ethically sourced and high-quality coffee. This is driving change within the industry, pushing for more sustainable farming practices and fair trade. It’s a positive trend that not only benefits the consumers but also the coffee farmers who have long been marginalised.
However, the industry must continue to grapple with the lingering effects of its colonial past. Addressing issues of inequality and ensuring fair compensation for coffee farmers remains a challenge. But it’s a challenge that the industry, fueled by consumer demand for ethically sourced coffee, is increasingly willing to take on.
The region is stepping out of the shadow of its colonial past and forging a new path. A path defined by increasing production, evolving consumption patterns, and a growing commitment to sustainability and fairness. As Asia continues to shape and influence the global coffee industry, it holds the potential to redefine it – making it more equitable, sustainable, and prosperous for all involved. That offers opportunities for brands, also those who see themselves as being extremely niche, to successfully establish themselves in the region.
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Kathryn firmly believes that business is done between people, and therefore places her focus on building strong relationships that form a solid foundation for doing business.
When she's not travelling around the world, Kathryn enjoys playing clarinet in her town's wind orchestra or sharing her love of the outdoors with her Scout group.
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