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Asia’s RTD Coffee Makers Are Introducing More Café-Style Products

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The expansion of specialist coffee shops such as Starbucks and Costa Coffee across Asia, as well as the development of brewed coffee programmes in convenient stores in Japan and South Korea has familiarised Asian consumers with better quality coffee and is putting pressure on RTD coffee makers to offer a higher quality RTD coffee.

As consumer tastes become more sophisticated in Asia, RTD coffee players are moving beyond canned RTD coffee to more premium offerings that use higher quality ingredients, a fresher experience through chilled cups, and more attractive packaging in the form of PET bottles. This trend towards premiumisation is expected to continue in the 2015-2020 period as coffee drinkers in Asia are expected to become more savvy consumers of coffee and expect more from their RTD coffee.

Top Markets for RTD Coffee in Asia Pacific

Off-Trade Value Sales (In US$ million)

Market 2010 2015 2020* % CAGR 2010/2015 % CAGR 2015/2020*
Japan 11,297 11,322 11,167 (2.7) (0.3)
China 281 1,074 2,645 23.4 19.8
South Korea 615 942 1,025 (0.5) 1.7
Thailand 241 308 344 3.5 2.2
Taiwan 294 236 210 (2.3) (2.4)
Rest of Asia Pacific 90 143 193 9.7 6.2
Asia Pacific 12,818 14,025 15,583 (0.7) 2.1
*In constant value (at 2015 prices)

Asians are developing a taste for better coffee

The rapid expansion of specialist coffee shops throughout Asia Pacific has familiarised more consumers with higher quality brewed coffee and café-style beverages such as lattes and cappuccinos. In China, the opening of Starbucks has helped popularise café culture among affluent young consumers in a nation of tea drinkers. Many Asian consumers are now looking to drink better coffee and enjoy speciality coffee drinks outside of the coffee shop. In response to this increase in consumer sophistication, coffee producers in both instant coffee (the most popular format in Asia) and RTD coffee have been introducing more premium products that are a step up from the traditional 3-in-1 instant coffee mixes and canned RTD coffee. In addition to specialist coffee shops that are rapidly opening up on major city streets, RTD coffee is now facing competition from convenience stores.

Convenience store coffee is competing against RTD coffee

RTD coffee’s low price and wide availability through vending machines and convenience stores helped create the world’s largest market for RTD coffee in Japan. However, Japanese office workersare now shifting from canned RTD coffee to convenience store coffee due to its better taste and reasonable price. In 2013, 7-Eleven introduced its Seven Café fresh coffee programme in Japan. The company priced the cups of Seven Café coffee at just 100 yen (less than US$1), about the same price as leading RTD canned coffee brands Georgia and Boss. Other convenience stores in Japan followed to compete against specialist coffee shops and fast food outlets. An increasing number of outlets are now also widening the choice of coffee variants available, for example by introducing iced café latte and frappe. The success of the Seven Café self-serve coffee machines has led the company to expand the concept to South Korea in early 2015, with competitors following suit. Convenience store coffee’s popularity has put pressure on mid-range specialist coffee shops and onRTD coffee in Japan and South Korea. RTD coffee drinkers in other Asian countries may be likely to switch to convenience store coffee if the outlets decide to introduce fresh coffee.

RTD coffee makers are using higher quality ingredients

Makers of RTD coffee are moving to introduce better quality products because consumers are nowmore aware of good coffee and have developed a taste for speciality coffee drinks such as lattes through visits to specialist coffee shops. RTD coffee producers in Japan and South Korea also realise that they are now competing against freshly brewed coffee served by convenience stores. In response to these pressures, many RTD coffee makers are launching premium products. Starbucks put the spotlight on premium RTD coffee when it entered Tokyo and Taiwan in 2005 with Starbucks Discoveries. The introduction of Starbucks Discoveries represents the company’s first chilled cup product with a 14-day shelf-life. The company has also introduced its premium Starbucks bottled Frappuccino coffee drinks and Starbucks Doubleshot espresso drinks in Asia.

Other companies have followed Starbucks’ lead in introducing premium RTD coffees. In China, consumers are viewing RTD coffee as a step up from instant coffee as RTD coffee makers add morepremium varieties featuring higher quality ingredients. To distinguish itself from other players in China and provide a premium taste, Taiwan’s Uni-President Enterprises Corp decided to use a frozen whole milk concentrate from Australia instead of the more commonly used milk powder for its September 2015 launch of Lento RTD coffee in latte and macchiato variants in major cities in China. In Thailand, 2015 saw new players enter RTD coffee with premium offerings to cater to the increasingly sophisticated coffee society in Thailand. Dairy Plus introduced RTD coffee in the chilled cup format under the Mt Rainier brand with Japan’s Morinaga & Co Ltd. The company highlighted the launch as a premium RTD coffee made with espresso from 100% handpicked Arabica coffee beans and Hokkaido milk. In Japan, Suntory Beverage & Food’s 2014 launch of Premium Boss was successful and led to the addition of two different flavours, straight and low-sugar, under the Premium Boss brand.

RTD coffee makers turn to more attractive and innovative packaging

In addition to using higher quality ingredients, RTD coffee companies are looking beyond the traditional metal beverage can to offer a more premium look and to provide a taste and texture that is closer to café-style coffee. Using chilled coffee cups to package a fresh, refrigerated RTD coffeehas been one way to appeal to the more sophisticated coffee drinker. In a spin on the chilled cup, Nestlé SA introduced a shelf-stable version of the Nescafé Shakissimo chilled coffee cup (thin wall plastic container) in China in 2016. The company had developed the Nescafé Shakissimo in a chilled cup that creates a creamy froth after being shaken for Western Europe in 2014. Using PET bottles has been another way to offer a premium look. To reinforce its premium image and to target young consumers who view Italian coffee as a luxurious experience, Uni-President Enterprises decided to use a silver-coloured bottle resembling the Bialetti Moka espresso pot for its new Lenta premium RTD coffee.

For Coca-Cola’s re-entry into China’s RTD coffee market in 2015, the company decided to launch its Georgia brand in both metal cans and PET bottles after its research showed that women preferred the bottles while the men preferred cans. Though Georgia, Japan’s number one RTD coffee brand by off-trade value sales, is sold in metal beverage cans and viewed as a standard brand in Japan, the company is positioning Georgia as a premium brand in China. In a bid to appeal to its target of 18-35-year-old Chinese consumers, the packaging for Georgia features a metallic gold ring around the middle and a gold cap in China. As RTD coffee players seek to move away from the image of cheapcoffee in a can, more companies are expected to make the switch to other alternatives such as PET bottles and metal bottles. Both packaging types offer consumers the ability to reseal the product for later consumption as well as more visual appeal.

Packaging for RTD Coffee in Asia Pacific

Off-Trade Unit Volume Share

Type 2010 2015 2020
Metal Beverage Cans 77.3 67.5 53.9
Metal Bottles 6.9 10.9 17.4
PET Bottles 6.3 13.1 21.1
Thin Wall Plastic Containers 7.2 6.3 5.0
Glass Bottles 0.2 0.3 0.4
Gable Top Liquid Cartons 1.5 1.2 1.1
Other 0.5 0.8 1.2
Total Packaging 100.0 100.0 100.0

More premiumisation is expected

The premiumisation trend is expected to continue in Asia’s RTD coffee market as coffee drinkers warm to increasingly sophisticated alternatives. Middle-class residents in Asia’s big cities have grown accustomed to patronising specialist coffee shops run by Starbucks, Costa Coffee, and local players to enjoy the speciality coffee drinks and to socialise in an attractive environment. At the same time, economic growth has slowed down in most Asia Pacific countries outside of India, leading many Asian consumers to economise. The introduction of fresh coffee in convenience stores allowed many consumers in Japan and South Korea to retain their fresh-brewed coffee routine while still saving money by not visiting a coffee shop. As Asian coffee drinkers are increasingly looking for value,more of them may decide to move away from RTD coffee to convenience store coffee if RTD coffee companies are not able to introduce better tasting varieties. RTD coffee makers are busy introducing premium offerings in China to compete against specialist coffee shops. These actions may serve to protect the RTD coffee makers if convenience stores in China introduce their own fresh coffee programmes. In China, Nestlé SA grew its off-trade value sales by 27% in 2015 through the success of its silky taste RTD coffee packaged in 268ml PET bottles, its sophisticated distribution network, and the use of actress Angelababy in Nescafé’s television advertisements. Starbucks partnered with leading soft drinks company, Ting Hsin International Group, in 2015 to manufacture and distribute premium Starbucks RTD coffee across mainland China. This action helped the company grow off-trade value sales by 7% in 2015 in China. Bigger gains are expected in 2016 as the Starbucks and Ting Hsin agreement leads to an increased number of cities where Starbucks RTD coffee is available.

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