China, Covid-19 and coffee
First image courtesy of Social Beta
The impact of Covid-19 (coronavirus disease 2019), which originated in Wuhan, China in December, continues to be felt around the world. In addition to the devastating effects Covid-19 is having on people in a growing number of countries, it is also affecting a variety of industries as shipments from China have been interrupted, and the foodservice sector has also been greatly impacted.
“There are growing fears that the full impact of the coronavirus disease 2019 (Covid-19) on the supply chain in the United States and Europe will be felt from mid-March, when inventory at manufacturing and assembly plants that depend on inputs from China begins to deplete,” reported the Journal of Commerce (JOC) on 4 March.
In celebration of Chinese New Year annually, many companies and factories in China close for a week. This year, Chinese New Year began on 25 January, but the rampant spreading of Covid-19 caused week-long closures to be extended for another two weeks. Travel restrictions prevented workers from returning to work, resulting in manufacturing facilities remaining closed for most of February.
The JOC further reported, “With factories closed and an unprecedented number of blank sailings implemented by ocean carriers, very little has been shipped out of China in the past month…A shipper who did not wish to be identified said although manufacturing activity in China was slowly returning, the last of the containers shipped ahead of the Chinese New Year shutdown had arrived in the US and Europe, and nothing had been produced in China since those shipments left.”
The automotive, electronics, pharmaceutical and textiles industries – to name just a few – globally, have all been impacted by production issues in China.
Within China, coffee chains and consumption habits have also been affected.
Because of the outbreak, coffee chains have been forced to halt business. In January, Starbucks temporarily closed more than half of its 4,290 coffeehouses in China (as of 27 February, the company said it had reopened 85% of its stores in its second-largest market). McDonald’s also temporarily shuttered operations in hundreds of stores in China, including McCafés.
People have been encouraged to stay indoors and work from home to help minimize the spread of the virus. According to a recent Rabobank food and agribusiness report, this has incentivized a shift back to home consumption. The report also noted that coffee machines have continued to gain momentum in the Chinese market in recent years, and “will be more welcome in these extraordinary circumstances.”
Although out-of-home consumption has been the stronger performer in recent years, Rabobank advises that home consumption cannot be neglected in the Chinese coffee market.
Covid-19 could also have a positive effect on another coffee category — ready-to-drink. RTD coffee continues to perform well in China, growing in double-digits year-over-year in 2019. According to Rabobank, the robust growth was driven by innovative products from various players. Nongfu Spring introduced carbonated RTD coffee in April 2019, which, unsurprisingly, attracted younger consumers. It has since rolled out a low sugar/sugar free option to its RTD portfolio.
Coca-Cola and Costa recently co-launched Coca-Cola Coffee+, which Rabobank noted has led to an upsurge in carbonated RTD coffee consumption among younger consumers.
Seeing untapped opportunity, Chinese dairy companies have also entered the RTD coffee sector with their own drinks, Rabobank reported. Yili and Mengniu Dairy introduced Sunrelas and Shiny Meadow Cold Brew Coffee Latte, respectively. While Three Squirrels, a branded nut company, launched a plant-based dairy RTD coffee drink called Second Brain.
Rabobank sees further growth potential for RTD coffee in China amid the Covid-19 epidemic. Per the report, “Given the coronavirus outbreak, we expect many consumers will shift to RTD coffee as an alternative to freshly brewed coffee, which will further push the sales performance of RTD coffee in 2020.”
- Vanessa L. Facenda, editor Tea & Coffee Trade Journal. She may be contacted via [email protected]