Market Trends

Cafés in China

Value sales in other cafés slowed down in the latter part of 2008. During the fourth quarter of the year, sales were down by 30-40% , according to trade sources. To maintain volumes, price discounts and low-priced dishes were used during the Christmas and New Year period. These activities were reported to be effective, as consumers switched to more economical alternatives during the recession. Operators are not optimistic regarding sector performance in 2009, as consumers have spent their money on the Chinese New Year and may well be unwilling to spend any more.

Chained specialist coffee shops saw the fastest value growth in 2008, due to the fact that they are supported by well-established brands. These brands are known to most consumers and it is much easier to get them to visit newly opened outlets in the first few days of operation.

Unlike specialist coffee shops, other cafés/bars compete more in the mainstream market, through their flexible and wider product ranges, many of which are better adapted to Chinese tastes. Most other cafés offer extensive food menus for consumers, and the interior designs are rather more high-end than the normal specialist coffee shops. Although chained cafés/bars have had a significant impact on the sector, through their large numbers of outlets and stronger brand image, individuality is key in this format.

Chains continued to gain strongly in terms of value and transaction volume share in 2008. Chained outlets accounted for 26% of value in cafés/bars in 2008, up from 25% in 2007. Chains are particularly strong in specialist coffee shops, where they accounted for 93% of value sales in 2008. Chained players benefit from strong brand equity with the offer of consistently good quality of products and service.

The trend has been towards takeaway as opposed to eat-in, as busy lifestyles prevent people from spending leisure time dining in. However, eat-in still holds a much higher share than takeaway, at 96% of value in 2008. There is greater availability of takeaway services which offer consumers the convenience of being able to take out and eat at home or in the office. The split between food and drink in 2008 was 30% to 70%, respectively, highlighting the fact that the majority of consumers prefer to imbibe drinks rather than consume food when they visit cafés.

Spending on Soft and Hot Drinks

Soft and hot drinks saw massive growth over and above that of food in China over the review period. Soft drink growth rates were at almost 173% between 1995 and 2007, and hot drinks similarly posted nearly 176% growths over the same period.

Total spending on soft and hot drinks stands at just below RMB74 billion in 2007. More recently the growth in soft drinks sales has outpaced sales of hot drinks in China.

Ready-to-drink (RTD) teas have become a major player on the soft drinks market with growth rates in volume sales in excess of 1000% from late 1995 to 2008. A traditional tea drinking nation, China has proven an ideal market for RTD teas as a convenient, healthy and tasty option across all demographics.

With health and wellness in mind, the Chinese have turned their backs on carbonated soft drinks, which have traditionally been the best sellers.Chinese consumers, especially urbanites, are spending less on sugar-enriched carbonated drinks and more on other soft drink alternatives.

Hot drinks have suffered a slowdown in growth compared to soft drinks as the diversification of the soft drink market, especially in RTD teas, has attracted many traditional tea and coffee drinkers away from the hot drinks market. Green tea and other traditional Chinese teas will always have their markets, but volume sales will never reach the figures seen in the soft drinks market.

This is the result of a maturing market in tea and coffee with growth stagnating and few new players willing and able to break into the market.

Impact

The popularity of any soft drink is influenced by the marketability of the health and wellness associated with it.

The popularity of RTD teas and value-added waters will continue to see gains. Hot drinks marketed with the correct health and wellness message will see gains in the hot drinks market with stagnation for the tea and coffee markets. Reductions in sugar levels, fortified drinks with added minerals, iron, calcium and vitamins will attract customers in an increasingly health conscious Chinese food and beverages market.

Computers and Internet

Impressive growth rates in volume and value in the home computer market were helped along by drastic reductions in the prices of these goods. As a result of this growth in personal computing, internet penetration in Chinese households rose over the review period from just 4% in 2000 to almost a quarter of all household in 2007.

Figures from the state-owned China Internet Network Information Centre show China's total number of internet users rose 53% to 210 million at the end of 2007, up from 137 million at the end of 2006.

The National Development and Reform Commission (NDRC) projects rapid rural internet penetration as a result of extensive developments in telecommunications infrastructure in China's interior.

The Ministry of Information's push for full national telecoms access as part of the current Five Year Plan has seen the growth of internet penetration in rural areas outshines urban growth. Rural internet users reached 37.4 million in the first half of 2007, according to NDRC figures, meaning that penetration of internet use in rural China has now reached an impressive 5.1%.

Although the internet is pervasive in contemporary China, there is still much controversy surrounding the tight government restrictions on its content. This continued chokehold that Beijing has on the flow of information to its citizens will be detrimental to the unleashing of the full power of the internet in China including commercial interests. Information is critical in a modern economy and the curtailing of this information can have a detrimental effect on business in the global marketplace.

Impact

The growing use of the internet is already opening up marketing potential for many products in China and this trend looks to continue as increasing numbers in China's get on-line. Expect marketing channels to increase demand via e-commerce. The sale of computer accessories, software and hardware, as well as computer friendly furniture and peripherals such as computer mice, cameras, speakers, printers and scanners will enjoy increased demand.

High-end and designer computers and laptops will enjoy growing demand in China as rising incomes allow affluent professionals and younger people to regard the Sony Vaio and the Apple Mac as must-have items.

As trends and technology change like the weather, there will be a self-sustaining market here for the latest and most advanced computers and computer-related accessories available. Older models will simply be recycled, perhaps even sold on through customer-to-customer internet sites through the rise of a potentially massive e-commerce industry in China