Resource: China Business News

"Italy has strict standards on how to make a good cup of coffee from the bean to the cup. We hope to also make Chinese companies have their own characteristics." Sitting in front of a map of the coffee world, Xie Jianping, chairman of Gemile, told China Business News The reporter said that there was a row of various coffee machines placed on the table behind her.

Autumn is getting colder, and this year China's home appliance industry is also experiencing coolness like this. However, the business of coffee machines continues to boom, and the domestic and export markets still maintain strong development momentum. Recently, China Business News reporters visited coffee machine manufacturers in Shunde, the capital of small home appliances, and found that they are all planning new businesses.

Gemile, the leading domestic commercial coffee machine company, is continuing to increase its investment in the Chinese market; Hongri Technology is the largest drip coffee machine supplier of foreign brands in China and is testing domestic own brands; Xinbao Co., Ltd. (002705 .SZ) accounts for 40% of China’s coffee machine exports and is also increasing its own brand business in the Chinese market.

Twenty years ago, Shunde had become one of the world's largest coffee machine production bases, and at that time it was keen to promote its global production share. Compared with back then, Shunde is still an important coffee machine production base in the world, but the proportion of output is no longer the focus. Local entrepreneurs now talk more about technological innovation, industrial design, branding, and cross-border integration. This is also A microcosm of the transformation of China's small home appliance industry.

Coffee machines grow against the trend

Amid the overall decline in China's home appliance market this year, coffee machines are one of the categories that have bucked the trend and grown. According to a research report from AVC, Tmall sales of coffee machines have increased for six consecutive months in 2022, with a year-on-year growth rate of up to more than 200%. GfK’s research report also shows that coffee machine products in the Chinese market have been significantly upgraded. In recent years, the proportion of drip-type products has gradually decreased. As of the first half of 2022, the retail sales of drip coffee machines in the online market accounted for only 8.2%, and the proportion of retail volume dropped to 23%. The market share of espresso coffee machines is gradually increasing, especially semi-automatic espresso machines.

"China's young people are gradually becoming the main consumer group. They are more international and receptive. As a fashionable drink, coffee is favored by more and more young people. Local retail stores such as Luckin Coffee have also played a role in promoting the Let coffee be combined with fruits, coconut milk, etc. to make the taste more local, the price more affordable, and the purchase more convenient." Xie Jianping told reporters.

"The epidemic has repeatedly pushed forward the expansion of the coffee machine market." Aowei Cloud analysis believes that especially in the first half of 2022, the epidemic has continued to recur, takeout and dine-in are blocked, and home working has gradually become normal, and home coffee machines have been welcomed by long-term coffee consumers. . As China's economy develops and people's income levels increase, the concept of refined life has gradually changed people's attitude towards coffee from refreshing needs to social needs. The domestic coffee machine market still has huge potential for development.

Zhang Lizheng, head of the coffee machine division of Philips Home Appliances in Greater China, told China Business News that according to its backend data, whether consumers in first-, second- or third-tier cities in China are interested in searching for coffee machines, or the data on the interaction of marketing materials, as well as the actual Sales data are all positive growth.

"Benefiting from the vigorous development of the entire industry, the coffee machine market in each segment has grown rapidly this year, including not only different subcategories, but also different price segments." Zhang Lizheng said.

Looking at the structure of the domestic coffee machine market, data from Aowei Cloud shows that fully automatic high-pressure extraction (i.e. Italian) coffee machines account for the highest sales volume due to their convenience and stability, accounting for nearly 60% of sales, followed by semi-automatic high-pressure extraction coffee machines. Coffee machines account for nearly 20%, and capsule coffee machines and drip coffee machines also account for about 20%.

Coffee machines are not only selling well domestically, but exports are also growing. According to data from the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, from January to July 2022, China's coffee machine exports were US$1.444 billion, a year-on-year increase of 16.5%; the export volume was 55.8441 million units, a year-on-year increase of 0.98%. In terms of export volume, North America and Europe are the main export markets, accounting for over 60%. Other export markets include Asia, Latin America, Oceania and Africa. In terms of products, pump-type coffee machines account for over 50%, and drip coffee machines account for over 50%. Coffee machines account for about 20%.

The booth of a coffee machine manufacturer in Shunde, Guangdong, photographed by reporter Wang Zhen

"Coffee machines are an evergreen item in the North American home appliance market, among which drip coffee machines have long occupied a major share of the U.S. coffee machine market." Galanz related people told China Business News that Galanz's own brand coffee machines will be on mainstream shelves in North America in 2020 Sales channels mainly include the high-end Craftsman series high-end coffee machines and retro espresso machines. It is understood that the sales of the company's coffee machines have doubled since they were launched in the North American market.

"Behind the growth against the trend is the technological accumulation of Chinese coffee machine companies for many years." Liu Chunyu, vice president of Hongri Technology, told China Business News that Hongri Technology's factory has its own molds, as well as molds commissioned by customers to produce products. In the early days, customers taught them how to do it; now, they can provide customers with one-stop solutions from appearance creativity, structural design to production and manufacturing, and have technology with independent intellectual property rights.

This year, Hongri Technology spent three months supporting a well-known brand to develop an all-in-one grinding and brewing coffee machine. Liu Chunyu revealed that because they have the technical platform and solutions for coffee machines, the customer can just combine their existing solutions and make the appearance and mold. After experiencing rapid growth in 2020 and 2021, Hongri Technology's coffee machine export business has slowed down significantly this year. However, relying on past technology accumulation, the number of cooperation projects with some major customers is still increasing.

Reshaping of Domestic Coffee Machine Market Pattern

"The coffee industry all over the world is looking at China, and the future of the coffee industry must be in the Chinese market." Liu Chunyu told China Business News in a firm tone, sitting in the product exhibition hall on the first floor of the office building of Hongri Technology Factory. The wall-full of shelves behind him are filled with coffee machines and coffee appliances produced by Hongri Technology for partners around the world.

Among the coffee machines of many European and Japanese brands, Liu Chunyu pointed to a product and said, "This is a coffee machine that we have completely independently developed, has a number of international and domestic patents, and can simulate the hand brewing technique of a barista. It has also won the German Red Dot Design Award". He also handed another business card to a reporter from China Business News and said, "Actually, we are also testing domestic private brands."

At present, foreign brands still occupy a large share of China's domestic coffee machine market. According to a research report by Aowei Cloud, the brand concentration rate in China's coffee machine market will be more than 60% in the first half of 2022. Compared with 76% in 2020, the brand concentration rate has declined and brand competition has intensified. Mainstream domestic coffee machine brands include De'Longhi, Nespresso (owned by Nestlé), Philips, etc. De'Longhi has a relatively high market share; Nespresso specializes in capsule coffee machines and sells them with coffee capsules; Petrus, Yumtu, and Gemilla are more affordable.

Looking back at the domestic household coffee machine industry, Zhang Lizheng said that coffee is an imported product, so the demands of foreign consumers will be higher. In the early years, only some foreign brands were in the household coffee machine market. In the process of expanding their business, these foreign brands have Entering the Chinese market. But there has been a very obvious trend in recent years: many local Chinese brands and funds are entering the home coffee machine category. This industry needs more brands to work together to implant the demand for home coffee machines into the minds of consumers.

In the field of commercial coffee machines, currently, Italian brand coffee machines are mostly used in the specialty coffee market; Swiss brand coffee machines are mostly used in the first-tier chain coffee shop market. A coffee machine agent told China Business News that imported coffee machine brands mainly come from Italy, the Netherlands, Switzerland, the United States, etc., and sell for tens of thousands to hundreds of thousands of yuan. In China, these expensive imported coffee machines are basically bought by coffee shops, and some institutions such as banks also spend large sums of money to purchase them.

According to data provided by Wisdom Ya to China Business News reporters, as of October 20, 2022, there have been more than 57,000 patent applications in the global coffee machine field, including more than 17,000 authorized invention patents.

From the perspective of major enterprises, in the field of coffee machines, De'Longhi has more than 630 patent applications, including more than 290 authorized invention patents, mainly in the fields of dispensers, filters, mixing chambers, etc.; Philips has more than 2,300 patent applications in total. , including more than 750 authorized invention patents, mainly in the fields of grinders, filters, coffee pots, etc.; Nestlé Nespresso has more than 310 patent applications, including more than 170 authorized invention patents, mainly in steam outlets, etc. field.

The number of coffee machine patents issued by Chinese brands is also catching up rapidly. Judging from the number of patent applications in the past five years, the number of coffee machine patent applications in China is significantly higher than that in other countries. In this field, Xinbao Co., Ltd. has applied for more than 970 patents, including more than 70 authorized invention patents, mainly in the fields of water outlets, sealing rings, brewing heads, etc.; Yilong has applied for more than 110 patents, including authorized invention patents. 2 patents, mainly in brewing devices, coffee capsules, conveying devices and other fields;

Gemile has applied for more than 70 patents in total, including 2 authorized invention patents, mainly in the fields of water outlets, full automation, heating modules, pump furnace systems and other fields. Hongri Technology has applied for more than 30 patents, including 2 authorized invention patents, mainly in the fields of water outlets, automatics, coffee pots and other fields.

Domestic brand commercial coffee machine booth, photographed by reporter Wang Zhen

OEM brand upward

The domestic coffee market is growing strongly, and former OEMs are beginning to build their own brands.

China Business News reporters visited and found that in Shanghai, a city with many coffee shops, many boutique coffee shops and small coffee shops are already using domestic coffee machines.

Li Zhen, the owner of Shanghai Coffee Buff Coffee Shop, told China Business News that when choosing the coffee machine in the store, he believes that the first impression should be good-looking. The store is currently equipped with an imported coffee machine and a domestic coffee machine.

Li Zhen said that the imported coffee machine in the store comes from the American brand Slayer. It is good-looking and easy to use, but it is twice as expensive as another domestic brand coffee machine. He lamented that he seemed too embarrassed to open a store without ordering expensive things.

However, Li Zhen believes that domestic coffee machines will be more flexible in setting various parameters. The temperature, pressure, and flow rate can be adjusted, making them highly playable. Therefore, using two coffee machines together allows the store to respond to different product needs.

Liu Chunyu believes that “specialty coffee is the development trend” in the domestic market. In the future, Chinese consumers will pay more attention to the origin of coffee beans and hope to bring out the original taste of coffee beans from all over the world through different water temperatures and different brewing methods. This contains business opportunities for the coffee machine industry.

Now Liu Chunyu's other identity is the founder and CEO of "Fika". Fika focuses on the new market segment of automatic hand-brewed coffee machines. He said that how to allocate resources between export OEM business and domestic independent brand business is a test.

Xie Jianping also gave an example. Chinese people like fancy coffee. A retail store will not produce as many cups of espresso every day as in European and American markets. How to prevent the water in the coffee machine water pump from boiling repeatedly requires efforts in research and development; some People think coffee is bitter, but in fact the taste of coffee is three-dimensional and rich. How to better restore the original flavor of coffee and meet domestic demand, domestic brands must also work hard.

"You cannot look at the coffee industry purely from the perspective of small household appliances. Domestic brands must look at it from the perspective of coffee culture and service in order to achieve greater success." Pan Weidong, deputy general manager of Gemile brand operations, told China Business News.

Recently, a reporter from China Business News saw at the Gemile Factory that the coffee experience center on the first floor of the company's office building welcomed a group of college students. They were students from the Industrial Design Department of Lingnan Normal University and came to the factory to conduct research and study. Faced with visitors, Pan Weidong said that Gemilai first focused on the commercial coffee machine market and expanded the home coffee machine market. At the same time, it expanded the tea drinking appliance market, focusing on the "coffee-tea" integration part.

A reporter from China Business News saw in Gemile's commercial machine production workshop that there is a production line producing commercial coffee machines. Water pumps and boilers are one of its important core components. Some products exported by OEMs have been packaged in cartons. The goods are piled up, waiting for shipment; another production line is producing tea drinking machines and is also being packed into boxes. "We can provide tea drinking machines and commercial coffee machines for retail stores at the same time." Pan Weidong said that Gemile pays more attention to the home use of commercial machine technology and will continue to promote the home machine market.

Xinbao Co., Ltd., the leading coffee machine OEM, is vigorously expanding the domestic coffee machine market in mainland China, and using the acquired Italian brand "Yumtu" as its banner, it has entered into semi-automatic espresso coffee machines. Xinbao Shares revealed at an investor relations event in August 2022 that its coffee machine brand Yumtu performed well in the first half of this year, but its volume is still small. From July to August this year, the company’s independent brand business generally maintained a steady growth trend.

International brands enter the Chinese market

As the domestic coffee market continues to boom, foreign brands are also increasing investment.

Recently, Philips launched a high unit price household semi-automatic coffee machine in the domestic market, extending the product category from fully automatic coffee machines to the semi-automatic field. The new category comes from the Italian brand Saeco that Philips previously acquired. Zhang Lizheng told China Business News that Philips had previously been more oriented towards entry-level consumers who pursued simple operations, while Saeco will target consumers in China with medium to high unit prices who pursue a sense of self-operation experience. "The epidemic has caused people to spend more time at home. In addition to changes in taste, coffee has many qualities of self-experience, self-exploration, and the need to share it with family and friends."

Zhang Lizheng said that China's coffee machine market is growing rapidly, while the European coffee machine market is very mature and will be larger, but the entire Asia-Pacific region, including China, will grow very fast.

De'Longhi is also expanding its coffee machine business in China. Public information shows that Dongguan Delong Jianwu Electric Co., Ltd. is building a third- and fourth-phase expansion project locally. The project is mainly engaged in the production and manufacturing of coffee machines, with a total investment of 280 million yuan. China Business News reporters learned from industry insiders that De'Longhi's new coffee machine production base in Dongguan will be completed in 2022 and put into production in the first half of 2023.

EUREKA, a century-old Italian bean grinding machine brand, is also preparing to invest in the Chinese market. Shen Weibo, marketing manager of Shanghai Penini Import and Export Trading Co., Ltd., told reporters that EUREKA plans to cooperate with the company and establish EUREKA's Sino-foreign joint venture factory in China.

Shen Weibo said that EUREKA will then select suitable models based on the needs of the Asia-Pacific market and produce them in the Chinese factory. In the supply chain of accessories, except for a few core components, they are all provided by China's industrial chain, and a research and development center will also be set up. This cooperation hopes to gain a foothold in the Chinese market and revitalize the Asia-Pacific region.

According to Euromonitor, sales volume and sales of coffee machines in China will continue to expand at a compound growth rate of 9% and 10.2% from 2021 to 2026.

GfK's research report believes that the popularity of coffee machines in the Chinese market has continued to heat up in recent years, and product upgrades have never stopped, but it seems that there is always one step away from the explosive growth of the market. China has a profound tea culture, and the coffee machine market is still relatively niche; and the proportion of instant coffee and freshly ground coffee remains high. China is the manufacturing center of global coffee machines. The coffee machines it produces are exported to all over the world, but the number of exporting companies is large. Most are OEM production.

In the future, as young consumer groups become more and more accepting of coffee culture, China's coffee machine market still has a lot of room for improvement, and the market still needs to be cultivated.