What are the current situation of the coffee market in China? Has there been a great change in the Chinese consumers in the last decade? Has the pandemic exerted an influence on the Chinese coffee market? In an interview with Professor Jin Liyin from the Marketing Department, Fudan University School of Management, Zong Yanping, Managing Director of De’Longhi China, shared his insights concerning the coffee market in China and his analysis on the changes in the marketing strategies of this high-end international brand.
What do you think of the trends and characteristics of coffee market in China?
The coffee market in China is growing rapidly but it’s still at a relatively initial stage. After several years of development, coffee consumption per capita in China is still less than 10 cups per person per year. Of course, things may vary in regions like Shanghai and Beijing, where the market may be approaching the situation of a pretty developed coffee market.
The market may remain at the primary stage for a very long time for this country with a population of 1.4 billion. But the good thing is there is a great potential for the coffee market in China.
What is the market penetration rate of the household coffee machine in China?
At present, only 2 million coffee machines are annually sold in China. The penetration rate is extremely low. According to our surveys, the penetration rate is about 5% in Beijing, Shanghai, Guangzhou and Shenzhen, 2-3% in provincial capital cities, and the overall rate is definitely below 1% in China.
However, as we know from the experience in the coffee market around the globe, there is always a lag between the market of the household coffee machine and that of the commercial coffee machine. So it’s quite normal that the growth rate of the Chinese coffee machine market is not as great as that of the coffee market.
De’Longhi has entered China for almost 15 years, during which the marketing environment and consumer demand in the Chinese market have changed drastically. How has De’Longhi been adjusting its marketing strategies?
We were the first to bring the espresso machine to the Chinese market. Our development has gone through three stages.
From 2005 to 2009, we positioned De’Longhi as a “luxury brand”, selling only high end products. The distribution was limited only in first-tier cities and we partnered only with media that could accurately target the high-end consumers. Although we did not achieve a rapid growth in China, we were able to build a great foundation for the image of the brand.
In 2010, the development of the e-commerce was accelerating and the emerging consumer segments are no longer limited to the typical rich people. Then we repositioned De’Longhi as a “high-end imported brand”.
After 2015, the marketing environment in China has undergone tremendous changes. De’Longhi is now a "high-end international brand”, offering full product lines in China. The average age of our consumers has also dropped from around 45 to 36.
What is the difference between De’Longhi's younger customer group and the previous consumer group?
When our position was a luxury brand, we put the emphasis on a high-end brand image. Nowadays, when the young generation has almost full accessibility to information concerning the products, the relationship between the consumers and the brand is relatively equal. Brands now tend to listen to consumers' needs and make adjustments to the product design accordingly, which often end up having an impact on many respects including the research and development, and even the entire supply chain infrastructure.
Does De’Longhi have any plans to expand into the second and third tier cities in China?
After 2015, consumer segments are no longer divided by traditional regions. More often, they are divided into groups according to their online behaviors. E-commerce has shattered the business model where we used to deploy the distribution province by province, city by city and store by store. However, the development of e-commerce does not necessarily mean brands can reach their target consumers more quickly and at a lower cost. When a new marketing model emerges, the cost is often relatively low, but in the long run, the intensification of the competition in the entire industry and the constant changes in consumer segments may in turn raise the cost.
Has De’Longhi made attempts in the so-called 'social fission marketing'?
We hear new jargons almost on a daily basis, and there are two things we must understand.
1. 90% of these so-called innovation in marketing are nothing more than an innovation in the vocabulary. So make sure you take a moment to identify whether it is a true marketing innovation or just a new name for some cliché.
2. Any marketing has two dimensions – what the brand gets and what the consumers get from it. You must think these through beforehand.
Has the pandemic exerted an influence on De’Longhi?
Sales of household appliances fell roughly between 35% and 40% since the outbreak. However, the sub-category of household kitchen appliances has seen a high growth rate. But I don’t think this surge in the short term can be count as an impact on the brand – the sales are great only during the pandemic, it’s no more meaningful than that the disinfectants and masks are selling well recently.
But if the pandemic somehow triggers a change in the consumption habits, then there is definitely an opportunity for us to increase the penetration and expand the business.
