China Consumer

Nespresso’s newest rival

Saturnbird takes aim at China’s $150 billion coffee market


Next stop, hire George Clooney

The world’s first water-soluble ‘instant’ coffee was patented in Britain in 1771. It did not prove very popular until the First World War when the US military stocked up on the product for soldiers’ trench rations. Instant coffee’s next big break came in 1937, when Nestle chemist Max Morgenthaler created a tastier version known as ‘Nescafe’ – a venture partly designed to alleviate Brazil’s coffee glut and stabilise coffee prices following the Great Depression.

The latest entrant to the field is Chinese. Meet Saturnbird Coffee, a Changsha-based company that sells exotic coffee beans, formulated blends and coffee accessories such as grinders. Its cold brew coffee powder comes in a capsule much like those marketed by Nespresso – the Nestle-owned Swiss company that makes high quality coffee easier to consume at home or in the office using its barista-like pod machines.

So do costlier artisanal coffees have a market in the Middle Kingdom? After all, a 1.8-gramme sachet of Nescafe costs only Rmb1 whereas a Saturnbird coffee capsule is marketed for Rmb8.

That may be a bit pricey for many Chinese consumers. Saturnbird’s sales grossed Rmb30 million ($4.47 million) in 2018, with a gross profit margin of 60%, reports. That year also saw it become the best-selling domestic coffee brand on Alibaba’s Singles’ Day, even though its Tmall store had opened just three months earlier.

At present Saturnbird’s monthly gross merchandise volume has grown to around Rmb56 million, according to PE Daily. Instant cold brew – an iced coffee preferred in the summer – is one of its most popular products, with a transaction volume of over 200,000 units every month and a repeat purchase rate of 60%.

Before establishing Saturnbird in 2015, Wu Jin had run a bricks-and-mortar craft coffee shop in Changsha. He struggled to find a price point that could strike a balance between customer satisfaction and profitability.“Based on our analysis, a more realistic and meaningful product [in the China market] would be something that tastes nice and yet is budget-friendly and convenient,” said Wu, noting that Saturnbird sits somewhere between what he terms the ‘vast majority of poor tasting instant coffee’ and more boutique coffee that is labour-intensive to brew.

The company is planning to open a high street coffee laboratory in its home city this year. The rationale here is to elicit customers’ opinions as it experiments with new coffee flavours. About 60% of Saturnbird’s online customers are based in tier-one cities, with a big proportion being women aged 25-35, according to 36Kr, a local news portal.

Saturnbird’s positive reception is helped by the growing cultivation of coffee culture in China, arguably starting with Starbucks’ entry in 1999. Much traction has been gained since then, as indicated by the explosive growth of Beijing-based Luckin Coffee, which amassed 2,000 outlets in less than two years and became a unicorn worth $2.2 billion late last year (see WiC418). The market opportunity has lured Tim Hortons from Canada too (see WiC444).

Growing by an average 15% each year, China’s coffee market is set to reach Rmb1 trillion in sales by 2025, estimates CBN Data. The sector has received over Rmb2 billion of investment from at least 30 private equity firms since 2016, according to Shenzhen-based ASKCI Consulting. Saturnbird, likewise, raised $1.5 million from a consortium led by Shanghai-based Frees Fund.

But Wu’s ambitions aren’t restricted to coffee. He is also planning to open an offline store for his other brand MOiWOOD, which focuses on perfumes and soaps. As suggested by the Chinese name of Saturnbird, namely Sandunban (i.e. ‘Three-and-a-half’), Wu aims to serve the more sophisticated needs of his compatriots who have gone beyond only being able to afford three meals a day.

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