(Yicai Global) Aug. 9 -- Food giant Nestle will start selling Starbucks-branded products in China, as the partners seek to capitalize on each other's strengths and extend their reach in the country.
Nestle will offer Chinese consumers the Seattle-based coffee giant's capsule series and We Serve Program, where businesses buy Starbucks' beans to brew their own products, Rashid Aleem Qureshi, chairman and chief executive of Nestle China, told Yicai Global. It is the first time that these out-of-store products have been made available in China.
Big player rivalry is intense as product differentiation between the traditional coffee houses becomes negligible. A race is now on to come up with more consumer scenarios and retail channels.
"Different consumers have different needs in different scenarios, which means that their coffee consumption scenarios and needs are becoming more diverse," Belinda Wong, chairman and chief executive of Starbucks China, told Yicai Global. "What we need to do is to get involved in more coffee consumption scenarios or channels to drive the market to expand."
Those who succeed in doing this quickly and who serve good coffee will lead the next retail coffee trend, according to food industry analyst Zhu Danpeng.
China's coffee consumption has grown at an annual rate of 13 percent over the last five years, according to the United States Department of Agriculture. Last year, 51 percent of the coffee consumed in China was instant coffee and the rest was freshly ground, with demand for the latter expected to grow.
Many instant coffee drinkers are now shifting to freshly ground beans, said Wan Hui, deputy director of the Food and Agriculture Research Department of Cooperative Rabobank.
Nestle, which is strong in traditional sales channels and instant coffee products, is seeking to add a premium coffee range through its adoption of the Starbucks brand.
As for Starbucks, which has a niche in emerging retail networks and freshly ground coffee goods, the deal would extend its retail network in China and increase its presence in new retail formats such as online-to offline coffee sales and self-service coffee vending machines.
Last year the Vevey, Switzerland-based Nestle paid USD7.1 billion for exclusive rights to Starbucks' consumer packaged goods and foodservice products, sold outside of its coffee shops.