Notable Developments: Indonesia
During the month of August, President Joko Widodo announced that Indonesia’s capital would move from Jakarta, on the coast of the island of Java, to Borneo. Jakarta is sinking into the Java Sea due to rising sea levels and overpopulation. Some areas of Jakarta are currently four metres below sea level which has led to President Widodo’s decision to move the capital. The Indonesian government intends to invest USD40.0Bn over the next 10 years to build a sea wall to prevent the city from being submerged. Whilst Jakarta will remain Indonesia’s hub for finance, the new capital in the province of Kalimantan, Borneo, will host the Country’s legislature and executive branch. It is estimated that the cost associated with moving the capital to Kalimantan is estimated to be c.USD33.0Bn with the government contributing 19% and the remainder coming from the private sector. The new capital will cover c.180,000 hectares which is currently three times the size of Jakarta with the move expected to start in 2024.
The Chinese e-commerce giant, Alibaba, launched its first AliExpress physical store in August at the Xanadú Shopping Centre in Madrid, Spain. The store offers both Chinese and international branded products. Outside of China, Spain is the third-largest market for Alibaba with 10 million users after the United States and Russia. AliExpress in Spain already has the largest number of customers by both sales volume and amount. The opening of the physical store in Spain is significant as Alibaba considers this to be its gateway to Europe with store openings around the region expected to take place in the near term. AliExpress hopes that its physical presence in Spain will convince Spanish companies to enter its online platform as part of its plan to partner with more than 10,000 Spanish retailers by the end of 2019.
Focus Industry: The Asian Coffee Market
Asia has been leading the world in terms of the greatest number of coffee sales and production of the commodity. According to the International Coffee Organization (“ICO”), Indonesia, Vietnam and South Korea had the highest consumption of coffee in 2018 across Asia. Although, between 2003 and 2017, China was the fastest-growing country in terms of coffee consumption. On average, coffee consumption across Asia has been growing at an annual rate of 6% whereas the rest of the world is growing at 2%, making Asia a potentially lucrative region for coffee chains.
Asia has historically viewed coffee as a drink of the elite and a sign of Westernisation but as the region has grown more prosperous and disposal incomes have risen, coffee and cafes have been increasing in popularity. As a result of a change in consumer preferences over the last two decades, domestic and international coffee chains have penetrated local markets. Alongside traditional coffee producers such as Vietnam and Indonesia, which are ranked second and fourth as the top coffee producers globally, other nations such as China and Myanmar have been increasing their coffee production.
Chinese citizens have predominantly been consumers of tea given the many different varieties available such as Oolong and Jasmine, however, its citizens are now one of the largest consumers of coffee globally. In 1999, Starbucks opened its first store in the country in Beijing and after two decades it has 3,600 branches across 150 Chinese cities. Starbucks has localised its drinks menu to enter the domestic Chinese market by creating drinks such as the “Chilled Cup”, a smooth iced coffee with vanilla or green tea flavor. In Shanghai, Starbucks opened its largest coffee roastery which has become a popular tourist destination.
Starbucks’ main competitor in China is Luckin Coffee (“Luckin”), a homegrown chain of coffee shops with 3,000 branches in China. Luckin Coffee was founded with the aim of disrupting Starbucks’ stronghold on the Chinese coffee market and uses technology to give itself an advantage over Starbucks. Unlike Starbucks, Luckin brands itself as a ‘takeout kitchen’ where customers primarily place their orders online for pickup or delivery in order to keep overhead costs low. The company’s products are typically priced lower than Starbucks which has led to the inflow of customers at Luckin Coffee. Although, there has been reports of customers not being satisfied by the quality of coffee and food sold at Luckin Coffee which is deterring potential new customers.
South Korea is one of the leading markets in the world with regards to coffee consumption. The country hosts c.49,000 coffee shops, of which 18,000 are in the capital, Seoul. In 2018, the Korean population drank 26.5 billion cups of coffee, an average of 512 cups per person. Korea’s largest coffee shop chain, Ediya Co, has 2,200 outlets whereas Starbucks, only has 1,140 stores across Korea. South Korea has seen the rise of ‘café culture’ where independent cafes have attempted to distinguish themselves in a crowded market through introducing unique drinks but also having décor which is Instagrammable in order to appeal to customers. As a result, South Korea is now the third-largest market for specialised branded coffee chains, preceded only by the United States and China. According to Euromonitor, its coffee sales reached USD4.3Bn in 2018 – 7 times the number 10 years ago.