A customer chooses coffee at an exhibition in Beijing. Illycaffe SpA will launch three to five new stores in 2012 in big cities. [Photo/China Daily]

SHANGHAI - The coffee manufacturer and distributor Illycaffe SpA is banking on Chinese consumers' strong demand for coffee from Chinese consumers by opening boutique shops to gain brand recognition and bring in more sales.

Andrea Illy, chairman and chief executive officer, said the demand for high-end consumer goods and a developing coffee culture in China provide solid ground for the Italy-based company to expand its presence in the country.

The first Illy store is scheduled to open its door in Shanghai by the end of 2011 and will sell coffee machines, coffee products and tea from its sister company.

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Plans are afoot to launch three to five new stores in 2012 in larger cities such as Beijing and Guangzhou where Illycaffe expects to have strong market penetration.

Coffee consumption has undergone a huge surge in China in recent years.

The consulting firm Euromonitor International said that revenue from the Chinese instant coffee sector reached 5.1 billion yuan last year.

Illycaffe estimates that the annual consumption of coffee in China has increased at a rate of 12 percent to 15 percent in past decade.

Revenue generated from the hospitality sector accounts for 75 percent of Illycaffe's total revenue in the Chinese market, according to the company. Illy said the annual growth rate for Illycaffe in China is about 30 percent and he estimated this rate would double in the next three years. The company has 16 sub-dealers in China and its network has covered more than 20 major cities.

Eyeing the large consumption base and increasing market demand, international coffee retailers and manufacturers are accelerating their expansion plans in the market.

The Australia-based Gloria Jeans said it plans to open 50 stores in China in the next three years and coffee retailer Starbucks plans to open 1,500 stores before 2015. As one of the largest coffee manufacturers in the world, Illycaffe has operated and managed a string of cafes around the world that have allowed customers to consume coffee in a variety of locations.

"It is about food services and supply chain management. We will develop a plan when we find the right partner. This is a project and it is geographically important. We will suffer losses if we do not have control over operations, so we must find the right partner," said Illy.

Gloria Jeans has appointed Dash Brands Limited as its partner to expand development in the north and east of China. Starbucks also had partnership with three partners including Uni-president when it entered the Chinese market in 1999. The targeted customers for Illycaffe boutique stores are high-end Chinese aged between 25 and 35 years.

"International travelers and people with the interest to learn about coffee culture are our target customers too," said Illy.

Illycaffe entered the Chinese market in 2001 and has expanded through the establishment of close relationships with luxury hotel chains and restaurants.