"We have an extremely ambitious development plan in China," says Belinda Wong, president of Starbucks China. "China has been designated as our second home market outside of the United States. We believe China will become our largest market outside of the US by 2014."

As a latecomer to China's market, Pacific Coffee has made up ground quickly with an even more aggressive expansion plan, after selling 80 percent of its stake to CRV, one of China's largest retail chain enterprises.

The company now has about 100 stores in China and plans to have more than 1,000 within the next five to eight years.

"Starbucks has pioneered the development of the American-style coffee chains in China. Costa Coffee serves coffee in a typical European style, but as a Hong Kong-based coffee house, we are more localized, a combination of both western and Chinese elements, with red cozy sofas, red blooming-lotus chandeliers and dark wood decoration," says Tong from Pacific Coffee.

To add more Chinese flavor, Tong says, Pacific has introduced Huadiao mocha, which combines a Chinese yellow wine with a mocha blend, and Erguotou chillino, iced coffee mixed with white spirits that has an alcohol level of more than 50 percent.

"We don't have a rigid format and try to be a bit more flexible and creative in our products to suit the Chinese taste," he says.

London-based research firm Euromonitor International estimates the total turnover of China's market for coffee shops hit 3.5 billion yuan last year and projects it will triple to about 10 billion yuan by 2016.

However, expanding in China means reaching out beyond the country's big cities, and the hefty cost of a cup of coffee may deter customers in third or fourth-tier cities.

"Starbucks itself has been grappling with the high price of coffee, which is roughly in line with that in the United States," says Stacy Wan, an analyst with Euromonitor. "Some customers might shy away from it.

"But the top concern for most coffee shops remains rising operation costs. Skyrocketing rent and labor costs may keep those big coffee chains from protecting margins."

The fierce competition among coffee shops has also created a demand for thousands of baristas, resulting in the rise of specialist training schools.

Qi Ming, a 33-year-old coffee bar owner and principal of Blend Coffee College in Beijing, says his organization has trained hundreds of baristas in the past year for the likes of Starbucks and Costa Coffee .

"Owning a coffee shop is not only an attractive business proposition, but also a dream for many Chinese urbanites, who expect to be educated on how to be a professional barista and how to run a coffee shop," he says. "To cater to them, we provide a series of bean-to-cup classes and cafe management courses."

Qi says, as a member of the Specialty Coffee Association of Europe and the US, the college hopes to double the number of barista students from 400 to 800 next year.

While coffee shops are pricey options for some Chinese, and instant coffee is generally the order of the day, coffee machines are becoming an increasing presence in Chinese kitchens.

"Many educated Chinese consumers and those who are well-traveled, now have sophisticated tastes," says Mark Sng, Electrolux's trade marketing manager for Asia-Pacific, Middle East and Africa. "They do not drink instant coffee or packaged coffee beverages but now purchase single-origin coffee beans or sophisticated flavored coffee, and choose to brew their own coffee."

The Swedish company offers a wide range of coffee machines costing from 208 yuan (26 euros, $33) for an automatic drip coffee machine to 2,188 yuan for an Italian-style semi-automatic espresso machine.

Since Electrolux coffee machines became available in China in 2006, annual sales have jumped from 10,000 to 300,000 in 2011.

"With Chinese consumers becoming more sophisticated and embracing the taste of freshly brewed coffee, we have seen significant growth in the past five years," says Kelvin Yuen, commercial director of Electrolux (China) home appliances Co Ltd.

Currently, China's coffee machine market is dominated by Electrolux and Dutch group Philips Electronics selling filter-drip machines, while premium-priced semi and fully automatic machines, such as Nestle's Nespresso or from Gaggia in Italy, remain a niche market.

But Yang Haocheng, executive vice-president of Gaggia China in Shanghai, believes that will change.

"Although many Chinese are still unfamiliar with automatic coffee machines, they're learning very fast," he says. "There's a ravenous thirst for coffee that tastes as good at home as outside, and those kinds of machines will eventually become common in homes."

lvchang@chinadaily.com.cn

(China Daily 10/12/2012 page10)