A JOINT VENTURE: A truck is parked in front of the Starbucks Aini Coffee production unit, a joint venture set up to purchase coffee beans grown by local Pu'er farmers (WEI YAO)

Apart from Starbucks, other players are trying to wrestle their way in this big market. British company Costa Coffee plans to have 500 cafés in the country by 2016, while Hong Kong-based chain Pacific Coffee Co. said that its aim is to overtake Starbucks in China.

Instant coffee, which is abhorred by some Westerners, is more accepted by the Chinese for its convenience and ease of use, and has become a boon for Nestlé, the world's largest food company by revenue and a major instant coffee producer.

China is now the fifth biggest global coffee market for Nestlé measured by sales. The Switzerland-based company said it expects the tea-drinking country to become its biggest market by 2020. Nestlé's Nescafé brand has captured more than two thirds of the Chinese market, thanks in part to its instant coffee blends of powdered creamer and sugar.

Nestlé China's food and beverage sales have risen by a compound annual growth rate of 16 percent since 2008, and coffee sales have grown faster than that, says Roland Decorvet, head of Nestlé China. With China's per-capita coffee consumption only four cups per year compared with 400 in Japan, the potential is obvious, he says.

China's coffee consumption totaled 120,000 tons in 2011, a mere 6 percent of that of the United States. Analysts from Barclays expect the country's coffee demand to grow nearly 40 percent every year until 2015, according to a report from the Los Angeles Times.

Moving on up?

Domestic companies and Chinese farmers are benefiting from this growing trend by supplying coffee beans, but they are hardly satisfied with relatively lower profit margins and are struggling to move up the industrial chain.

With 20 years of experience in China's coffee sector, Aini has now expanded its operations, running the gamut from coffee plantations, to processing, to brand marketing, to its first coffee "experience store."

Aini has an annual production output of 15,000 tons and a plantation area of 9,070 mu (604.67 hectares), where 33 types of coffee are cultivated. The company plans to invest another 1 billion yuan ($161 million) and expand its annual production to 5 billion yuan ($805 million) by the end of 2015.

"We just bought the highest-quality German-made coffee processing machine, which will help enlarge our capacity in down-stream processing," said Zhu, the Aini factory head.

The company plans to produce 3,000 tons of roasted coffee beans, 5,000 tons of roasted coffee powder and 20,000 cans of bottled coffee each year, he said.

"Enhancing brand recognition is a big issue for the company," Zhu said. "When it comes to coffee, homegrown brands might hit a few rough patches if they want to be recognized by Chinese people."

"We opened an online shop to sell coffee beans, which proved to be a huge success. Also, Aini will invest more in branding," Zhu said, adding that the partnership with Starbucks provides a significant boost for the Aini name.

At the end of 2012, Aini Coffee established its first coffee "experience store" in tiny Pu'er Simao Airport, marking the company's formal entry into the Chinese coffee retail market and placing it in potential competition with Starbucks, which is also fighting Costa Coffee in airport retail space. The store, Aini says, isn't meant to be a full-fledged coffee shop—at least not yet—but an outlet to sample the company's various coffee-based beverages.

"We don't expect the coffee stall in the airport to be profitable in the short term. It is a pilot run for our future expansion," said Zhu.

Email us at: zhouxiaoyan@bjreview.com