China: Hainan coffee competing with Nestle & GF.

Since its mid-1988 debut, Chinese-made Lishen brand instant coffee has elbowed into the country's domestic market long monopolized by foreign products.

Recent market reports say Lishen accounts for a quarter of the country's total instant coffee sales. "Today, Lishen can stand shoulder to shoulder with Nestle and Maxwell House as one of the three major instant coffee brands in China," says Qi De. Qi De is the director of the Hainan Instant Coffee Factory (HICF) based in Haikou, capital of China's island province of Hainan in the South China Sea.

Not long after its instant coffee took a foothold on the domestic market, the factory began developing new products by using another of Hainan's special produce, coconut. The most successful has been coconut coffee, a 4-in-1 powder consisting of coconut concentrate, coffee, whitener and sugar. Sold in small packages, its sales have already overtaken a Maxwell House 3-in-1 variety. Instant coffee accounts for 50% of the factory's total earnings.

Connonssewers generally think highly of Lishen instant coffee, though its packaging has yet to match foreign brands. Some experts attribute Lishen's good taste to the coffee beans produced in Hainan.

Located in the tropical zone, Hainan has been producing Robusta coffee beans for more than 200 years. Today, land devoted to coffee growing in the province totals 27,000 hectares, and the annual production of top-grade coffee beans reaches 1,000 tons. Says Wang Hanlong, HICF's chief engineer: "Locally-produced coffee beans have a very high usable content and, to enhance flavor, we add some Arabica coffee beans grown in Yunnan province, southwest China."

Until advanced processing technology and equipment were used however, good coffee beans did not result in popular instant coffee. In 1986, the factory imported a US$3.8 million production line from Denmark. This was followed by more imports - equipment for bean selection, spray drying, sealing and packaging - from Denmark, Japan and Germany.

The latest project is a US$ 1.5 million granulator, which promises to enhance the competitiveness of its products against imports. The granulator was put into operation in May of this year.

As HICF improved its product quality and came out with fast-selling new products, its sales kept increasing. From 1988 to 1990, HICF's annual sales never went above 6 million yuan (US$ 1.13 million). In 1991, sales doubled to 12 million yuan. The factory has set up 300 wholesale agents across the country, and consumers accept Lishen as a cheaper, but good substitute for imported brands.

In 1991 HICF produced 325 tons of instant coffee. Though only 13 tons were exported to Western Europe and Asian countries, Director Qi De regards it as a good start. "We aim at exporting half of our instant coffee in 1993," he says. And that does not seem a tall order. Many business people from Asian countries have expressed willingness to act as the factory's sales agents abroad.

Since coconut is another main produce of Hainan Island, in 1989 HICF's researchers began developing beverages incorporating the two. One result has been the successful coconut coffee not found elsewhere in the world. In the first month of production, 12 tons were sold.

The source of coconut is almost inexhaustible in Hainan, according to Qi De. Annual production reaches 100 million fruits and is growing.

Director Qi De is ambitious. The factory aims to double its 1991 sales this year and produce an annual output value of 100 million yuan (US$ 18.8 million) by 1995.

Before that, HICF will import a production line for coffee whitener using coconut oil, the director says.

For HICF, however, the immediate task may be to grab as big a domestic market share as possible from its foreign rivals. In the past, low prices were its competitive edge. But with its granulation line in operation and planned improvements of packaging later this year, prices of its instant coffee and other products will go up.

"We'll win customers with product quality in years to come," Qi De says.