Premiumisation: Why East Asian roasters buy so many auction-winning coffees

  • Premiumisation is the process of driving demand by emphasising a product’s superior quality, rarity, price, or exclusivity
  • This is a major trend with coffee auctions and East Asian markets
  • Almost 50% of the world’s Q graders are based in Japan, South Korea, and China

AUCTION WINNING coffee lots sell for higher prices every single year. Competition at the top has become outrageously fierce; not least among buyers in Japan, Taiwan, South Korea, and other East Asian countries.

For example, East Asian coffee companies had a strong presence at last year’s Best of Panama auction. Buyers from East Asia purchased the highest-priced coffee in every single category: Natural Geisha, Washed Geisha, and Varietals. This included the highest bid of the auction, which was a natural processed Gesha that sold at $2,000.49 per pound.

This is a trend increasingly prominent at other auctions, too. The Cup of Excellence has seen some extraordinary bids from East Asian buyers.

The disproportionate volume of auction winners from these countries is the apex of premiumisation. They continue to set record prices year after year (typically at the Best of Panama auction) and don’t appear to be discouraged as the price skyrockets.

This is premiumisation: the function of exclusivity causing a coffee to become more expensive.

But why is this the case? Where does it come from?

auction-winning coffees go for more amounts of money each year

Why focus on exclusive specialty coffee?

Chengcheng (CC) Su is a consultant for the Alliance for Coffee Excellence and Cup of Excellence in East Asia. She suggests that there is an ingrained culture of exclusivity for food and beverage products in some countries across East Asia. In turn, this has fostered a customer base for extremely high-priced coffee.

“What is rare is precious – this mentality is shared among many consumers in China, Japan, and South Korea,” she says. “They buy and consume what they believe offers value and believe that the price reflects quality, and are willing to pay higher prices for what is more valuable.

“Fortunately, the overall economic expansion and rising disposable income in these regions have been in favour of that consumption mentality,” she adds.

As high-end coffee consumption continues to sweep across these markets, we can see more of an emphasis on coffee quality across the industry. Today, Japan, South Korea and China are home to almost 50% of the world’s Q graders.

“This is a huge community that can spread coffee knowledge and culture across the region, educating coffee consumers on quality,” CC says.

A passion for rarity and quality has spread like wildfire and green coffee buyers in East Asia continue to break world records year on year.

This pattern can be seen in other food and beverage categories. For example, Kobe beef and bluefin tuna are both disproportionately consumed at higher volumes in East Asia. They have both been known to fetch incredible prices, too – a 600lb bluefin tuna sold for an astounding $1.8 million at Toyosu Fish Market in Tokyo in January 2020.

This demonstrates a pre-existing tendency for premiumisation in East Asian markets.

​​CC suggests that there is an inherent drive to explore more adventurous flavours in many of these markets. It appears that people in Asia have been unconsciously preparing for the emergence of specialty coffee. Tea-drinking traditions leave consumers well-equipped to appreciate the delicate flavours of specialty coffee. At the same time, their rich culinary heritage has readied them for the more experimental aspects of the sector.

“The craze for unique flavours is what Asians were born with,” says CC. “As a result, coffees that possess unique and distinguishable flavours are more likely to be sought-after. Whereas Western consumers tend to be more rigid and conservative in exploring coffee flavours.”

However, the argument about whether or not these coffees are actually a worthwhile investment continues. For many day-to-day consumers, they are too expensive to be relevant – and given the comparatively minuscule volume of these lots, many customers are unlikely to ever try them.

For many roasters buying these coffees, they serve first and foremost as a marketing exercise.

What about the wider market?

These experimental flavours might be inaccessible for most. But are they driving innovation and shaping consumer demand elsewhere?

“The growth of the specialty coffee market in East Asia will drive demand for high-quality coffees with distinct flavours,” CC says. “This will require producers at origin to invest in quality-focused production, to test new varieties and new ways of processing. As a result, the overall volume and diversity of specialty coffees available to the global market will increase.”

However, these coffees account for a very small volume of the specialty coffee market, which itself comprises a small percentage of the wider coffee industry. Even as auction prices rise, they can largely be considered little more than statistical outliers.

“More buyers from the region will bid in coffee auctions, paying sky-high prices for coffees they like and pushing up the average bidding prices,” says CC. “This may or may not affect the coffee prices paid to producers worldwide, but it could help to establish a coffee community that embraces quality, sustainability, transparency, and producer recognition.”

The question remains about whether or not pushing for this level of quality is valuable or sustainable for most coffee farmers. As the most economically vulnerable in the supply chain, an upfront investment in an exclusive variety or high-end fermentation equipment can be risky and potentially irresponsible considering such a small pool of buyers. 

Furthermore, if the quality isn’t what they expect, they may well struggle to recoup their investment – leaving little margin for error.

Rightly or wrongly, East Asia will likely continue to be the target market for producers who do grow these ultra-high-quality lots. Given their cultural predisposition towards being more adventurous with flavour, as well as a history of premiumisation with other food products, it’s difficult to see where or when this might stop.