Market Research Report for Coffee in Japan

With a population largely living In cities and with each city having over half a million people, there will be sufficient traffic for a coffee store which offers quality products at a reasonable price. Our strategy Is to set up a few stores In a second tier city in Japan to show case our products and our philosophy that we are a coffee shop for the mass who can enjoy freshness at a good price. We will expand our territory after we gain acceptance in the market place. Research Methods Research methods Include analyzing graphs and charts of the growth of coffee In Japan from various reports, reviewing the history of coffee In Japan and using risk analysis and the four As.

Key Results Coffee remains to be a booming market in Japan and it is the 3rd largest importer in the world. There are many powerful competitors in both wholesale and retail markets of coffee. The market seems to be slightly shifting towards Instant/canned coffee due to the uncertain economic times. Ultimately, Japan may not be the best alternatives. However, in light of the current situation (a relatively stable new overspent, weakening Japanese Yen, positive economic sentiment) in Japan, coffee chain stores which can provide quality product at a reasonable price (such as half of what is being charged by Struck) may have a chance of success with a proper entry and operation strategy.

Market Overview Japan has not been a coffee drinking culture in the early 20th century. The culture started to spread a few decades after World War II when coffee import was liberalized. Since then, Japanese coffee consumption has grown vastly over the last 40 years. (See Appendix 1 for the Evolution of Coffee Import in Japan). This growth was due to several reasons, namely: Westernizes of consumers. Product innovation with the use of canned ready-to-drink coffee in both hot and cold forms. Initial growth of coffee shops which peaked at 162,000 in 1982 Availability through vending machines The wholesale coffee market in Japan is led by Nestle, a Swiss multinational company with a 32% market share.

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It owes most of its success due to its strength in instant coffee and the popularity of Nestles Barista system, a machine that can create various types of coffee at home. It would be extremely costly to compete with Nestle. Struck also owes a large of its success due to the thriving market in Japan where it opened their first shop outside of the US to great success. One interesting aspect here to note is that the consumption of once popular traditional drinks such as green tea and fruit Juices from the past 20 years has been decreasing substantially while both ready-to-drink coffee and roasted coffee have been increasing. (See Appendix 2 for the Beverage Consumption in Japan). Market Potential Over the past century, the market segment for coffee has been exploding in popularity.

However, due to the uncertain economic situation, the import of coffee has not increased the past few years since the recession in 2008. However, coffee remains to be in high demand in Japan which remains to be the third largest importer of coffee in the world. With the increasing popularity of homemade instant coffee, while it may be a feasible idea to create a brand promoting quality and encouraging consumer loyalty, it is not easy to compete with Nestle (the largest food wholesaler in the world). Furthermore, it is almost impossible for the Japanese trading houses to break ties with Nestle for a new entrant to the Japanese market. On the other hand, a chain of stores selling quality coffee at a reasonable price may have a chance of success.

Major Economic Features Japan is located east of Asia in an area called the Pacific Ring of Fire. It has a population of about 1. 3 billion people and is fairly small with an area of 0. 4 million square kilometers. Although Japan is a small island country, Japan has the third largest economy in the world by nominal GAP, the fourth largest by Purchasing Power Parity and is the world's second largest developed economy. Japan is also the world's largest creditor nation and generally has annual trade surplus and net international arrest and most technologically advanced producers of automobiles, electronics and other industrial goods. The country is often ranked among the world's most innovative and high technological countries.

The structure of Japan's economy determines the internationalization of Japanese tastes and Japan's high quality standards and dynamic market. As an international and innovative nation, new and especially western goods and products are always welcomed in the Japanese market. Japan imports all its coffee supply from overseas. Like China and some other Asian countries, Japan has a strong tea tradition culture. In Japan, green tea is the most popular beverage to drink with traditional Japanese cuisine and snacks. In the Japanese society, green tea is usually served for special guests and special occasions. The Japanese tea ceremony is a Japanese culture activity involving the preparation and presentation of green tea.

According to the resource, tea ceremony had spread to all levels of society in Japan. In the traditional days, many schools in Japan had a course to teach the tea ceremony which is considered as an art. In comparison, the role of coffee in western culture is very similar to the role of green tea in Japanese culture. First of all, both are very popular beverages and secondly they keep people awake and refreshed. However, as we know, the modern Japanese society is well known for its extremely busy and fast paced environment; the preparation and drinking progress of green tea has become too complex and time consuming to keep pace with the rush of modern life.

At the same time, the introduction of canned ready-to-drink coffee, an innovation from Japan and the expansion of vending machines serving both hot and cold coffee helped a lot to promote coffee consumption among the younger generation. As a result, coffee has become the most unconsumed beverage in Japan. Japanese Coffee Vending Machine Labor Market Japan is an island nation, so all the coffee products consumed in Japan are imported from the outside. One important issue that those outside suppliers need to think about is the labor market. Japanese society is culturally and linguistically homogeneous, with small populations of foreign workers and 98. 5% ethic Japanese. In Japan's work environment, the culture teaches them to value their work over even their family and employees are content to stay with the same company for their entire lives.

Because of Japan's low fertility rate and labor force participation rate see Appendix 3); this means that Japan will face a shortage of labor in the future. Having coffee sold in vending machines however eases the number of people needed to sell coffee as much of it can be automated. In Japan, vending machines first appeared in sass, and the number of machines soared in the following decades. Today, Japan has the highest per capita rate of vending machines in the world. Canned ready-to-drink coffee can help alleviate the problem of labor shortage when it comes to selling coffee. On the other hand, the recession since 2008 has resulted in a growing number of unemployed and under-employed workers. The labor market is not as tight as before.

At the same time, there are still a lot of students looking for part time Jobs. This will provide the required labor force for running coffee stores. Political Features The Japanese political system is quite different from Western systems. Dating from the defeat of Japan from World War II, the present Japanese system is a constitutional monarchy where the emperor's power is limited. The Prime Minster of Japan is selected for a period of four years but almost no one serves a full term and his power is weaker than that of other democracies. Most of the power in Japanese society is in the industrialists and civil servants rather than politicians compared to the United States where politicians wield enormous power.

Presently, the Japanese society has gotten used to the changes in the leadership in the government and is currently functioning well. Risk Analysis Japan is widely considered to be a stable country to do business due to its modern, diversified economy and its strength in exports. However, like many other countries, it was strongly affected by the 2008 recession with GAP decreasing by 8%. Despite this, the economy was on an upturn in 2010 until the Great East Japan earthquake and tsunami that setback the economy in 2011. As it is located in an area with many shifting tectonic plates, Japan suffers from frequent earthquakes and tsunamis over the years. Japan's economy however is still fairly decent in respect to other developed countries.

The political system in Japan is fairly unstable with frequent changes and short terms to members in power due to a lack of confidence from their peers. The system as it is right now fails to attract strong personalities that can take charge. However, things may be changing as the current Prime Minister, Shinto Abe, is able to control both the upper and lower houses to store people's hope about the future. Some other notable risks include: Declining active population Many powerful competitors in each different market of coffee Low productivity of Small Medium Enterprises Despite this, Japan remains to be AY when it comes to their country and business climate in risk analysis according to Michigan State University and tier 2 out of 5 according to Rooney in country risk.

However, when it comes to the market in coffee, there are many dominant companies such as Nestle and Struck and many different competitors who may make it very difficult to gain any market share thou a proper entry and operation strategy. Recommended Strategy for Entry and Operation As international trade progresses, the effect of cultural distance should not be overlooked. To consider about the influence of culture distance on the coffee market, there are many areas to consider. The first one is the drinking habits, the of the rushing modern society, coffee has become a daily beverage that many people drink with the Japanese innovation of vending machines selling canned ready-to- drink coffee.

Japan is always labeled as a place with advances in innovation ND fashion; their products are famous for high quality and full of creativity. In order to fit Japanese market's taste, we should carefully choose the right position for the coffee product by utilizing the four AS, product, promotion, place and price according to Japan's unique eastern culture. It has been mentioned that it would be costly to compete against Nestle. To set up a wholesale operation is not an easy task as it is difficult to establish connections with the various retailers. Struck have a leading position in selling premium coffee. However, there is a market niche for quality product at a reasonable price. In term of 4 AS:

Product: We will have freshly brewed coffee. To ensure good quality, coffee will be disposed after 30 minutes. Staff will be trained to provide friendly and efficient services required for today's fast pace society. The product aims for mass labor market. There will also be bakery products to compliment the coffee. A product similar to Struck bottled approach will also be sold to vending machines to gain further market penetration. Price: It would be well below that of Struck and a bit more expensive than other canned ones to promote a middle ground of quality and value Place: Japan as a large populated country, city population is easily in hundred of thousands.

We would suggest to have the stores not in Tokyo or Osaka due to high cost in setting up but in second tier cities like Nagoya where the set up cost will be lower. In term of labor, we will make use of students and under-employed people to keep cost down. Promotion: We will run advertising locally stressing on quality and value of the product with efficient and friendly services. We will establish our store as one for the working mass who would like to enjoy fresh coffee at a price that they can afford. We may be able to start 3 to 5 stores/subsidiaries in one city. Should the result turn out to be positive, we can increase the number of stores in the same city and expand to a new city. This strategy will help to reduce the cost outlay initially and at the same time establishing our presence in Japan.

Summary and Conclusion To summarize, while Japan is the 3rd largest importer of coffee, there are incredible number competitors that are well established in Japan such as Nestles Unsafe, Struck and local coffee brands. In the modernizing world, convenience is a large part of a beverage's success which explains why instant and canned ready-to- drink coffee is so popular in Japan. However, the right product that meets the consumer demand is also very important. We do not want to get into the wholesale market to compete with Nestle for two reasons. First of all, it would be difficult to challenge Nestle who holds a big market share already. Secondly, connection is everything to do business in the East.

It is inconceivable for the large Japanese trading houses to cut its ties with Nestle for a newcomer. Struck look after the looking for quality and value. In this study, we find a niche market that we can explore, namely the segment of the market with value, efficiency and quality in mind. With a proper entry and operation strategy to run a chain of coffee stores in the second tier Japanese cities each with population over half a million, we can limit our initial investment and at the same time give us a reasonable chance of success. By carefully exercising the ups concept, we can properly position our products to the right people at the right prices and places. As we are not going in a large scale, we can target our promotion locally.

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