Terrie's Take 723 -- Coffee Wars Heat Up, e-biz news from Japan

Terrie's Take terrie at mailman.japaninc.com
Mon Aug 26 08:10:18 JST 2013

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, Aug 25, 2013, Issue No. 723


- What's New -- Coffee Wars Heat Up
- News -- Japan's Olympic chances looking good
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Saitama Cafe, Aomori Aquarium
- News Credits

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In in this era of falling population and incomes, Japan's high population
density ensures that certain business models will continue working well for
some time to come. Things that come to mind include shared housing, small
downtown one-person apartments, mass transport, shared cars, large discount
store operators, love hotels, fast food, and coffee shops. All of these
sectors are hot beds of innovation, competition, and domestic profits.
Coffee shops are particularly interesting because their role has changed
from that of smoky dens for salesmen out of the office and killing time, to
that of fashionable internet-connected meeting places for young moms and
seniors, as well as being an impromptu office for the 1/3 of the working
population now in part-time and freelance work.

Actually, you'd think that having a bunch of people sitting around taking
up space in your coffee shop would be the antithesis of profitable
behavior, where commonsense dictates that high turnover of bodies much as
McDonalds aims for, is more desirable. But not so. It appears that letting
people work or congregate for long periods at a coffee shop, where they are
either escaping the heat of summer, seeking companionship, or
concentrating, leads to them consuming higher-margin, high-energy food and
beverages. Starbucks Japan, these days a publicly listed company and thus
sharing lots of market information, is saying that thanks to high sales of
its Frappuccino drinks at JPY500-JPY600 each, June same-store sales ran 12%
ahead of last year, and Starbucks is forecasting a record operating profit
of JPY10bn for FY2013, up 2.9% over last year. If the hot weather continues
for another few weeks, it may even surpass that number, again thanks to the

Actually for FY2012 Starbucks even surpassed McDonalds in terms of its
pretax profit-to-sales ratio. McDonald's, generally at the top of the fast
food tree for profit, recorded a profit rate of 8.1%, while Starbucks came
in at 8.4%. Another reason for the higher profits at Starbucks and other
operators (but of little benefit to McDonald's since coffee is a small part
of their sales) has been a glut of coffee on the world market. Prices for
beans have dropped by half, easily cancelling out the 20% hit the coffee
chains took at the start of the year when the yen appreciated. This large
reduction in cost has apparently added an extra JPY500m to Starbuck's
bottom line.

[Continued below...]

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[...Article continues]

While the profits are there this year, longer term the whole coffee
industry is undergoing a huge transformation which we think is the
precursor of a coming shake out.

There are currently four major players in the coffee chain world: Doutor,
Starbucks, Tullys, and Pronto -- betweeen them running about 3,000 stores
across the nation. The largest operator is still Doutor, with about 1,100
stores -- consisting of both company-owned and franchised stores. But they
are stuck with an old fashioned image that is hard to shake and in this era
of coffee consumer choice, they are facing slightly declining customer
traffic and thus flat sales. The biggest cause of their pain is Starbucks
Japan, which is leading the way in terms of growth and profitability. How?
By sticking to its formula of high-end, comfortable interiors and
furniture, and good quality menus. In homage to the Starbucks system,
Doutor is now also fitting its refurbished stores with plusher furniture
and better looking interiors.

This fixation on customer pampering doesn't come cheaply. Starbucks
apparently will plow about JPY4bn into refurbishing a full 1/3 of their
stores  this year. That's a pretty impressive figure and means the company
is as much into the carpentry business as it is into coffee.

At the bottom of the coffee business food chain and severely impacting
McDonalds in the process, are Japan's 34,000+ convenience stores, led by
Seven & i Food Systems, which has been rolling out JPY100 cups of coffee
for businesspeople, ladies in particular, since the start of this year.
Interestingly, even as sales of these low-end takeout coffee services have
increased to women, sales of coffee to Japanese men has fallen by 20%
compared to sales 3 years earlier. because they are cutting back on
snacking to save money -- it's a tough life.

Then, above the convenience stores and McDonalds is another type of new
entrant -- the large family restaurant operators. Seven & i's Dennys
restaurant chain, and Royal Holdings' Royal Host chain have found that by
cordoning off areas of their family restaurants to operate as cafes, they
can increase their sales per store by up to 20%. The simple fact is that
customers can now drop in between meal times, and serving coffee and light
snacks is easy to staff. By-the-way, that 20% number came from the increase
in same-store revenues of the first Denny's cafe opened this May. As a
result, Seven & i will remodel another 30 restaurants to seat at least 50
customers each in similar cafe areas.

Then, as if the market isn't crowded enough, a groundshaking announcement
was made by Nestle last week. The company said it would through a
consulting subsidiary set up a network of 1,000 franchised coffee shops
over the next three years. Nestle has been watching its grocery store sales
take a hit as consumers head for comfy neighborhood coffee shops, or, if
they are trying to save money, to the convenience stores. Nestle obviously
has decided if you can't beat them then why not join the fray. It's a big
gamble in our opinion, but if they pull it off, then they will have more
stores than Starbucks has at the moment (985 locations).

Nestle apparently reckons that lots of independent coffee shop operators
are under pressure from the megachains, and will go under if someone
doesn't bring them in together as a group. Whether this is true or not is
hard to say, because anyone who has stayed in business this long probably
has a natural advantage over the majors, like being the only shop in a
given area or having a charismatic host that the locals trust, otherwise
they'd probably be gone by now. Still, we imagine that Nestle has done its
market research, and certainly its offer of assisting with business
development and a free high-end coffee machine will win over some store

We wonder, though whether gathering up a thousand slightly-worn independent
store operators will really work? Although Nestle Japan is firewalling
itself from the operation by working through a subsidiary, and it does
already have the experience of 100 company-owned stores to draw from, we
think the company will be quickly faced with the reality that to catch up
with Starbucks they will have to provide franchisees with far more than a
JPY1m coffee machine and some spreadsheets. Instead, they will be asked to
help spring for location refits, standardized food production and
distribution, staff training, and marketing. Without such additional
investments, instead of being a low-cost grand master plan to carve out a
space in the coffee shop market, the gambit  could instead turn out to be a
big black mocha-flavored hole.

...The information janitors/


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The largest international trade show in Japan, "The 76th Tokyo
International Gift Show autumn 2013" exhibits personal gifts, consumer
goods and decorative
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With the motto "Let's meet at the Gift Show", the industry
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September 4-6 and takes  over the whole Tokyo Big Sight venue.

Bi-annually, The Gift Show selects a theme reflecting Japanese peoples`
varied lifestyles, this time focusing on the outdoors. It brings together
new and cutting edge food, fashion and design products. Drop by to find the
next big thing in lifestyle design.


+++ NEWS

- Skirmish with Ni-Channeru owner continues
- Short-term insurance policies rise rapidly
- Japanese HPV vaccine victims groups get organized
- Japan's Olympic chances looking good
- Budget boost for SDF

=> Skirmish with Ni-Channeru owner continues

While the Japanese authorities don't seem to be able to nail Ni-Channeru (2
channel) website owner Hiroyuki Nishimura for illegal postings, they are
determined to keep him on his toes. His latest skirmish is with the Tax
Office, which has decided that JPY300m in revenue earned by the purported
new owner of Ni-Channeru, Packet Monster in Singapore, but which appears to
be controlled by Nishimura, is in reality Nishimura's own assessable
income. Nishimura had declared a total of JPY200m over the last 4 years,
and the Tax Office just hit him with a bill for the last JPY100m. ***Ed: No
word on whether he will appeal this ruling. However, if he doesn't, then it
may create the thin edge of a wedge for the police to come after him on the
basis that he is the real owner.** (Source: TT commentary from e.nikkei.com,
Aug 24, 2013)


=> Short-term insurance policies rise rapidly

Since limited deregulation in the insurance sector in 2006, the sales of
short-term (2-year), non-life insurance policies has soared. Home content
policies of less than JPY10m have risen 15.7%, while pet insurance has
jumped 26%. There are now over 5m such policies, creating premium income of
JPY50bn in 2012. The policies are being pushed by as many as 74 companies,
including many newcomers, mainly because the major insurers have a limited
presence in the sector and because the newcomers only need capital of
JPY10m to start an insurance business. (Source: TT commentary from
e.nikkei.com, Aug 25, 2013)


=> Japanese HPV vaccine victims groups get organized

While the controversy over the side effects of HPV vaccines rages overseas,
Japanese victim groups are getting organized and getting attention. On
Friday 8 injured teens (4 now in wheelchairs) and their parents presented
petitions to the Health Minister, Norihisa Tamura. The petitions appeal to
the Ministry to either abolish the vaccination program, eliminate
subsidies, or at very least put more R&D into discovering the cause of the
side effects and how to avoid them. The two vaccines in question are
Cervarix and Gardasil. ***Ed: When faced with whether to get our own kids
vaccinated several years ago, we decided that there is enough evidence of
severe side effects that made it too risky to go ahead. Unfortunately for
3.2m Japanese girls inoculated, the authorities did not explain the risks
beforehand. And if you look at the numbers, while there were about 26,000
cases in the USA last year of cancer attributable to HPV, correspondingly
there were also about 1,800 serious reactions to the vaccination (and this
was just the reported cases). We wonder if the benefit for a disease which
in any case could be largely avoided through safe sex, is worth this high
ratio of things going wrong?** (Sources: TT commentary from japantimes.co.jp,
Aug 24, 2013 for the news item and CDC.gov, Jul 24, 2013 for HPV stats.)


=> Japan's Olympic chances looking good

Although no one knows what the final decision in two week's time will be,
we are hearing the local diplomatic community saying that Japan's chances
of being picked as the host city for the 2020 Olympics are looking quite
good. To help seal the deal, PM Shinzo Abe has said that he will personally
travel to the International Olympic Committee (IOC) meeting Buenos Aires to
hear/receive the September 7th decision. The other two candidate cities are
Istanbul and Madrid. (Source: TT commentary from reuters.com, Aug 23, 2013)


=> Budget boost for SDF

The Defense Ministry has finished its budget request for next year and says
that it plans to formally establish a fighting unit that closely matches
the capabilities and methods of the U.S. Marines. The new force will
apparently be tasked with "...making amphibious assaults to take back
Japanese islands that have been invaded by foreign military." A not so
subtle reference to China and possibly South Korea. This newly planned
unit, plus the general increased cost of military hardware caused by the
weakening of the yen means that the Defense Ministry is asking for about
JPY80bn (2.9%) more this year than last year. ***Ed: While JPY80bn is a
lot, it's still just a drop in the bucket for SDF spending, and in fact in
light of FX changes, could even be considered a reduction over last year.**
(Source: TT commentary from asahi.com, Aug 21, 2013)


NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links -- we apologize for the inconvenience.




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expanding in Japan, as well as other employers of bilinguals.


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clients who are bilingual in English and Japanese, fluent English and
Japanese will be required.

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experience and skill level.


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email tomohiro.kimura at biosjp.com.



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RSVP: RSVP by 10am on Tuesday 17th September
Venue is The Foreign Correspondents' Club of Japan,



=> No corrections or feedback this issue.



=> Saitama Cafe Offers Drowning Drinks
Cafe OB's laughably large beverages beat the heat.

The Café OB experience begins like any other. Guests are seated in the
wood-webbed café chain and choose their drinks to order. After the wait
staff returns, the diners are presented with drinks that are laughably
large: a peach juice in a pitcher with enough servings for four people or
an iced mocha piled high with whipped topping and served in a large bowl.

At Café OB, the drinks are infamously huge -- coming in pitchers and jugs
with large sizes and low prices offering competition to the summer's heat.

Nestled outside the bustle of Tokyo, Café OB opened first in a rustic log
cabin in Saitama. Much like a lodge in the mountains, OB offers guests the
chance to unwind at spacious wooden tables beneath the haze of roasting
Blue mountain Jamaican coffee beans -- versus some noisy Tokyo alternative.


=> Asamushi Aquarium
Under the Sea in Aomori

On a scenic seaside drive along the gorgeous Matsu Bay in Aomori I couldn't
help but want to see some marine life. Islands dotted the bay and the
weather was perfect, yet the only sea life we had seen was served on plates
from the restaurant we had visited earlier. That's when out of nowhere my
friend hangs a quick right and we pull up to Asamushi Aquarium. It doesn't
look like much from the outside. There is a wide parking lot and a building
façade of colorful fish with an architecture that did not seem modern. I
was worried this would be one of those aging attractions that is not really
worth stopping by but you do so because there is nothing to do in town. I
have been to several places like that around rural Japan. The 1000 yen
admission fee was a bit steep, too. This place better be good, I thought.
It wasn't good, it was amazing!

The Asamushi Aquarium was founded in 1922 by the Biology Department of
Tohoku Imperial University. Two years later it opened its doors to the
public. The facilities were rebuilt entirely when administration of the
aquarium was transferred to the Aomori prefectural government in 1983. Now
it is a place of leisure and research. From the outside the aquarium looks
of modest size, but that is an illusion. Step inside and the number of
tanks and creatures make you feel like you're swimming under the sea.

The collection of marine life is astounding. That shouldn't be a surprise
because Asamushi Aquarium is the largest aquarium in the Tohoku region.
Take a stroll down the tunnel near the gift shop and the clear walls and
ceiling become alive with fish and rays. Later there are penguins, sea
otters, and sea lions. There are 45 warm, cold, fresh, and salt water tanks
holding 11,000 marine organisms. Japanese species, in addition to rare
species from around the world and local Aomori varieties, are on display.
Although these are great, what sets this aquarium apart from the rest are
its special exhibits and shows.




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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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