Starbucks Japan brews up new approaches

A couple of months ago, the international papers were buzzing about Starbucks' woes in the U.S. Analysts have been worried that the American market has been saturated, and this has been reflected in the stock price, which is down almost 50% versus last year.

The situation is somewhat different here in Japan. The market is not quite saturated and the brand continues to grow. Nonetheless, a number of threats loom on the horizon and the brand isn't going to be enjoying a cakewalk going forward.

Besides the ongoing encroachment of competing chains like Doutor, Excelsior, Tully's and Seattle's Best, McDonald's has also joined the fray in earnest by launching its McCafe shops which feature a broad lineup of specialty coffee drinks. Additionally, the burger chain recently introduced a better quality brew called Premium Roast at its regular restaurants for just 100 yen per cup (about $1).

But that's not all.

According to research results published by Oricon in 2007, Starbucks ranked fourth amongst major brands that Japanese consumers said they want to buy. The survey quizzed people on a variety of purchase drivers, and when all was said and done, it was McDonald's that came in first place (one bright note for Starbucks was that it did score highest on the single factor of quality).

Additionally, sooner or later Japan's convenience stores are going to realize just how fat the margins are on brewed coffee. Barriers to entry are fairly low, and Japan's Three F chain has already begun offering more than 10 varieties of pour-your-own-joe at 11 of its shops—including unusual flavors like Maple Cream Brulee—at prices between 135 and 180 per cup. Surely the much larger chains like Seven Eleven, Lawson and Family Mart are paying close attention as well, and if Three F sees substantial sales, they'll soon follow. If Starbucks thinks it's already facing touch competition from the major specialty coffee chains, just wait until Japan's 35,000 convenience stores join the melee.

Perhaps that's why Starbucks Japan seems to be working hard to evolve as a brand. Besides the introduction of Japanese-style drinks, the company has significantly expanded its food offerings, including a special line of Wellness sandwiches. Moreover Starbucks may be on the way to extending itself into Japan's high-end cafe market. Word is out that the opening of a luxury Starbucks Cafe in Tokyo's Roppongi Hills is imminent, and that the posh new shop is part of a Japan-only effort to strength the brand's competitiveness.

Are you ready for hand-pressed Starbucks coffee going for up to $12 per cup?

With prices like that, Starbucks can at least be sure that fast food chains and convenience stores won't be mimicking this approach any time soon.