Back in April I wrote about some of the new approaches Starbucks Japan has been taking to promote continued business growth in this market. At the time I noted that future success in Japan is anything but certain, but that the brand has so far managed to maintain growth in the land of the rising sun (read that post here).
Now, a Nikkei Ryutsu Shinbun article published yesterday seems to confirm a growing sense of ambivalence about the company going forward.
On the one hand, performance for the first quarter of 2008 was excellent, with both revenues and operating profits up substantially versus the previous year (+15% and 34% respectively).
On the other hand, in the most recent quarter, the pace of growth has fallen off with revenues and operating profits up just 9% and 4% compared to 2007. Moreover, and perhaps much more importantly, same-shop sales have fallen below last year's levels for the last four months in a row. Prently, Starbucks' growth in Japan is entirely due to the opening of new locations, which, if I recall correctly, has been at something like 100 per year.
But how long can the brand continue to rely on new openings for growth?
While metro markets are not yet saturated, the competition for shop space in high-density Japan is, as ever, fierce. As a result the company has begun pouring energy into less traditional locations like highway rest stops, hospitals, universities and train stations. Apparently, they're building more suburban drive thru shops too.
While Starbucks Japan correctly points out that some of the drop off in same store sales is likely due to general consumer spending malaise, that doesn't mean that straying customers will automatically return if there's a sudden rebound in consumer confidence. After all, over the past few months there's a good chance that some people have been drifting over to McDonald's or back to Japan's one-time coffee shop leader Doutor, each of which offers a pretty good cup of coffee for lower prices.
If the current situation continues much longer, Starbucks may have to offer former customers something of a sweetener to return, since some of them are now in the habit of buying their coffee elsewhere.
Perhaps better prices, better food or better atmosphere? Only time will tell.
