Japanese coffee shops undergoing major changes

Japan's coffee shop industry is undergoing drastic changes, especially in cities, with the debut of specialized shops called espresso bars.

Their main features are open and smart interior designs, rich espresso coffees, and prices about 100 yen higher than those at low-priced chain shops. The espresso bars are faring well, with coffee-drinking becoming increasingly popular. On the other hand, privately managed conventional coffee shops have almost halved in number in the last 20 years.

The standard-setter of these new espresso bars is Starbucks Coffee of the United States. It opened its first Japanese shop in Tokyo's Ginza shopping district in 1996.

Starbucks had opened 260 shops across the country by the end of June this year, making it Japan's third-largest chain following Doutor Coffee Co. and Kohikan Corp. Starbucks will open about one shop every three days this fiscal year, aiming to to boost its number to 500 by March 2004, company officials say.

Kinzo Niwa, managing director of Pokka Corp., which runs the Cafe de Crie chain, a rival of Starbucks, explains how the new kid in town has altered the playing field. "Our sales don't drop even if Starbucks opens a shop near ours, but if we simultaneously apply to a landlord to rent space in the same building, the landlord chooses our opponent."

Japan's chain coffee shop operators are also on the offensive. Doutor has raised prices and began opening Excelsior Cafe shops in 1999, of which it had 37 at the end of June with espresso topping the menu. The Excelsior Cafe shops are actually supplementary to Doutor Coffee, but already numbered 37 as of the end of June. "Until the advance of Starbucks, we had never thought that there could exist a market in Japan where a cup of coffee is accepted at a price of more than 250 yen . . . They have surely created a new market," says Susao Adachi, chief of Doutor Coffee's business strategy section. To cope with Starbucks, Cafe de Crie is considering opening a new French-style coffee shop.

Yuji Tsunoda, president of Starbucks Coffee Japan Ltd., makes no secret of his surprise over how the company has been received, saying, "I never imagined that our business would be so successful."

Why have espresso bars achieved such success? "I like the atmosphere, the interior design and the arrangement of the tables," says Chieko Wakayama, a 35-year-old housewife who visits the Starbucks in Nagoya Sakai Tokyu Inn in Nagoya once every two weeks. "I like the nonsmoking everywhere," says a 28-year-old female office worker. Starbucks forbids smoking in all of its shops.

Junichi Shiozaki is a senior consultant at the Nomura Research Institute and well-versed in consumer activities. "Starbucks' image strategy is quite superior, like the opening of a shop near foreign-affiliated enterprises and the creation of a U.S. atmosphere in the shop. In presenting a lifestyle, it is rather like the Gap and Uniqlo (clothing makers)," he said.

According to Merrill Lynch Japan Securities Co., the coffee shop market in Japan reached its peak of about 1.7 trillion yen in 1982. It has since dwindled to about 1.3 trillion yen in 1999. Coffee shops numbered about 160,000 in 1982, but have dropped to fewer than 100,000.

"Even today, when you can drink tasty coffee everywhere, shops with a firm concept can fare well even if prices are higher," says Masao Yamashita, managing director of the All Japan Coffee Association.