Starbucks Approaching Oversaturation in Japan

Jun 12, 2003
Rick Moss

By Rick Moss

Starbucks’ biggest expansion outside the U.S. has been in Japan, which is now
home to 466 stores. But on closer examination, the Japanese momentum is showing
sure signs of waning. Starbucks Coffee Japan has plans to open 70 to 75 new
stores this year, but that’s actually one-third fewer than the 108 it launched
in its previous fiscal year. In the view of a Bloomberg article published on
The Age’s website out of Australia, “Starbucks is cannibalising its own success
with too many stores. The issue worrying investors is oversaturation.”

Worse yet, Starbucks is not making money in Japan. It had an annual net loss
of ¥454 million yen ($3.85 million), compared with net income of ¥735
($6.23 million) a year earlier. Same-store sales fell by 17 percent. This follows
the 1998 to 2002 period in which sales doubled annually.

Starbucks also has tough competition from the well-established 1200-store Doutor
Coffee chain. Doutor’s appeals to a more conservative, older crowd with low-cost,
no frills offerings and the ability to smoke indoors, a big plus with many locals.

Starbucks has always drawn a hipper, younger clientele, but many in their once
loyal crowd are expressing dissatisfaction with quality…not of the coffee,
but of the meal offerings. Said one patron, “The food isn’t fresh and the selection
isn’t good. Starbucks isn’t a place I’d go for lunch.”

Moderator’s Comment: Will Starbucks be the new McDonald’s?
Will management find the fuel for a global second wind?

With the expectation of a cool-down in American growth,
Starbucks is said to be hoping there will be more “legs” in the Asian expansion.
But a period of re-evaluation and re-definition may be in order. And that re-focusing
needs to take place on the local level. Even though in the U.S. a Starbucks-is-a-Starbucks-is-a-Starbucks,
it’s hard to imagine that the formula working wherever a unit is plunked down
on the globe. Starbucks…think local, and the global will come. [Rick
Moss – Moderator

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