How Starbucks Succeeded in Japan

The Japanese were first exposed to coffee from Dutch traders in the early 1700s. At the time, the nation was closed to the outside world, but there was a Dutch trading concession on the manmade island of Dejima in Nagasaki harbor. The first coffee shop wouldn't open for another 180+ years. During the Meiji Era (1868 to 1912) there were attempts to open coffee shops, but the first successful coffee company in Japan was Ueshima Coffee Company, which opened its first store in Kobe in 1933. UCC is still a major player in the coffee market in Japan, and in 1969 UCC pioneered canned coffee, which was the method by which coffee surpassed tea consumption in Japan, and is still the most common way Japanese consumers get their coffee, although canned coffee has been losing ground to another competitor.

In August 1996, Howard Schultz came to the Ginza neighborhood of Tokyo to open the first Starbucks in Japan. In spite of the humid heat of Tokyo in August, 100 people were waiting in line for the ribbon-cutting at 6:30 am. Starbucks went on to have a very successful market entry in Japan, and today there are over 1500 stores across the country. The story of why Starbucks was so successful is a masterful implementation of "cultural arbitrage." Many companies have come to Japan and attempted to duplicate their foreign model exactly. Generally those companies either fail or suffer huge losses until they stop doing that. Starbucks, on the other hand, came to Japan ready to adapt to meet the needs and wants of Japanese consumers.

The first noticeable change in Japan is the addition of the "short" size. Starbucks in the US all have Tall, Grande, Venti, but at the time Starbucks entered the Japanese market, the "short" size was not generally available. However Starbucks recognized that Japanese consumers don't usually want to drink 12 ounces or more coffee at one time. By offering an 8 ounce "short," they adjusted the size to match consumer expectations. Starbucks also adjusted their prices. The cost for coffee by the ounce was more than twice that of the comparable size in Seattle. However Starbucks both knew that consumers in Japan were expecting to pay even more at competitors, so they would seem to be a value purchase compared to other coffee shops. They had smaller footprints to adjust for. Space is a premium in most of Japan, particularly in Tokyo, so the shelves of merchandise are shallower, and the tables are smaller to cope with the smaller shop size. They included lots of seats and tables, though, because Japanese consumers don't like to buy coffee and drink it "on the go." Also in 1996, smoking was still common in Japan, and so Starbucks offered smoking seating on the upper floor in their Tokyo locations. However Starbucks quickly dropped the smoking sections as a differentiator from the domestic "kissaten" coffee shops which were all very pro-smoking. Starbucks made a gamble that the anti-smoking trend in the rest of the world would catch on in Japan, and they were right.

Starbucks understood a couple other trends for Japanese consumers that were either different from how they did things in the US, or completely new. First, Japanese consumers crave novelty. It's difficult to get exact numbers, but it is clear that thousands of new food and beverage products are introduced to the Japanese market every year. Sure, in the US, we have Pumpkin Spice in the autumn, and maybe something peppermint flavored around Christmas, but Japan takes this to a completely new level. Japanese consumers want products that are evocative of the season all year round. Starbucks has responded by offering cherry blossom themed drinks in March and April, purple sweet potato for Halloween, apples for autumn, melon flavored drinks in the summer, matcha green tea, brown rice, and powdered kelp at New Year's, roasted sweet potato in the winter, multiple flavors for Christmas, including chocolate strawberry, gingerbread, strawberry & velvet brownie, creme brulee, and something they call "Joyful Medley."

Starbucks also understands that Japanese consumers like branded goods to build their bond with a brand. Sure, American consumers do this as well, but the Japanese seem to take this to a new level, and Starbucks meets them there with exclusive, limited-time products. Starbucks has leaned heavily into the Japanese New Year's tradition of "fukubukuro" or "lucky bags." The Starbucks fukubukuro sale is in such high demand, the company has to hold a lottery to determine who has a the right to buy a permanent piece of Starbucks advertising that they will proudly display as part of their identity.

Starbucks also understands that Japanese consumers would not be satisfied with a philosophy grad with a severe case of ennui misspelling customer names on cups and preparing drinks with surly resignation. In a Japanese Starbucks, customers are greeted upon arriving, like a sushi restaurant, and workers are almost invariably cheerful and efficient.

Starbucks also understands that the visual appearance of a store is important to Japanese consumers. It has converted some truly wonderful old stores (often tea houses or old warehouses) into stores, maintaining the look and feel of the old historic neighborhoods. When a new store is built, the company also goes all out, including a store designed by world-renowned Japanese architect, Kengo Kuma in Fukuoka on the island of Kyushu. Starbucks often saves its architectural masterpieces for a new category of store in Japan, Starbucks Reserve. Starbucks Reserve is as much a mini-coffee-theme-park as it is a place to get a cup o' Joe. Beans are roasted on site, where customers can watch the process occur. There are six Starbucks Reserve stores worldwide, but only the Tokyo Nakameguro store is purpose built. Continuing the theme of "cultural arbitrage," Starbucks, an American company based on Italian coffee culture, itself a product discovered by Yemeni and Ethiopian goatherders when their animals became lively after eating some fallow coffee cherries, the Starbucks Reserve is centered by a 17 meter tall copper cask, hand-hammered together using the traditional Japanese tsuchime process. The second floor contains a Teavana tea bar with 18 different teas.

Starbucks in Japan has thus far mastered the art of cultural arbitrage. It is Japanese when it needs to be, and American when it is advantageous. It is the inverse of a line from the 1992 Tom Selleck film, Mr. Baseball. Upon tasting Kobe beef for the first time and remarking on how delicious it is, his female guide/love interest responds, "Japan takes the best from all over the world and makes it her own." Starbucks, it seems, is able to successfully take the best of what it brings as a pseudo-Italian, American multinational, and customize it exactly for the Japanese market. It clearly has been a winning strategy.