Starbucks eyes Japan growth, India market

TOKYO (Reuters) - Starbucks SBUX.O is planning aggressive growth again in Japan after having shored up its profit margins and is eyeing a partner to enter the Indian market, the head of the world's largest coffee retailer said.

Chief Executive Howard Schultz also told Reuters in an interview that Starbucks would launch an iced version of its Via brand instant coffee in the United States, adding to a product line it says will turn into a multi-billion dollar business.

Schultz was in Tokyo to promote the launch of Via in Japan, the world’s largest instant coffee market and therefore seen as a key test for the product. Via was introduced in the United States and Canada last year and the United Kingdom last month.

Starbucks will begin selling Via from Wednesday through its roughly 870 stores in Japan and eventually expand distribution to include grocery shops and other retail channels, Schultz said.

The launch will coincide with a new focus on growth in Japan, where decisions over the past few years to slow the pace of store expansion, review its cost structure and raise prices have firmed up profit margins following a slide into the red in 2003.

“We are nowhere close to saturation in terms of the number of stores we are going to have in Japan. We are going to start growing the company again, being aggressive,” said Schultz, declining to give a specific target for its number of stores.

Last month the Japan business 2712.OJ, a joint venture with handbag retailer Sazaby League 7553.Q, said it would beat its profit targets for the year ended in March.


The push into instant coffee has pitted Starbucks against established brands from Nestle SA NESN.VX and Kraft Foods Inc KFT.N, though the Seattle-based coffee giant says it is targeting a more discerning customer.

Starbucks Chief Executive Howard Schultz shows off the company's new new Via brand instant coffee during a news conference in Tokyo April 13, 2010. REUTERS/Yuriko Nakao

Starbucks has made subtle changes to tailor Via for different markets. The suggested serving size is smaller in Japan than in the U.S. because Japanese don’t drink as much in one sitting, and it used a check mark on the packaging instead of “X” on packages in the U.S. because “X” has a negative connotation in Japan.

Similar to other markets, Starbucks will promote Via in Japan with a taste test where store visitors will be challenged to tell the difference between brewed coffee and its new instant version, which it says replicates the taste of fresh coffee.

“Most soluble coffee, as you know, is in jars. Unfortunately -- not to say anything bad about any other company or competitor - but all of it is low-quality coffee and its stale,” Schultz told a news conference in Tokyo. “It’s not coffee, it’s fuel”

Japan’s instant coffee market was worth about $2.3 billion in 2009, roughly the same size as the fresh coffee market, according to Euromonitor. By comparison, the U.S. instant market came to about $640 million, against $7.6 billion for fresh coffee.

Nestle is by far the biggest player in Japan with nearly two-thirds of the market through the Nescafe and Excella brands. Another one-fourth is covered by AGF, a joint venture between Kraft and Japanese food firm Ajinomoto 2802.T.

Starbucks will sell a box of three Via sticks for 300 yen, or 100 yen per cup. A box of twelve sticks will sell for 1,000 yen. It comes in two flavors -- Colombia and Italian roast.

That will make it considerably more expensive than rival offerings on shelves in Japan, where a Nescafe box of 15 sticks of ready-mix for cafe au lait sells for just under 300 yen.

“For customers of Starbucks stores this comes to a third the price of a regular cup of coffee. From that standpoint it would be a match for those looking to save money,” said Naoto Yoshida, who analyses the coffee market at research firm Fuji Keizai.

“If they tried to take this to a regular retail channel at this price I think it would struggle to gain acceptance given the wide gap with the price of existing products.”


Schultz reiterated his view that Starbucks could in the future have “thousands of stores” in Greater China, up from around 700 now, and said two of its next major targets in Asia would be India and Vietnam.

Schultz declined to comment on speculation that it would tie-up with Jubilant Foodworks JUBI.BO to enter the Indian market. Media had reported in late January that the two firms may form an alliance.

“At some point in the near future we will make the right announcement and the right partner in India,” he said. “We are enthused about India. We are enthused about Vietnam.”

Schultz also said the company will launch an iced version of its Via brand instant coffee. A spokeswoman later confirmed it would roll-out the product in late June in Canada and the U.S.

Via helped the company post the first quarterly gain in U.S. same-store sales in two years during the October-December fiscal first quarter.

Ahead of the company’s announcement of its second quarter results next week, Schultz said that overall the “momentum in Starbucks’ business is pretty good.”

Editing by Edwina Gibbs, Joseph Radford