JIN-178 -- Starbucks vs Doutor: Coffee Wars

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J@pan Inc Magazine Presents:
T H E J @ P A N I N C N E W S L E T T E R
Commentary on the Week's Business and Technology News
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Issue No. 178
Wednesday, April 24, 2002
Tokyo

CONTENTS

++ Viewpoint: Starbucks vs Doutor: Coffee Wars

++ Noteworthy News
- Quicker Corporate Decisions? Lower House OKs Legal Reform
- Winners and Losers: Online Brokers Post Contrasting Earnings
- Carrefour Challenges Japanese Retailers On Price

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++ VIEWPOINT: Starbucks vs Doutour: Coffee Wars

If you want to go for something Japanese on one of these unusually
hot spring days, try Starbucks' Maccha Cream Frappuccino -- cold
green tea in shaved ice topped with cream. Frappuccinos were an
instant hit in Starbucks' hometown of Seattle when they were first
introduced in 1995. Starbucks Coffee Japan has given the old formula
a very un-American twist to come up with the Maccha Cream Frappuccino.

The Japanese have developed the art of turning something foreign into
something Japanese: take Kentucky Fried Chicken's Colonel Sanders,
who's decked out like Santa Claus every December. Starbucks Coffee
Japan's president Yuji Tsunoda, 51, has his own philosophy on how
beverages should be.

As a young man, Tsunoda married the daughter of a restaurant chain
owner, became president of the company the following year and stayed
in the business for 15 years. When he hit 40 he decided to cross the
Pacific Ocean to try something new and one fateful day in 1994, he
walked into a Starbucks in California. The store was fashionable and
served good coffee, but he felt something was missing. He wrote a
letter to the Starbucks CEO with his suggestions for improvement.
That's how he got involved in Starbucks.

Since it entered Japan in 1995, Starbucks has been expanding
quickly. The company has recently averaged about 110 new stores per
year and has created an image of high quality coffee in a spacious
and fashionable environment. It already has over 344 stores across
Japan, but it hasn't taken over Japan just yet.

The company's monthly same-store sales have been suffering since last
August, hovering at about 6 or 7 percent down on the previous year.
The overall monthly sales are still growing -- in March sales were 43
percent higher than a year earlier. The company has already revised
financial targets for this fiscal year through March 2003, with
projections of 47.2 billion yen in sales and 7 billion yen in
earnings. Starbucks Japan is still profitable, but not as much as
it had hoped for.

Starbucks has been expanding at such high speed that some of its own
stores are competing against each other, says Kiyoshi Mori, an
analyst at Okasan Securities. The company so far has opened stores in
expensive areas in order to create an upmarket image, but it
may have to reconsider its expansion strategy, Mori says.

In the meanwhile, its rival Doutor Coffee is holding up well against
Starbucks. Doutor is also struggling from the prolonged stagnation,
but its strategies have been to diversify product lines: Its main
stores offer coffee, hot dogs and sandwiches; it also runs the
Excelsior Cafe chain with higher quality coffee and pastries to
compete directly with Starbucks; it also runs the traditional
Colorado chain. Altogether, Doutor has over 1,124 stores.

Doutor's president Hiromichi Toba, 64, has been in the coffee
business since the 1950s. As a 20-year-old man who grew up in a
struggling economy during the postwar period, he took a boat to
Brazil to discover the essence of the coffee business. He opened his
first coffee shop when he was 24.

Toba doesn't seem worried about the bad economy. "The coffee industry
is resilient to recessions," he told the Nikkei Shimbun.

The coffee boom that Starbucks created last year may have peaked now,
says Mori. But he still believes that coffee shops are on
the rise.

-- Sumie Kawakami

Links:
Starbucks Japan
http://www.starbucks.co.jp

Doutor
http://www.doutor.co.jp

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++ NOTEWORTHY NEWS
(Long URLs may break across two lines, so copy to your browser.)

** Quicker Corporate Decisions? Lower House OKs Legal Reform
Extract: Japanese corporations are known to be slow in making
decisions. But a revision to the Commercial Code should allow them to
get a move on. The Lower House approved a bill Tuesday to revise the
code so that corporations can make quick management decisions with a
small number of executives.

The new Commercial Code would allow board members at big corporations
to name executive officers, who then can make decisions on important
matters. The US-style corporate governance system would be allowed
on the condition that at least two outside board members are
involved. The revision is expected to be approved by the upper house
during this Diet session, which is scheduled to end in late June.

Source:
Japan Times (April 24, 2002)
http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nb20020424a7.htm

** Winners and Losers: Online Brokers Post Contrasting Earnings

Quite a commotion is going on in the Net equity trading industry. The
top two revenue-making firms -- Matsui Securities and E*Trade Japan
-- are gaining ground, while those in third and fourth --
DLJdirect-SFG Securities and Monex -- are reportedly negotiating a
merger.

Matsui and E*Trade have recently posted recurring profits for fiscal
2001, despite the fact that the year was one of the hardest for
anybody in the industry because of the sluggish market as well as a
cutthroat war in commission fees. Matsui, a traditional broker that
turned itself around to emerge as a leading online broker, has been
gaining rapidly as it is one of the first to realize not only the
online potential, but also the importance of margin trading. E*Trade,
the joint venture between Softbank and E*Trade Group,
followed Matsui's suit to grab a large portion of margin traders.
DLJdirect-SFG, the joint venture between CSFB and Sumitomo Bank, came
out as a plus in terms of recurring profit, but independent Monex
posted a 1.2 billion yen recurring loss. The future of the deal is
yet to be decided, but a possible merger would place them on a par
with E*Trade Japan.

Links:
Matsui Securities
http://www.matsui.co.jp

E*Trade Japan
http://www.etrade.ne.jp

Monex
http://www.monex.co.jp

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** Carrefour Challenges Japanese Retailers On Price

Since its debut in Makuhari, Chiba Prefecture, French retailer
Carrefour has made its presence felt because of its shelf-clearing
prices and aggressive competitiveness.

The supermarket, which has three stores in Japan, but expects to
expand rapidly, regularly checks prices of about 700 items at
neighboring retailers Daiei and Seiyu. It then displays the findings
at the Makuhari store for all to compare. The company is planning to
start the same service in two other stores soon, it says.

Source:
Nikkei Shimbun (April 24, 2002)
http://www.nikkei.co.jp/news/sangyo/20020424CVVI050323.html

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STAFF
Written by Bruce Rutledge (bruce@japaninc.com) and Sumie Kawakami
(sumie@japaninc.com)
Edited by J Mark Lytle (mark@japaninc.com)

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