TT-723 -- Coffee Wars Heat Up, e-biz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, Aug 25, 2013, Issue No. 723

+++ INDEX

- What's New -- Coffee Wars Heat Up
- News -- Japan's Olympic chances looking good
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Saitama Cafe, Aomori Aquarium
- News Credits

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+++ WHAT'S NEW

In in this era of falling population and incomes, Japan's high population density ensures that certain business models will continue working well for some time to come. Things that come to mind include shared housing, small downtown one-person apartments, mass transport, shared cars, large discount store operators, love hotels, fast food, and coffee shops. All of these sectors are hot beds of innovation, competition, and domestic profits. Coffee shops are particularly interesting because their role has changed from that of smoky dens for salesmen out of the office and killing time, to that of fashionable internet-connected meeting places for young moms and seniors, as well as being an impromptu office for the 1/3 of the working population now in part-time and freelance work.

Actually, you'd think that having a bunch of people sitting around taking up space in your coffee shop would be the antithesis of profitable behavior, where commonsense dictates that high turnover of bodies much as McDonalds aims for, is more desirable. But not so. It appears that letting people work or congregate for long periods at a coffee shop, where they are either escaping the heat of summer, seeking companionship, or concentrating, leads to them consuming higher-margin, high-energy food and beverages. Starbucks Japan, these days a publicly listed company and thus sharing lots of market information, is saying that thanks to high sales of its Frappuccino drinks at JPY500-JPY600 each, June same-store sales ran 12% ahead of last year, and Starbucks is forecasting a record operating profit of JPY10bn for FY2013, up 2.9% over last year. If the hot weather continues for another few weeks, it may even surpass that number, again thanks to the Frappuccinos.

Actually for FY2012 Starbucks even surpassed McDonalds in terms of its pretax profit-to-sales ratio. McDonald's, generally at the top of the fast food tree for profit, recorded a profit rate of 8.1%, while Starbucks came in at 8.4%. Another reason for the higher profits at Starbucks and other operators (but of little benefit to McDonald's since coffee is a small part of their sales) has been a glut of coffee on the world market. Prices for beans have dropped by half, easily cancelling out the 20% hit the coffee chains took at the start of the year when the yen appreciated. This large reduction in cost has apparently added an extra JPY500m to Starbuck's bottom line.

[Continued below...]

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[...Article continues]

While the profits are there this year, longer term the whole coffee industry is undergoing a huge transformation which we think is the precursor of a coming shake out.

There are currently four major players in the coffee chain world: Doutor, Starbucks, Tullys, and Pronto -- between them running about 3,000 stores across the nation. The largest operator is still Doutor, with about 1,100 stores -- consisting of both company-owned and franchised stores. But they are stuck with an old fashioned image that is hard to shake and in this era of coffee consumer choice, they are facing slightly declining customer traffic and thus flat sales. The biggest cause of their pain is Starbucks Japan, which is leading the way in terms of growth and profitability. How? By sticking to its formula of high-end, comfortable interiors and furniture, and good quality menus. In homage to the Starbucks system, Doutor is now also fitting its refurbished stores with plusher furniture and better looking interiors.

This fixation on customer pampering doesn't come cheaply. Starbucks apparently will plow about JPY4bn into refurbishing a full 1/3 of their stores this year. That's a pretty impressive figure and means the company is as much into the carpentry business as it is into coffee.

At the bottom of the coffee business food chain and severely impacting McDonalds in the process, are Japan's 34,000+ convenience stores, led by Seven & i Food Systems, which has been rolling out JPY100 cups of coffee for businesspeople, ladies in particular, since the start of this year. Interestingly, even as sales of these low-end takeout coffee services have increased to women, sales of coffee to Japanese men has fallen by 20% compared to sales 3 years earlier. because they are cutting back on snacking to save money -- it's a tough life.

Then, above the convenience stores and McDonalds is another type of new entrant -- the large family restaurant operators. Seven & i's Dennys restaurant chain, and Royal Holdings' Royal Host chain have found that by cordoning off areas of their family restaurants to operate as cafes, they can increase their sales per store by up to 20%. The simple fact is that customers can now drop in between meal times, and serving coffee and light snacks is easy to staff. By-the-way, that 20% number came from the increase in same-store revenues of the first Denny's cafe opened this May. As a result, Seven & i will remodel another 30 restaurants to seat at least 50 customers each in similar cafe areas.

Then, as if the market isn't crowded enough, a groundshaking announcement was made by Nestle last week. The company said it would through a consulting subsidiary set up a network of 1,000 franchised coffee shops over the next three years. Nestle has been watching its grocery store sales take a hit as consumers head for comfy neighborhood coffee shops, or, if they are trying to save money, to the convenience stores. Nestle obviously has decided if you can't beat them then why not join the fray. It's a big gamble in our opinion, but if they pull it off, then they will have more stores than Starbucks has at the moment (985 locations).

Nestle apparently reckons that lots of independent coffee shop operators are under pressure from the megachains, and will go under if someone doesn't bring them in together as a group. Whether this is true or not is hard to say, because anyone who has stayed in business this long probably has a natural advantage over the majors, like being the only shop in a given area or having a charismatic host that the locals trust, otherwise they'd probably be gone by now. Still, we imagine that Nestle has done its market research, and certainly its offer of assisting with business development and a free high-end coffee machine will win over some store owners.

We wonder, though whether gathering up a thousand slightly-worn independent store operators will really work? Although Nestle Japan is firewalling itself from the operation by working through a subsidiary, and it does already have the experience of 100 company-owned stores to draw from, we think the company will be quickly faced with the reality that to catch up with Starbucks they will have to provide franchisees with far more than a JPY1m coffee machine and some spreadsheets. Instead, they will be asked to help spring for location refits, standardized food production and distribution, staff training, and marketing. Without such additional investments, instead of being a low-cost grand master plan to carve out a space in the coffee shop market, the gambit could instead turn out to be a big black mocha-flavored hole.

...The information janitors/

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-------------------Tokyo Gift Show 2013--------------------

The largest international trade show in Japan, "The 76th Tokyo International Gift Show autumn 2013" exhibits personal gifts, consumer goods and decorative
accessories and opens soon!

With the motto "Let's meet at the Gift Show", the industry professional-oriented Tokyo Gift Show takes place over 3 days during September 4-6 and takes over the whole Tokyo Big Sight venue.

Bi-annually, The Gift Show selects a theme reflecting Japanese peoples` varied lifestyles, this time focusing on the outdoors. It brings together new and cutting edge food, fashion and design products. Drop by to find the next big thing in lifestyle design.

http://www.giftshow.co.jp/english/76tigs
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+++ NEWS

- Skirmish with Ni-Channeru owner continues
- Short-term insurance policies rise rapidly
- Japanese HPV vaccine victims groups get organized
- Japan's Olympic chances looking good
- Budget boost for SDF

=> Skirmish with Ni-Channeru owner continues

While the Japanese authorities don't seem to be able to nail Ni-Channeru (2 channel) website owner Hiroyuki Nishimura for illegal postings, they are determined to keep him on his toes. His latest skirmish is with the Tax Office, which has decided that JPY300m in revenue earned by the purported new owner of Ni-Channeru, Packet Monster in Singapore, but which appears to be controlled by Nishimura, is in reality Nishimura's own assessable income. Nishimura had declared a total of JPY200m over the last 4 years, and the Tax Office just hit him with a bill for the last JPY100m. ***Ed: No word on whether he will appeal this ruling. However, if he doesn't, then it may create the thin edge of a wedge for the police to come after him on the basis that he is the real owner.** (Source: TT commentary from e.nikkei.com, Aug 24, 2013)

http://e.nikkei.com/e/ac/TNKS/Nni20130824D24JF353.htm

=> Short-term insurance policies rise rapidly

Since limited deregulation in the insurance sector in 2006, the sales of short-term (2-year), non-life insurance policies has soared. Home content policies of less than JPY10m have risen 15.7%, while pet insurance has jumped 26%. There are now over 5m such policies, creating premium income of JPY50bn in 2012. The policies are being pushed by as many as 74 companies, including many newcomers, mainly because the major insurers have a limited presence in the sector and because the newcomers only need capital of JPY10m to start an insurance business. (Source: TT commentary from e.nikkei.com, Aug 25, 2013)

http://e.nikkei.com/e/ac/tnks/Nni20130824D24JFF02.htm

=> Japanese HPV vaccine victims groups get organized

While the controversy over the side effects of HPV vaccines rages overseas, Japanese victim groups are getting organized and getting attention. On Friday 8 injured teens (4 now in wheelchairs) and their parents presented petitions to the Health Minister, Norihisa Tamura. The petitions appeal to the Ministry to either abolish the vaccination program, eliminate subsidies, or at very least put more R&D into discovering the cause of the side effects and how to avoid them. The two vaccines in question are Cervarix and Gardasil. ***Ed: When faced with whether to get our own kids vaccinated several years ago, we decided that there is enough evidence of severe side effects that made it too risky to go ahead. Unfortunately for 3.2m Japanese girls inoculated, the authorities did not explain the risks beforehand. And if you look at the numbers, while there were about 26,000 cases in the USA last year of cancer attributable to HPV, correspondingly there were also about 1,800 serious reactions to the vaccination (and this was just the reported cases). We wonder if the benefit for a disease which in any case could be largely avoided through safe sex, is worth this high ratio of things going wrong?** (Sources: TT commentary from japantimes.co.jp, Aug 24, 2013 for the news item and CDC.gov, Jul 24, 2013 for HPV stats.)

http://bit.ly/17UllwZ

=> Japan's Olympic chances looking good

Although no one knows what the final decision in two week's time will be, we are hearing the local diplomatic community saying that Japan's chances of being picked as the host city for the 2020 Olympics are looking quite good. To help seal the deal, PM Shinzo Abe has said that he will personally travel to the International Olympic Committee (IOC) meeting Buenos Aires to hear/receive the September 7th decision. The other two candidate cities are Istanbul and Madrid. (Source: TT commentary from reuters.com, Aug 23, 2013)

http://www.reuters.com/article/2013/08/23/us-olympics-tokyo-abe-idUSBRE9...

=> Budget boost for SDF

The Defense Ministry has finished its budget request for next year and says that it plans to formally establish a fighting unit that closely matches the capabilities and methods of the U.S. Marines. The new force will apparently be tasked with "...making amphibious assaults to take back Japanese islands that have been invaded by foreign military." A not so subtle reference to China and possibly South Korea. This newly planned unit, plus the general increased cost of military hardware caused by the weakening of the yen means that the Defense Ministry is asking for about JPY80bn (2.9%) more this year than last year. ***Ed: While JPY80bn is a lot, it's still just a drop in the bucket for SDF spending, and in fact in light of FX changes, could even be considered a reduction over last year.** (Source: TT commentary from asahi.com, Aug 21, 2013)

http://ajw.asahi.com/article/behind_news/politics/AJ201308210037

NOTE: Broken links
Some online news sources remove their articles after just a few days of posting them, thus breaking our links -- we apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

=> BiOS, a leading bilingual IT services and resourcing company, is actively marketing the following positions for customers setting up or expanding in Japan, as well as other employers of bilinguals.

** HIGHLIGHTED POSITION

BiOS is urgently looking for an Account Manager with experience in recruiting and account management for IT infrastructure service delivery, at our BiOS office in the Minato-ku area. The candidate will be responsible for supporting the continued development and management of our existing clients, and serving as the BiOS frontline and primary point of contact for new clients and onsite staffs, as well as networking and developing opportunities with potential clients. You will also be responsible for providing a permanent recruitment support.

Due to the technical nature and demanding work environment, this position is suitable for someone with solid experience in recruiting, sales, account management, or similar client-facing tasks, preferably in IT. In addition, since this role requires direct communication with both internal staffs and clients who are bilingual in English and Japanese, fluent English and Japanese will be required.

Remuneration is JPY3.6m - JPY4.5m plus commission, depending on your experience and skill level.

** POSITIONS VACANT

- Senior Support Engineer, BiOS, JPY4.5M - JPY5.5M
- Desktop Support Engineer (Okinawa), global bank, JPY4M - JPY5M
- Technical Support Engineer, global medical firm, JPY4M - JPY5M
- Staffing Consultant, BiOS, JPY3M - JPY4M
- Data Center Engineer, global ibank, JPY3.5M - JPY4.5M

Interested individuals may e-mail resumes to: tomohiro.kimura@biosjp.com. Check out the BiOS web page for other jobs: www.biosjp.com/careers.php.

** BiOS Job Mail

Every 2 weeks BiOS sends out a regular communication to its job seeking candidates, called BiOS Job Mail. Every edition carries a list of BiOS's current and most up-to-date vacancies, with featured entries containing a short job description and every job being linked to the main entry on the BiOS home page. Regardless of whether you are unemployed and searching, thinking about a career change, or just curious to know if there is something out there that might suit you better, the BiOS Job Mail newsletter is an easy and convenient way for you to stay informed. If you would like to register for the BiOS Job Mail, or to find out more, please email tomohiro.kimura@biosjp.com.
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+++ UPCOMING EVENTS/ANNOUNCEMENTS

------------- Free Legal/Accounting Advice?! --------------

Yes, that's right... Metropolis is offering free professional advice by English speaking lawyers, accountants, and visa support officers to any reader wanting help. Any problem related to legal matters, taxes, company start-up, visa issues, etc., can be covered and the first no-strings-attached consultation is totally free.

Date: Saturday, September 21 from 1pm to 5pm
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* Each one-to-one consultation is limited to 30 minutes, and is available between 1pm and 5pm. By appointment only. Email: events@metropolis.co.jp
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-----------------ICA Event - September 19th----------------

Panel Discussion featuring key speakers: Ayako Takemoto, Annie Chang, Xinmei Cai and Ery Blackstone of Women in Technology Japan (WITJ)

Title: "High Achieving Women Balancing Work and Lifestyle"
Details: Complete event details at http://www.icajapan.jp/

Date: Thursday, September 19th, 2013
Time: 6:30 Doors open, Buffet Dinner included and cash bar
Cost: 4,000 yen (members), 6,000 yen (non-members). Open to all. No sign ups at the door!!!!!!!
RSVP: RSVP by 10am on Tuesday 17th September
Venue is The Foreign Correspondents' Club of Japan, http://www.fccj.or.jp/aboutus/map
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+++ CORRECTIONS/FEEDBACK

=> No corrections or feedback this issue.

***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

=> Saitama Cafe Offers Drowning Drinks
Cafe OB's laughably large beverages beat the heat.

The Café OB experience begins like any other. Guests are seated in the wood-webbed café chain and choose their drinks to order. After the wait staff returns, the diners are presented with drinks that are laughably large: a peach juice in a pitcher with enough servings for four people or an iced mocha piled high with whipped topping and served in a large bowl.

At Café OB, the drinks are infamously huge -- coming in pitchers and jugs with large sizes and low prices offering competition to the summer's heat.

Nestled outside the bustle of Tokyo, Café OB opened first in a rustic log cabin in Saitama. Much like a lodge in the mountains, OB offers guests the chance to unwind at spacious wooden tables beneath the haze of roasting Blue mountain Jamaican coffee beans -- versus some noisy Tokyo alternative.

http://en.japantourist.jp/view/saitama-cafe-offers-drowning-drinks

=> Asamushi Aquarium
Under the Sea in Aomori

On a scenic seaside drive along the gorgeous Matsu Bay in Aomori I couldn't help but want to see some marine life. Islands dotted the bay and the weather was perfect, yet the only sea life we had seen was served on plates from the restaurant we had visited earlier. That's when out of nowhere my friend hangs a quick right and we pull up to Asamushi Aquarium. It doesn't look like much from the outside. There is a wide parking lot and a building façade of colorful fish with an architecture that did not seem modern. I was worried this would be one of those aging attractions that is not really worth stopping by but you do so because there is nothing to do in town. I have been to several places like that around rural Japan. The 1000 yen admission fee was a bit steep, too. This place better be good, I thought. It wasn't good, it was amazing!

The Asamushi Aquarium was founded in 1922 by the Biology Department of Tohoku Imperial University. Two years later it opened its doors to the public. The facilities were rebuilt entirely when administration of the aquarium was transferred to the Aomori prefectural government in 1983. Now it is a place of leisure and research. From the outside the aquarium looks of modest size, but that is an illusion. Step inside and the number of tanks and creatures make you feel like you're swimming under the sea.

The collection of marine life is astounding. That shouldn't be a surprise because Asamushi Aquarium is the largest aquarium in the Tohoku region. Take a stroll down the tunnel near the gift shop and the clear walls and ceiling become alive with fish and rays. Later there are penguins, sea otters, and sea lions. There are 45 warm, cold, fresh, and salt water tanks holding 11,000 marine organisms. Japanese species, in addition to rare species from around the world and local Aomori varieties, are on display. Although these are great, what sets this aquarium apart from the rest are its special exhibits and shows.

http://en.japantourist.jp/view/asamushi-aquarium

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Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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