Market Opportunity Analysis Instant Coffee: QuiCoff

Market Opportunity Analysis
Instant Coffee: QuiCoff
International Marketing
Naomi Kliger
20.04.16
1
Abstract
The following report has analyzed the Japanese market on various different levels. With our
product, QuiCoff Instant Coffee, numerous different factors had to be taken into account. The
macro environment of Japan has been accounted for as well as the specific factors relating to
instant coffee, the general coffee market, and the hot drink market. After conducting research, a
recommendation has been made regarding entering the market and limitations in the analysis are
noted.
TableofContents
Abstract....................................................................................................................................................2
TableofContents..................................................................................................................................2
Introduction...........................................................................................................................................3
Filter1:MacroEnvironmentalFactorsandChosenProductDescription.........................3
Filter2:GeneralMarketRelatingtotheProduct.......................................................................4
Filter3:SpecificFactorsAffectingtheProduct..........................................................................5
Filter4:TargetMarketProfileandMarketEntryStrategy....................................................7
DoOpportunitiesExist?......................................................................................................................8
Recommendations................................................................................................................................8
Limitations..............................................................................................................................................8
Appendices..............................................................................................................................................9
AppendixA........................................................................................................................................................9
AppendixB.....................................................................................................................................................10
AppendixC......................................................................................................................................................11
Bibliography........................................................................................................................................12
2
Introduction
Numerous macro and micro environmental factors have been analyzed throughout this report.
We start with a PESTEL analysis of Japan and become more specific as the report goes on. The
Japanese coffee consumption and market have had extremely significant growth in the past ten
years or so. Consumers have started to shift away from tea and joined the coffee culture that
Westerners and Australians embrace. The ready-to-drink (RTD) market is a huge competitor for
our soluble, instant coffee and is a important part of our analysis. We also discuss our primary
and secondary markets, which factor greatly into our market entry decision. Due to Japan’s close
relationship with Australia, importing our product to Japan is one of the less difficult factors in
this analysis. The careful consideration of all aspects of the Japanese culture, environment, and
relevant markets resulted in a entry decision
Filter1:MacroEnvironmentalFactorsandChosenProductDescription
Political and Economic Factors
Japan has a strong commitment to democracy, human rights and the rule of law.3 It has a
democratic monarchy, with a parliamentary government, prime minister and an imperial family
as well. Emperor Akihito currently has executive power. The government structure includes the
national, prefectural and local tiers, each governed by elected assemblies. The two lower tiers are
highly dependent on the national government. Japan is the most similar Asian country to
Australia. Australia is a critical supplier to Japan and Japan is Australia’s second largest export
market. Japan experienced a economic recession in 2008 and 2009, and has been recovering
since. It is a nation of quality and innovation, in which consumers always want high quality and
the “next best thing”. Japan has the third largest industrialized market in the world and one of the
world’s largest consumer markets. Manufacturing is the most renowned feature of Japan’s
economy, and it is a world leader in manufacturing of electrical appliances, electronics,
automobiles, ships, machine tools, optical and precision equipment, machinery and chemicals.
However, Japan has started to outsource manufacturing production to lower cost countries. The
service sector plays a far more prominent role in the economy, counting for about 75% of
Japan’s GDP from 2014. International trade also plays a significant role in the economy, at 16%
of Japan’s 2014 GDP. The signing of the Japan Australia Economic Partnership Agreement in
July of 2014 strengthened the bilateral economic relationship with Australia.
Social and Technological Factors
The Japanese culture stresses the importance of conformity and consensus when decisionmaking. The common Japanese saying, “The nail that sticks out gets hammered down,” reflects
this mindset. 4 It is a very homogeneous society. There is also a strong commitment and loyalty
3
Japan country brief. (n.d.). Retrieved April 17, 2016, from
http://dfat.gov.au/geo/japan/Pages/japan-country-brief.aspx
4
Japan - Country Profile, Key Facts and Original Articles. (n.d.). Retrieved April 17, 2016, from
http://globalsherpa.org/japan/
3
expected to be upheld with your business partners. This involves a strong gift culture. More than
75% of the Japanese population lives in cities and single person households are rising. However,
Japan’s population is rapidly ageing and fertility rates are down. This will reduce the size of the
workforce and tax revenues, and increase health and welfare costs necessary. Japan is the world
leader in manufacturing electronics, with a recent investment in more information and
communication technologies. There are more engineers in Japan than in the United States, even
thought the United States’ population is twice that of Japan. It leads the world and patents and
has the advanced system of MAGLEV (Magnetic Levitation) high-speed trains
Environmental and Legal Factors
Japan has very few natural resources of its own and its agricultural sector remains heavily
protected. Its main imports include mineral fuels and there has been increasing investment in
overseas natural resources. Japan also has some of the highest carbon dioxide emissions in the
world, polluting much of the air in its crowded cities and towns. The Japanese government
encourages firms to secure stable energy, practice green efforts and invest in overseas resources.
Japan’s foreign policy aims to promote a peaceful and stable international community while
contributing to international solutions. It describes Australia as the second most important
security partner next to the United States. Taxes have been rising and overtime work laws are
highly regulated. There are also very strict restrictions on the termination of employees, and
Japanese businesses hire for the long-term and are highly selective.
Chosen Product Description
We have chosen to explore the market opportunity for instant coffee in Japan. The brand name is
QuiCoff and it will have regular, decaf and flavored versions including caramel, vanilla, mocha
and hazelnut. It will be packaged in small, single serving packets as a powder that creates the
coffee liquid when mixed with water. It can be sold in a pack of 25, 50 or 100.
Filter2:GeneralMarketRelatingtotheProduct
Japan is the third largest consumer of imported coffee in the world and has maintained steady
numbers. In 2013, 253,000 tons of coffee were roasted and 31% of this was for home
consumption. Since 2000, the amount of people drinking single serve coffee has increase greatly,
however has not been growing at all in recent years. The initial increase in coffee consumption in
Japan was mainly due to the innovations of ready-to-drink market (RTD) and RTD coffee
became widely popular.5 In the beverage market, RTD drinks are the largest segment in terms of
sales.
In 2015, coffee sales remained static with the rise of retail prices for coffee products. This made
consumers refrain from buying as much coffee in coffee shops as they had been. Single serving,
at-home methods and stick types like our product have been popular for their convenience and
5
Coffee Market in Japan. (n.d.). Retrieved April 17, 2016, from http://coffee.ajca.or.jp/english
4
are useful for the growing single-person household population. As of 2010, 39% of Japanese
coffee consumers drink coffee for its quality of taste, while only 14% use it for daily use and
26% use it for convenience (Appendix A-1). According to the All Japan Coffee Association, the
most coffee consumption is done in the household and is consumed via ground coffee almost
twice as much as single serving methods (Appendix A-2).
The coffee culture in Japan is in its infancy, however it is prevalent for the working class and
single households. In Japan, coffee shop visits are very brief, unlike the culture in Australia and
the United States, where many people meet at the coffee shop to talk or work, get their coffee,
and stay for at least thirty minutes. In Japanese coffee shops there is space for people to sit if
they have time and want to, however they are set up to handle a rapid consumer flow.6 Most of
Japan’s coffee consumption is done in the home (Appendix A-3)7. Coffee imports to Japan are
taxed at 15% if the amount is worth 200,000 ($2,380.82 AUD) or less, in addition to any
consumption and other internal taxes. In general, the consumption tax on goods imported to
Japan is 8%.
Filter3:SpecificFactorsAffectingtheProduct
Competition
Since 2006, the instant coffee market has been well established. In 2010, 90.6% of soluble coffee
(instant coffee) went to the retail market and the remaining percentage was used as raw material
for RTD and canned coffee products. It has sold extremely well and there are already two major
soluble coffee makers in Japan.8 The RTD segment is extremely competitive and chilled coffee
beverages have increased by about 80% since 2005. The competition has resulted in tons of new
brands and also the emergence of a young female demographic joining the coffee drinking target
market. Coffee Boss is a major RTD coffee brand in Japan (Appendix B-1). In 2015 Nestlé led
the competition in the Japanese coffee market with a retail value share of 34%. Nestlé has
multiple single serve machines that allow consumers to make a quick cup of coffee for just
themselves at home. Delonghi is the other main direct competition, providing numerous singleserve machines. Indirect sources of competition are coffee shops and cafes along with chains
such as Starbucks and McDonald’s Café.
Japan’s national drink, tea, also plays a major role when discussing the coffee market and
culture. Lauren Sung, a researcher of Japan and Korea, explains the significance of tea in Japan
on her blog:
In Japanese, the same is done by saying 'ocha demo shimasenka' (won't you go for tea?),
which indicates the cultural significance of tea over coffee. Sure, you could substitute
6
Oakland, M. (2011, October 24). JapanToday. Retrieved April 17, 2016, from
http://www.japantoday.com/category/opinions/view/japans-coffee-culture
7
Coffee Market in Japan. (n.d.). Retrieved April 17, 2016, from http://coffee.ajca.or.jp/english
8
Ibid.
5
that word for coffee and the meaning would come through just fine, but it's just not as
conventional. Similarly, if you ask a friend to bring something to drink (en route from a
convenience store, say, when you're cooking them dinner) without being specific, they
are most likely to get you some form of tea. I don't mean to suggest in place of coffee, but
in place of carbonated drinks or juice, which is what we'd probably do in the West. This
is the sort of position that tea has in Japan- it's the go to drink, for both hot and cold.9
Tea has been and will continue to be a significant player in the hot drink market in Japan. It may
be declining in popularity compared to the past, however it is a much more of a major competitor
for coffee than it is in other countries, such as Australia or the United States. While the coffee
consumption has made major progress in recent years, there is also still tea’s significant
positioning in people’s brains.
Ease of Market Entry
Compared to other countries, Japan’s coffee consumption is miniscule. In 2015, Japan’s coffee
consumption was .245 cups per capita, while the United States, Canada, and most European
countries were between .931 and 2.414 cups per capita (Appendix B-2).10 Between 70% and
80% of total sales of canned RTD coffee are from vending machines.11 The rest is sold in
convenience stores or supermarkets. The RTD coffee market and the use of vending machines in
Japan take care of the convenience factor that consumers want and the cafés and shops provide
the quality. In 2013, 40% of roasted coffee was used for RTD, 29% for cafés and restaurants, and
31% for household use (Appendix B-3).12 The RTD has a huge market share and gives soluble
coffee (aka instant coffee) a run for its money. The emergence of the coffee consumption market
is relatively new, beginning around the 1970s in Japan. Compared to other countries, there may
be a space for our instant coffee brand to enter. However, looking exclusively at Japan, there are
already major instant coffee and RTD coffee brands that have taken over the relatively small
market (in comparison to other international markets). Another major barrier is the culture
regarding coffee consumption. In addition to tea’s significance in the market, Japanese
consumers want quality and high-end goods. Positioning instant coffee as a premium, highquality product is a daunting task and will fall short of the single-serve coffee machines that
consumers use in their homes.
On the other hand, there are numerous factors that favor us entering the market. The single-serve
and soluble, stick type coffee have become much more popular in recent years due to their
convenience. This trend has been continuing for the past few years due to increasing two person
and single person households (Appendix B-4). The desire for new brands and innovation could
9
Sung, L. (n.d.). Quora.com. Retrieved April 17, 2016, from https://www.quora.com/Do-peoplein-Japan-drink-coffee
10
Ibid.
11
Instant coffee market in Japan. (n.d.). Retrieved April 17, 2016, from
https://www.ukessays.com/essays/marketing/instant-coffee-market-in-japan-marketing-essay.php
12
Ohnishi, T., & Nakahara, K. (2014). Japanese RTD Coffee Market. Retrieved April 17, 2016,
from http://www.probat.com/fileadmin/user_upload/Files/Connecting_Markets_Coffee/
01_Japanese_RTD_Coffee_Market.pdf
6
play in favor of our product since consumers may buy into the novel brand at first. However,
since instant coffee already exists and is in use in Japan, this cultural factor may not work in our
favor. Japan’s close relation with Australia and continuous international trade will be extremely
beneficial if we decide to enter the market.
Filter4:TargetMarketProfileandMarketEntryStrategy
Target Market Profile
The likely primary target market for our product will be the working class population of
metropolitan areas in Japan, which house more than 75% of the entire country’s inhabitants.
They are between the ages of 25 and 55. As of 2010, this age group consumed the most cups per
week compared to people between the ages 12 and 24 (Appendix C-1).13 They drink coffee in the
mornings and buy it for convenience, on their way to work or on their way home to stay awake
for dinner and the night. Our secondary target market will be college-aged students. Targeting
the younger population will be important, so that they continue to use our product as they grow
older after hopefully becoming hooked on it during their studious years. The working class in
Japan has a very high income, 90% of the population being middle class.
The Japanese consumers place a very large importance on brands and logos. They like wearing
and using well-known, respected brands. It “conveys a double message: social appurtenance and
insurance of quality.”14 However, the younger generation is more individualistic and in the future
may stray away from this need for affirmation from others. That could be beneficial for us when
targeting the younger, secondary target market. The market is very health conscious and aware.
They strive for quality and nutrition in their food at reasonable prices.15 Since the recession in
Japan, consumers have become more price sensitive than before. This could help the positioning
of our product as an affordable alternative to buying a cup of coffee at Starbucks. The common
Japanese consumer always wants the next best thing and loves innovation. Our product is not
new to the market; however seeing a new brand could spark an initial purchase from a Japanese
consumer.
If we were to enter the market, indirect exporting would be the best decision due to Japan’s wellestablished relationship with Australia. Japan has limited production and manufacturing
capabilities and doing so in Australia would be preferred. Our Australian company would not be
responsible for the shipping logistics nor any credit risks. Generally, it will make things more
simplified and the use of a middleman will take care of the many formalities associated with
entering a foreign market.
13
Coffee Market in Japan. (n.d.). Retrieved April 17, 2016, from http://coffee.ajca.or.jp/english
Key Characteristics of Japanese Consumers. (n.d.). Retrieved April 17, 2016, from
http://www.slideshare.net/rpretet/key-characteristics-of-japanese-consumers
15
The Japanese Consumer Behaviour, Attitudes and Perceptions toward Food Products.
Retrieved April 17, 2016, from https://www.gov.mb.ca/agriculture/market-prices-and
statistics/trade-statistics/pubs/japan_consumer_report_en.pdf
14
7
DoOpportunitiesExist?
While vending machines and canned RTD coffee controls a good amount of the market, there is
an opportunity for our instant soluble coffee to enter in convenience stores and super markets. It
could also be sold in coffee shops to be taken home, instead of buying a large bag of coffee
grounds. Sales for coffee in cafes and shops have slowed was the prices have risen.. This creates
an opportunity for our product as well. With over 75% of the population living in cities, key
locations will be the convenience stores by train stations, work buildings, and high-traffic areas.
However, one major drawback is the decreasing population in Japan. As the fertility rate
decreases, the population is aging and reducing the workforce size majorly. The workforce is a
major part of our key target market and with this decreasing in size we would lose revenue.
Other drawbacks include the dominance of RTD coffee in the market and existing instant coffee
brands already in Japan.
Recommendations
Although there is a market for instant coffee in Japan, and the coffee culture has increased great
amounts in the 21st century, entering the market at this point in time doesn’t have enough
benefits to make it worthwhile. At home single-serve coffee machines already provide the
convenience and quality that consumers look for and the RTD products serve as convenience as
well. The competition in the coffee market is too strong and established for product that not only
already exists, but isn’t at the same quality standard as freshly brewed coffee in cafés and shops.
The aging population is also a major reason not to enter at the moment. With our target market
being affected greatly by this factor, profits would most likely not be as high as needed.
Limitations
One major limitation with this market analysis was the lacking recent data on coffee sales and
profits in Japan. General information was available about the market and consumption. However,
specific numbers and comparable figures were hard to come by. The more specific the
information sought after, the more difficult it was to find. Japan’s culture, economy and other
external factors are well researched and available. Some primary sources were found, in forms of
blogs and forums. While these were very insightful and informative, some credibility is
questioned. Furthermore, numerous secondary sources were from around 2010 through 2013,
with only a few from 2015 and present day.
8
Appendices
AppendixA
Figure 1:
Figure 2
9
AppendixB
Figure 1
Figure 2
Figure 3
10
Figure 4
AppendixC
Figure 1
11
Bibliography
Coffee Market in Japan. (n.d.). Retrieved April 17, 2016, from http://coffee.ajca.or.jp/english
Instant coffee market in Japan. (n.d.). Retrieved April 17, 2016, from
https://www.ukessays.com/essays/marketing/instant-coffee-market-in-japan-marketingessay.php
Japan - Country Profile, Key Facts and Original Articles. (n.d.). Retrieved April 17, 2016, from
http://globalsherpa.org/japan/
Japan country brief. (n.d.). Retrieved April 17, 2016, from
http://dfat.gov.au/geo/japan/Pages/japan-country-brief.aspx
Oakland, M. (2011, October 24). JapanToday. Retrieved April 17, 2016, from
http://www.japantoday.com/category/opinions/view/japans-coffee-culture
Ohnishi, T., & Nakahara, K. (2014). Japanese RTD Coffee Market. Retrieved April 17, 2016,
from
http://www.probat.com/fileadmin/user_upload/Files/Connecting_Markets_Coffee/01_Ja
panese_RTD_Coffee_Market.pdf
Key Characteristics of Japanese Consumers. (n.d.). Retrieved April 17, 2016, from
http://www.slideshare.net/rpretet/key-characteristics-of-japanese-consumers
Sung, L. (n.d.). Quora.com. Retrieved April 17, 2016, from https://www.quora.com/Do-peoplein-Japan-drink-coffee
The Japanese Consumer Behaviour, Attitudes and Perceptions toward Food Products.
Retrieved April 17, 2016, from https://www.gov.mb.ca/agriculture/market-prices-and
statistics/trade-statistics/pubs/japan_consumer_report_en.pdf
12