Thinking Points

  • In this week’s post, you’ll get a feel for how some of the key coffee chains are positioned in the industry.
  • Though Starbucks and Doutor have the largest footprint of coffee shops in Japan, a considerably smaller coffee chain achieved the highest customer satisfaction ratings this year.
  • A closer look at both Starbucks and Doutor makes clear that the two address fundamentally different audiences.

If you didn’t get a chance to read last week’s post, you can find it here. To give you a rough overview, we succinctly discussed the history of coffee in Japan and how it became a part of Japanese life. Then we introduced some of the key coffee chains and the convenience industry’s recent entrance into the coffee game.

Today’s post is a continuation to last week’s post. We’ll go over how some of the key coffee chains are positioned in the industry.

 

Key coffee chains

First, let’s start with store count. Here are the top 5:

Source: Various sources

 

The store count for Doutor above only includes Doutor-branded stores.  Doutor Nichires (TSE: 3087) actually has several other brands like Excelsior (120+ stores) and Hoshino (200+ stores). Combined together, the Doutor Nichires group has more coffee shops than Starbucks.

One thing is clear, however, and it’s that Starbucks and Doutor are the two leading coffee chains by a long shot. Interestingly, #3 Komeda (TSE: 3543) has a disproportionately high store concentration in its home turf, Aichi prefecture, with  a whopping 240 stores.

Source: Google Maps

 

In comparison, Starbucks has 95 stores, Doutor has 46, and Saint Marc has 18 stores in Aichi prefecture.

This made me want to find out how many stores are in each of Japan’s three largest metropolitan areas: Kanto (Tokyo area), Keihanshin (Osaka area), and Chukyo (Nagoya area).

Since the company websites are searchable by prefecture (and not metro area), I did that instead:

Source: Online store finder for each company (searched August 1, 2018)

 

Where will the next coffee shops open?

The All Japan Coffee Association produced a report showing population per coffee shop by prefecture. While the data is from 2014, the findings were interesting. I combined this information with 2015 population density data published by Japan’s Statistics Bureau.

Next, I ranked population per coffee shop from highest to lowest and population density from highest to lowest, both by prefecture. Then I added the two ranking metrics together to create a combined ranking. The idea was to create a quick heuristic on where the key coffee chains might focus on for expansion.

The assumption is that high population per coffee shop combined with high population density would probably make for an attractive market. Here is the spreadsheet (it might be easier to hit the Excel button, download, then open the spreadsheet):

wdt_IDPrefectureStore CountPopulationPop. per storePop. Density (ppl/km2)Pop. per store rankDensity RankCombined Rank
1Saitama1,7257,288,8484,2251,9128412
2Ibaraki6042,993,6384,95647911213
3Chiba1,4546,247,8604,2971,2077613
4Kanagawa2,3579,100,6063,8613,77810313
5Gunma4152,019,6874,86731022123
6Miyagi4922,329,4394,73532151924
7Fukuoka1,7795,118,8132,8771,02320727
8Tokyo6,99913,202,0371,8866,16829130
9Tochigi4962,010,2724,05330892231
10Nagasaki4191,424,5333,400333141832
PrefectureStore CountPopulationPop. per storePop. Density (ppl/km2)Pop. per store rankDensity RankCombined Rank

Tokyo’s population per coffee shop (1,886) is right around the national average (1,835). Tokyo’s surrounding areas – like Saitama, Ibaraki, Chiba, and Kanagawa – have population per coffee shop figures well above the national average with high population density.

The Northern Kyushu region – Fukuoka, Saga, and Nagasaki – seem to be good places to go as well.

 

General positioning of coffee chains

In the most recent Japan Customer Satisfaction Index (JCSI) report, Caffe Veloce recorded the highest levels of customer satisfaction among 7 total coffee chains. The list of coffee chains included in the index were:

  • Starbucks
  • Doutor
  • Komeda
  • Saint Marc
  • Tully’s
  • Mister Donut
  • Caffe Veloce

Here were the results of the 2018 JCSI report:

Source: Japan Customer Satisfaction Index 2018 (Japanese)

 

Caffe Veloce is a subsidiary of Chat Noir, which was listed under the smaller relevant players in last week’s post, along with Mister Donuts (subsidiary of Duskin, TSE: 4665). Caffe Veloce currently operates 172 locations. Its customer satisfaction ratings rose quickly over the last two years:

Source: Japan Customer Satisfaction Index 2018 (Japanese), English translation by author

 

Before Caffe Veloce took the number 1 spot this year, Doutor was at the helm for three straight years. Starbucks hasn’t made the top 4 since 2016.

 

Doutor and Starbucks

The customer satisfaction index is in line with many reviews on each coffee chain’s strategies too. Since this series is mainly about Doutor and Starbucks, I won’t get into the other coffee chains.

Starbucks is generally seen as an upscale coffee shop whereas Doutor is the “hardworking salaryman’s haven”. As such, Starbucks generally prohibits smoking while many Doutor shops offer smoking rooms. The price points are set higher over at Starbucks than the salaryman-catering Doutor, too. In fact, Doutor got its start in the 1980s by offering a cup of coffee for 150 yen when the typical coffee shop averaged 300 yen.

Even today, Doutor maintains a much more affordable price point at 220 yen ($1.97 USD). As a comparison, a cup of coffee at Starbucks starts at 280 yen ($2.51 USD). What’s more? You won’t find a frappe (or any other drink with more than 5 syllables) at Doutor. And the frappe is a signature beverage for Starbucks. Instead, Doutor offers variations of basic coffee, tea, and simple sandwich meals. Starbucks, on the other hand, has just about every coffee and tea variation imaginable, along with a more dessert-focused food menu.

Summarily, Doutor caters to busy people looking for a quick breather without breaking the bank. And Starbucks caters to those looking for a nice place to relax and try different things.

 

To be continued…

Next week, we’ll go over the history of Doutor. Until then!

Author: Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.