Canned coffee sales in Japan brewing lots of interest

AgExporter, Oct, 1992

When most people think of beverages in Japan, they think of tea, sake or beer. But Japan happens to be the world's largest market for ready-to-drink canned coffee, and offers significant potential for U.S. exporters.

Last year, Japanese consumers downed $7.3 billion worth of canned coffee products, accounting for nearly one in four canned beverage sales. The market is expected to grow at 8-12 percent per year over the next three years.

One reason for the rapid rise in canned coffee sales has been the product's popularity with a broad range of consumers - from high school students to the elderly.

Drink of Choice-whatever the Season

Another major appeal of coffee has been its adaptability to seasonal fluctuations in temperature. Throughout the icy winter months, consumers prefer hot canned coffee to soft drinks, beer, fruit juices, milk and other popular refrigerated beverages. In the hot, humid summer months, cold canned coffee again is the drink of choice. According to a Japanese trade publication, sales of canned coffee are divided fairly evenly between summer and winter months.

Also contributing to the rapid growth in sales of canned coffee is a wide base of distribution in vending machines. Roughly 70-80 percent of canned coffee is sold this way, according to the Japan Soft Drink Bottlers Association. The remaining 20-30 percent is sold in convenience stores and supermarkets.

While the Japanese canned coffee market is currently dominated by domestically produced items, the market has yet to reach maturity. Evidence of this can be seen in the double-digit growth rates for retail sales and the fact that Japanese manufacturers continue to pursue product research and development programs aggressively. Despite the dozens of products already on the market, new product introductions are still common.

Only a handful of foreign companies have attempted to penetrate the Japanese market for ready-to-drink canned coffee. Stiff import tariffs, high shipping costs and Japan's complex product distribution. system tend to discourage many U.S. beverage manufacturers from giving serious consideration to export opportunities.

Renewed Interest by Overseas Firms

However, foreign companies' interest in the Japanese market is being rekindled as sales of canned coffee products continue to spiral upward. Representing nearly one-fourth of the canned beverage market, canned coffee products are too large a product segment to ignore.

Recently, a number of foreign beverage firms have begun to pursue joint venture or manufacturing opportunities in Japan. For example, Nestle - a Swiss company - recently entered into partnership with Otsuka Foods to manufacture and distribute canned coffee products. In addition, Nippon PepsiCo and Coca-Cola (Japan) now produce canned coffee products in Japan through their Japanese bottling affiliates.

U.S. manufacturers have several competitive strengths that can be used to great advantage in penetrating the Japanese market, including lower costs for product ingredients, packaging and labor.

Several Japanese food wholesalers and distributors have begun to consider the possibility of importing private label canned coffee products. This could provide an excellent opportunity for U.S. manufacturers of beverage products to develop an export or joint venture relationship.

Pay Attention to Pricing, Packaging

Prices for canned coffee in Japan tend to be uniform. In most cases, prices are set by manufacturers and vending machine operators so that they are competitive with convenience stores and supermarkets. The standard price is Y110 ($0.88), which is competitive with most soft drinks and other beverages.

Retail markups over wholesale cost for canned coffee products generally run about 20-30 percent for smaller operators and as much as 70 percent for major firms.

Nearly all leading brands of canned coffee are sold in steel cans. Although a number of manufacturers use aluminum cans, steel cans are favored because they are sturdier and less expensive. Non-carbonated beverages packed in aluminum are rather flimsy. Package integrity is an important issue in vending machine sales since Japanese consumers will reject dented cans.

The most common serving sizes for canned coffee products are 150 grams, 190 grams, 250 grams and 350 grams. The most popular is 250 grams. However, rising costs have forced many manufacturers to switch to smaller, 190-gram sizes for the same price. An increase in product quality is typically given as the primary reason for reducing serving size. This appears to be an effective strategy with Japanese consumers, who prefer perceived quality over quantity.

Pull-tabs are featured on most brands of canned coffee; however, push-tab cans are gaining in popularity as a result of growing environmental concerns.

U.S. exporters interested in the Japanese market should check with potential distributors, importers, retailers, vending machine manufacturers and operators to confirm that product packaging is compatible with equipment specifications, government labeling and sanitation standards, and consumer expectations.