Costa Coffee, the UK’s largest café chain operator, made a foray into Japan in early August 2023 through a domestic joint venture (JV) company, Sojitz Royal Café. Through the partnership, Costa Coffee aims to become Japan’s largest café chain.
Costa was founded in London in 1971 and is based in High Wycombe, England. The company manages one of the world’s largest coffeehouse chains, comprising 3,800 stores and more than 8,300 self-service units located across 32 countries. Costa has operated as a wholly-owned subsidiary of The Coca-Cola Company since the latter acquired it in 2019.
Through Coca-Cola (Japan), Costa has been marketing a range of products in the country since 2021. These include ready-to-drink coffee drinks, bean-to-cup machines and vending machines. The multinational coffeehouse operator has also opened several pop-up stores and takeaway kiosks in Tokyo, as well as operating 180 Costa Express self-serve coffee machines across Japan.
In 2021, Japanese conglomerate Sojitz Corporation entered a partnership with Royal Holdings, a restaurant operator that also operates two outlets of The 3rd Café by Standard Coffee in Tokyo. Sojitz Corporation and Royal Holdings established the Sojitz Corporation JV in January 2023. The JV acquired the exclusive franchise rights of Costa Coffee in Japan in early 2023.
Costa Coffee aims to take on Starbucks
Costa Coffee opened its first outlet in Tokyo’s Shibuya district. The café operator plans to open two more outlets in Tokyo in 2023, a location in the Otemachi district in September and a flagship store in the Ginza district in October. Costa Coffee aims to attract Japanese consumers with its premium slow-roasted, Italian heritage coffee, hand-brewed by trained baristas.
The company also offers a wide range of hot and cold food and beverages with options for less sugar, less fat and fewer calories. Costa Coffee outlets display nutrient and allergen information on the menu and offer plant-based and soy-free options. The company offers on-premises and ready-to-drink (RTD) coffee products in sustainable and recyclable packaging, appealing to the 73% of Japanese consumers who say that such packaging is an essential or nice-to-have feature when making a purchase.
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Costa Coffee aims to become the largest café chain in Japan, which is home to an estimated 65,000 coffee and tea shops. The company will take on US operator Starbucks, which is the market leader, and domestic chains such as Douter Coffee Shop and Komeda’s Coffee, all of which have a sizeable network of stores in Japan and abroad. Costa Coffee has a competitive advantage over these established operators as it is entering the Japanese coffee and tea shop market at a time when it is recovering from the impact of the Covid-19 pandemic.
Sector’s value will expand in dollar terms
However, inflationary pressures are suppressing consumer spending on out-of-home dining. This is corroborated by GlobalData’s Q1 2023 consumer survey, in which only 19% of Japanese respondents said they ordered food from coffee and tea shops at least once a week. The majority (68%) of survey respondents said that their spending on coffee and tea shops was “medium”, which indicates low spending in premium cafes.
Despite these headwinds, GlobalData projects that the sector’s overall transaction value in dollar terms will expand by 7.7% between 2023 and 2027. The increased brand visibility generated by the domestic cafés can bolster sales of its RTD coffee drinks range, coffee beans and coffee pods. Through its presence in these lucrative and fast-growing segments, Costa Coffee can diversify its revenue streams and build resilience to potential future disruptions in its food service business.