Starbucks, the US-based coffee shop multinational, has reported growth in Japan far ahead of its expectations. Investors were delighted to learn that the group’s Japanese operations have reached profitability some two years ahead of schedule. At home in the US the group has been vilified by some for cynically emulating the independent coffee house look-and-feel, but in Japan it seems the group can’t put a foot wrong.

Yesterday Starbucks opened its 200th Japanese outlet and announced plans to accelerate expansion. Around 500 stores should be in operation by March 2004, just eight years after Starbucks moved into Japan. As recently as last summer, the group was predicting it would be serving customers at just 500 shops throughout Asia by 2003. Long-term, the group’s global franchise network is expected to reach 20,000, from its current base of 3 800.

When companies move into new markets and find reality does not match their expectations, this usually means sales, profits and growth are slower than forecast, but for Starbucks the reverse was true. “The equity of the experience and the brand travelled faster than we could have ever thought,” Starbucks chairman, Howard Schultz, told Reuters. “The unaided awareness about Starbucks was just stunning. I don’t think we fully understood it when we first opened.”

The only issue likely to hinder its growth in popularity in Japan right now is the problem of queuing. Customers often have to wait longer than acceptable, with the inevitable loss of trade that generates. A nice problem to have – Schultz confirmed that rapid expansion of the chain was necessary to maintain customer enthusiasm at its current high.

Transporting a sales and marketing concept lock, stock & barrel from the home market to a region boasting a very different culture is rarely effective. Concessions need to be made to local customs and preferences. Yet, when it launched its Japanese campaign, Starbucks took the unusual step of banning smoking in all its coffee shops. Smoking is common in Japan, yet young women smoking on the street are frowned upon. Therefore, they often seek refuge in coffee shops – so, there was concern in some quarters that Starbucks’ ban on smoking would keep coffee-drinkers away.

However, the policy seems to have paid off. One young coffee-drinker commented that in Japan Starbucks was more or less the ONLY venue where she could get a cup of coffee and not have to breathe cigarette smoke – so maybe Starbucks simply identified a gap in the market and moved into it. Whatever the motivation, the strategy is not keeping people away. “What happened was the young women came into Starbucks in great numbers and other people followed them in,” said a jubilant Schultz. Young professionals are an important demographic slice for coffee shops, and it’s one that Starbucks appears to have converted to its cause.

A further factor that increased Starbucks’ appeal over rival coffee shops was the fact that most of the tables in its shops are well spaced out with ample legroom. Tables in most local coffee shops are packed closely together, providing a less comfortable atmosphere for a leisurely coffee. And after all, stopping for a coffee break is as much about the break as the coffee.

In bringing its coffee shop concept to Japan, Starbucks was not charting virgin territory – the US group still lags behind local player Doutor Coffee, although Schultz is confident Starbucks will soon outstrip Doutor if growth rates continue as forecast. In value terms, in fact, the US group may already be in the lead, as its price point is higher than that of its rival. Moreover, Doutor is clearly running scared – it recently launched a new coffee shop format to rival Starbucks. The logo it chose for the new format, known as Excelsior, so closely resembled the green circular Starbucks logo that the latter threatened to sue and Doutor changed the logo.

Even better news for the sector is that coffee consumption is on the increase in Japan. Industry statistics show that average annual per capita consumption has risen above 290 cups, an increase of seven cups from 1996 and growing fast. Starbucks is well placed both to exploit this growth and fuel it further.

By Catherine Sleep, Managing Editor