Market Reports

Japan and coffee: a turbulent love affair

For years, Japan was considered a golden child of the coffee industry. On the quality side, the Japanese have shown a strong interest in specialty grades, with these Asian buyers strong contenders in any bid for quality beans. On the volume side, Japan took over France’s position as the third-largest importing nation just after the turn of the Millennium, with annual imports of 6.9 million bags and consumption estimated at about 6.6 million bags. While a local taste for quality continues, there are concerns over what some in the industry have seen as a drop in the country’s consumption. After reaching an all-time high of near 7.3 million bags in 2007, consumption declined to a seven-year low of 7 million bags in 2011, according to data from the industry-run All Japan Coffee Association (AJCA). “In 2011 we did see demand go down a little because of the economic crisis,” admits Toyohide Nishino, Executive Director of the AJCA. “But the overall coffee market in Japan is really very stable.” He says changing demographics and confusion between consumption and import figures have mainly fuelled these concerns over Japan’s demand at home. Consumption figures, according to association data, shows a stable range of 7 – 7.3 million bags between 2005 and 2012, with consumption recovering from a low in 2011 of 7.1 million bags. Demand has increased since then, with total consumption registering at 7.4 million bags in 2013. It is estimated to have risen to 7.5 million bags in 2014. On the import side of the equation, Japan has historically been relatively volatile. After rising to an all-time high of 7.6 million bags in 2006, for the next five years imports came in at anywhere from 6.9 – 7.4 million bags. Then in the 2011-12 crop cycle, purchases crashed to 6 million bags – only to recover by a stunning 25 per cent to 7.5 million bags in the following 2012-13 year, according to the United States Department of Agriculture’s (USDA) Coffee World Markets and Trade report released in December 2014. This volatility can in part be explained by Japanese coffee traders and roasters’ buying habits. They are known to stock up on green coffee imports when prices are favourable, helping to explain the year-on-year volatility. For instance, when imports crashed in 2011, the USDA also registered a drop of almost 400,000 bags in Japan’s green coffee stocks. The story of Japan’s coffee market, however, goes beyond simple buying habits. Factors such as the swelling impact of the global financial crisis, and rapidly changing demographics, are coming into play. The fate of the coffee industry is now set to follow the plight of a nation as it faces factors outside of its control. “The population in Japan has been going down over the past decade, and that has curbed the boom in consumption that we saw until a decade ago,” explains the AJCA’s Nishino. The year 2011 marked the fifth year in a row of negative population growth, with the number of residents coming in at 126.2 million. A drop of 204,000 people was the largest in a single year since the government first started registering such data in 1947, according to Japan’s Statistics Bureau (JSB). The decline in population was worsened by the death or disappearance of over 19,000 people during the 2010 tsunami and earthquake tragedy. In 2013 Japan’s total population rose to 127.3 million, but by 2014 it’s estimated the figure was back down to 126.4 million, according to the JSB. According to a 2006 report by the United Nations’ World Population Prospects, Japan’s population is expected to drop to as low as 95 million by 2050. “The population in Japan is rapidly ageing as a result of the post-Second World War baby boom, which was followed by a decrease in birth rates. In 2012 around 24.1 per cent of the population was over 65, and the proportion is projected to rise to almost 40 per cent by 2050. A growing number of younger Japanese people are not marrying or remain childless,” the JSB said in the 2014 Statistical Handbook of Japan. Public debate in Japan has focused on the new challenges that will be created as a result of these changes in the demographic structure, such as the rising costs of social security benefits. The coffee industry now has its own issue to debate – how these demographics will affect both the size and nature of consumption. “Busier consumer lifestyles, combined with an ageing population, has pushed retailers and manufacturers to increasingly open internet retailing websites to increase convenience,” London-based market intelligence firm Euromonitor International wrote in its 2014 report. It said Japan’s coffee market in 2013 “expanded its consumer base, thanks to continuous innovations in, for example, coffee machines, as well as in flavoured instant coffee and super-premium fresh coffee variants”. All these innovations have helped coffee consolidate its lead ahead of tea, which has been its primary competitor. Euromonitor further noted that as “consumers have come to favour convenience products”, single-serve options including pods, drip-type fresh coffee and stick-type instant coffee have all helped increase sales. Fortunately, the strength of the industry might defy the challenge of changing demographics and the economic strife that has followed. “We really don’t see any significant change to the demand despite the economic problems of the recent years’ international crisis, which was felt very much in Japan,” Tatsushi Ueshima, President of the country’s top roaster Ueshima Coffee Company (UCC), tells GCR Magazine. “Demand in Japan For years, Japan was considered a golden child of the coffee industry. On the quality side, the Japanese have shown a strong interest in specialty grades, with these Asian buyers strong contenders in any bid for quality beans. On the volume side, Japan took over France’s position as the third-largest importing nation just after the turn of the Millennium, with annual imports of 6.9 million bags and consumption estimated at about 6.6 million bags. While a local taste for quality continues, there are concerns over what some in the industry have seen as a drop in the country’s consumption. After reaching an all-time high of near 7.3 million bags in 2007, consumption declined to a seven-year low of 7 million bags in 2011, according to data from the industry-run All Japan Coffee Association (AJCA). “In 2011 we did see demand go down a little because of the economic crisis,” admits Toyohide Nishino, Executive Director of the AJCA. “But the overall coffee market in Japan is really very stable.” He says changing demographics and confusion between consumption and import figures have mainly fuelled these concerns over Japan’s demand at home. Consumption figures, according to association data, shows a stable range of 7 – 7.3 million bags between 2005 and 2012, with consumption recovering from a low in 2011 of 7.1 million bags. Demand has increased since then, with total consumption registering at 7.4 million bags in 2013. It is estimated to have risen to 7.5 million bags in 2014. On the import side of the equation, Japan has historically been relatively volatile. After rising to an all-time high of 7.6 million bags in 2006, for the next five years imports came in at anywhere from 6.9 – 7.4 million bags. Then in the 2011-12 crop cycle, purchases crashed to 6 million bags – only to recover by a stunning 25 per cent to 7.5 million bags in the following 2012-13 year, according to the United States Department of Agriculture’s (USDA) Coffee World Markets and Trade report released in December 2014. This volatility can in part be explained by Japanese coffee traders and roasters’ buying habits. They are known to stock up on green coffee imports when prices are favourable, helping to explain the year-on-year volatility. For instance, when imports crashed in 2011, the USDA also registered a drop of almost 400,000 bags in Japan’s green coffee stocks. The story of Japan’s coffee market, however, goes beyond simple buying habits. Factors such as the swelling impact of the global financial crisis, and rapidly changing demographics, are coming into play. The fate of the coffee industry is now set to follow the plight of a nation as it faces factors outside of its control. “The population in Japan has been going down over the past decade, and that has curbed the boom in consumption that we saw until a decade ago,” explains the AJCA’s Nishino. The year 2011 marked the fifth year in a row of negative population growth, with the number of residents coming in at 126.2 million. A drop of 204,000 people was the largest in a single year since the government first started registering such data in 1947, according to Japan’s Statistics Bureau (JSB). The decline in population was worsened by the death or disappearance of over 19,000 people during the 2010 tsunami and earthquake tragedy. In 2013 Japan’s total population rose to 127.3 million, but by 2014 it’s estimated the figure was back down to 126.4 million, according to the JSB. According to a 2006 report by the United Nations’ World Population Prospects, Japan’s population is expected to drop to as low as 95 million by 2050. “The population in Japan is rapidly ageing as a result of the post-Second World War baby boom, which was followed by a decrease in birth rates. In 2012 around 24.1 per cent of the population was over 65, and the proportion is projected to rise to almost 40 per cent by 2050. A growing number of younger Japanese people are not marrying or remain childless,” the JSB said in the 2014 Statistical Handbook of Japan. Public debate in Japan has focused on the new challenges that will be created as a result of these changes in the demographic structure, such as the rising costs of social security benefits. The coffee industry now has its own issue to debate – how these demographics will affect both the size and nature of consumption. “Busier consumer lifestyles, combined with an ageing population, has pushed retailers and manufacturers to increasingly open internet retailing websites to increase convenience,” London-based market intelligence firm Euromonitor International wrote in its 2014 report. It said Japan’s coffee market in 2013 “expanded its consumer base, thanks to continuous innovations in, for example, coffee machines, as well as in flavoured instant coffee and super-premium fresh coffee variants”. All these innovations have helped coffee consolidate its lead ahead of tea, which has been its primary competitor. Euromonitor further noted that as “consumers have come to favour convenience products”, single-serve options including pods, drip-type fresh coffee and stick-type instant coffee have all helped increase sales. Fortunately, the strength of the industry might defy the challenge of changing demographics and the economic strife that has followed. “We really don’t see any significant change to the demand despite the economic problems of the recent years’ international crisis, which was felt very much in Japan,” Tatsushi Ueshima, President of the country’s top roaster Ueshima Coffee Company (UCC), tells GCR Magazine. “Demand in Japan continues to remain strong.” UCC is not only the largest coffee roaster in Japan, but is among the largest in all of Asia. UCC controls between 20 – 25 per cent of the Japanese coffee market, while UCC also has its own coffee growing operations through joint-venture estates in Jamaica, Hawaii and Indonesia. Founded in 1933, UCC played a central role in the development of the Japanese coffee market, witnessing the country’s traditionally tea-drinking population turn into the coffee lovers they are today. Japan’s per capita coffee consumption currently equals that of tea drinking, according to official statistics. The latest statistics support UCC’s optimism. The AJCA has pegged imports to increase to 7.5 million bags in 2015. The USDA has pegged Japanese consumption in the current 2014-15 coffee year to rise to around 7.8 million bags. Part of the rise can be credited to the intuitive developments by the industry to cater to the new demographics. In 2013, UCC introduced a new single-serve machine based on roast and ground drip coffee, targeting people who live on their own. UCC’s Ueshima says that the market for single-person household units and the growing demand for roast and ground coffee for home are the two most significant changes to Japan’s consumption patterns. More than 30 per cent of Japan’s 52 million households are expected to be single-person by 2015. Other indicators also point to a revival of Japan’s coffee culture. In April this year, the 7-Eleven convenience store chain announced another year of record profits, with same-store sales up 2.4 per cent in Japan in the 2014 fiscal year which ended 31 March. Parent company Seven & I Holdings Co. cited how “attracting customers with fresh coffee and donuts” was one of the reasons behind its healthy financial results. Positive coffee news can even be found in a rising demand for aluminium products, expected to grow 1.8 per cent in the 2015 financial year starting 1 April. The increased demand was specifically attributed to the “rising demand for cans for coffee beverages and a rebound in the construction market,” Takashi Ishiyama, Chairman of the Japan Aluminium Association, told a news conference earlier this year. Canned coffee has been a key player in Japan’s coffee market since it was introduced by the UCC almost 50 years ago. After opening its first exclusive UCC coffee shop in Tokyo in 1959, UCC in 1969 invented the world’s first canned coffee. Although UCC today runs hundreds of coffee shops across Japan and overseas, canned coffee continues to be its most popular beverage. Canned coffee is sold in Japan either cold or hot via vending machines, at major street corners, subway stations, offices and even hotels. Japan has the highest number of vending machines per capita in the world. A total of 5.1 million vending machines were found across the country in 2011 – or one vending machine for every 25 Japanese residents, according to the Japanese Ministry of Finance. “Canned coffee has seen an increase [in demand] over the long term. In 2010 it scored 59.9 per cent as the number one choice of Japanese consumers. This represents the highest ever preference rate figure since surveying of product preference was started,” the AJCA said in a 2012 report. All these indicators combined means that the industry needn’t fret lowered consumption figures just yet. “The wider expansion of coffee specialists in Japan means that more consumers have come to feel familiar with drinking coffee socially,” said Euromonitor International. “Barriers to drinking coffee are likely to be further dispelled during the forecast period. The increased popularity of freshly-brewed coffee at convenience stores will contribute to the increasingly positive consumer perception towards coffee.” GCR

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