Conbini coffee hits 1.9 billion cups

Japanese consumers have fallen in love with convenience store coffee and are drinking it by the litre. This is the latest example that proves how well convenience stores understand their market and the opportunities that exist if suppliers can bring the right product to the table. No other sales channel is as powerful as convenience stores in the food sector.

The leading five convenience store chains, which account for well over 80% of the sector, continue to surprise with their ability to think up new ways to entice more customers to their stores. Many of these ideas start with the sector leader, Seven Eleven, but, never being too proud to copy a good idea, the rest of the sector soon follows.

The latest of these, introduced in 2013, is coffee. Like the rest of the world, Japan took quickly to Starbucks – it was a surprise to some that smoke-free cafes were so popular, but ¥400-500 a cup was not that expensive compared to what a traditional coffee shop was charging when Starbucks first arrived. Doutor, until recently the only rival to Starbucks by volume, has tried to cater for those coffee drinkers that need their tobacco fix, but it missed the chance to score with genuinely low priced, good quality coffee.

Enter Seven Eleven, with drip coffee machines on the counters of all of its 18,000 stores nationwide. In the first year it sold some 600 million cups at an average of less than ¥150 each and has since added fresh donuts and new, higher priced coffee options. By late April, donuts had been introduced into 5,700 stores nationwide and the chain expects to have them in every store by the end of August.

Forecasts suggest that ‘conbini coffee’ sales will exceed 1.9 billion cups this year alone – 30% higher than in 2014. Seven Eleven believes it will still account for around half the total market this year, expecting to sell some 850 million cups of coffee – seven per head of population.

Lawson and Familymart have followed suit and by August they too will have donuts on sale in 8,000 stores across the two chains. They have also attempted to innovate further. In April, main rival Lawson’s new Ice Cafe Latte products were an instant hit, with the milkier drink popular with women consumers. Familymart, meanwhile, introduced a new sherbet ‘Frappe’ drink, using specially developed dispensing machines and featuring two flavours including the ever popular green tea. The Frappe sells for a premium ¥260 a cup.

Seven Eleven is determined to stay ahead. In May it introduced its own ice lattes, selling for ¥180 a cup as an exclusive joint-brand range in conjunction with confectionary maker, Glico, and using a specially developed milk dispenser. Lawson cut its own price to ¥150 in response.

The popularity of these new, low price, instantly accessible beverages is having a far-reaching effect. Coffee shipments hit 449,000 tons in 2014, the highest in history. At the same time, sales of canned coffee drinks, for a long time another convenience store staple, fell to 343 million cases, the third year in a row that volumes have declined.

Canned coffee producers such as Suntory, Coca-Cola and Daido are all working with convenience stores to come up with new products and sign exclusive supply deals with the major chains to shore up sales. In April, Coca-Cola Japan introduced a new range of its leading Georgia coffee brand selling exclusively in Seven Eleven, while Suntory has done similar deals with Lawson and Familymart.

The case of conbini coffee is illustrative of just how convenience store chains remain innovative in their merchandising, and how easily they can turn a seemingly mundane product into a massive hit. Similar cases also exist for imported brands, with Orangina (via Suntory) and Charlies Juices (via Asahi) both recent examples.

Convenience stores know their customers better than any other retailers, thanks to advanced IT systems and tight control of supply chains, so while importers need to bring the right product to the table with sufficient prior research to impress, the chance of successful, high volume sales remains higher than for any other food format.