Kotabe/Helsen, Global Marketing Management, 5e Case 8 Case 8 The Coca-Cola Company in Japan

A financial crisis gripped most of Asia in July 1997. Originating in Thailand, the Asian Financial Crisis spread to countries throughout the region sending them into deep recessions. The crisis had originated from financial institutions lending with little or no credit analysis to financially unworthy companies that did not have the capacity to repay their debts. As the crisis spread through Asia, companies across the business spectrum were threatened. Companies and executives feared the worst. However, Douglas Daft, head of Coca-Colas Asian operations, saw this time as an opportunity for growth. The beverage industry in Japan, which featured unprecedented speed in product development and product turnover, operated with razor-thin margins; thinner than were found in other parts of the world. But Coca-Cola already knew that local attitudes toward foreign multinationals were changing and that acquisition opportunities would become more abundant because of the Asian crisis. Daft saw it as a chance for the company to be stronger than ever in the region, particularly Japan, because the company was such a nimble competitor and innovator. Daft planned a series of workshops with top executives to explore opportunities. As Daft worked to gain market share in Japan, he did so with the necessary decentralization from headquarters. The CocaCola Japan subsidiary was given the freedom to create new products and bring them to market without the market research that its US subsidiary was used to. In Japan, product after product is launched, and many of them fail. Corporate acceptance of the fact that there will be many failures among some successes is a necessity that Coca-Cola Japan enjoyed.

This case was prepared by J. Patterson Calhoun, Tim Fitzpatrick, Gwen Joe, and Greg Silvesti of the

Fox School of Business and Management at Temple University under the supervision of Professor Masaaki Kotabe for class discussion rather than to illustrate either effective or ineffective management of a situation described (2009).

Kotabe/Helsen, Global Marketing Management, 5e Case 8 As it explored new opportunities, Coca-Cola purchased a bottling business in South Korea, giving it better regional access. In addition, it abandoned its country-specific market strategy in favor of a more regional strategic view. It also bought several locally branded coffee and tea drinks to exploit regional economies of scale and to keep up with changing consumer preferences. During much of its tenure in Japan, Coca-Cola dominated the soft drink market. However, the 21st century showed signs that competition was catching up. Coca-Cola saw diminishing share in key sectors, specifically, RTD (readyto-drink) tea and coffee as well as Asian specialty drinks. Due to its broadened regional focus, CocaColas success in other parts of Asia offset declining Japanese sales, which contribute 20% of the companys annual profit. But Coca-Cola executives started asking themselves how to maintain its number one position in Japan as competition crept in.

History of the Coca-Cola Company Since its advent in 1886, Coca-Cola Company has arguably been a marketing genius, dominating the global soft drink market. Dr. John Slyth Pemberton, a pharmacist in Atlanta, invented the Coca-Cola beverage in 1886 as a drug to help people feel better, and sold it out of the pharmacy where he worked. The pharmacy was owned by Frank M. Robinson, the man who coined the name we know today, CocaCola. After Pemberton died in 1888, Frank M. Robinson and two brothers, Asa and John Candler created the Coca-Cola Company. Asa Candler was a marketing master who promoted the beverage by painting walls, clocks, posters, and serving trays and handing out coupons for free Coke. Sales increased, and soon people were calling the product by the now-iconic Coke. In 1894 the company opened its first syrup manufacturing plant outside Atlanta in Dallas, Texas. The following year plants opened in Chicago and Los Angeles. Three years after the Coca-Cola Companys incorporation Asa Candler announced in the annual report: Coca-Cola is now drunk in every state and territory in the United States. In 1919, Asa Candler sold the Coca-Cola Company for $25 million to an Atlanta banker named Ernest Woodruff. At that time, the company was reincorporated and 500,000 shares were sold for $40 per share. In 1923 Woodruffs 33-year-old son, Robert Woodruff, was named president of Coca-Cola 2

Kotabe/Helsen, Global Marketing Management, 5e Case 8 Company. During his tenure Robert Woodruff promoted Coke by insisting on nothing but the highest product quality standards. In 1930, quality control standards were implemented to ensure consistency in the syrup across all locations where Coke was sold. 1944 marked the year when the one-billionth gallon of Coca-Cola syrup was sold. Throughout the mid-1950s, the company sold one product, Coca-Cola, in one or two bottle styles. In 1953 the two billionth gallon of Coca-Cola syrup was sold. Woodruffs tenure also marked Coca-Colas international expansion. In 1943, plants opened in Northern Africa and Europe near fighting fronts because Dwight Eisenhower wanted to boost morale of American soldiers abroad. Expansion continued, and Coca-Cola entered the Japanese market in 1957. In 1960 the Minute Maid Corporation merged with the Coca-Cola Company. As a result, Fanta, Sprite, Fresca, and Tab, the first diet soda, were introduced to the American market. Four years later Duncan foods merged with Coca-Cola, and in 1967 the Coca-Cola Food Division was born by merging Minute Maid with Duncan. In 1981 Roberto Goizueta, a Cuban-born chemical engineer, took over the company and accelerated its growth through acquisitions and expansion into new markets. In 1982, Coca-Cola Company launched Diet Coke, the first-ever extension of the Coca-Cola trademark. In 1985, the company introduced New Coke, which was based on a different recipe than the original. Due to a consumer backlash, the original recipe returned to the market within three months, as Coca-Cola Classic. Sales hardly missed a beat. In 1992 Coca-Cola Company introduced PowerAde. The company entered the Arab market and ended Pepsis dominance there. It also established operations in Moscow and re-entered India after resolving issues in that country. Over the next few years Coca-Cola signed exclusive deals to sell Coke at the summer Olympics in Atlanta, at Yankee Stadium, and at Blockbuster stores. Before his death in 1997, Robert Goizueta saw the companys value rise from $4 billion to $145 billion. In the late 1990s M. Douglas Ivester ran Coca-Cola Company. He struggled to leave the same legacy that Goizueta did. The company faced a decline as it dealt with the Asian market crisis, collapsing economies in Russia and Brazil, and strong competition with PepsiCo. Coke's earnings fell two straight years under Ivesters tenure. Coca-Cola was also plagued with other problems. In the spring of 1999, 3

Kotabe/Helsen, Global Marketing Management, 5e Case 8 2,200 African American employees charged Coca-Cola with racial discrimination, resulting in a US$192.5 million settlement in November 2000. In 1999, Belgian schoolchildren became sick after drinking Coke with contaminated carbon dioxide. Then a fungicide was found in cans of Coke shipped from France. The contamination problems turned out to be relatively minor, although Ivester was faulted for not acting quickly to calm jittery European consumers. He was forced out in 1999. In 2000 Douglas Daft took over and announced that the company needed to become more decentralized to quickly respond to market demands. Through internal restructuring, acquisitions, and strengthened partnerships, Daft hoped to turn Coca-Cola around. Coca-Cola Company then started expanding into the health drink sector by concentrating on bottled water, tea, and juice. Coca-Cola completed two key acquisitions in 2001. It purchased Mad River Traders, which produced specialty iced teas, lemonades, and juice cocktails, and Odwalla Inc, known for fruit and vegetable drinks, spring water, nutritional bars, and organic milk sold in health stores. During this time Coca-Cola continued signing exclusive deals with such companies as AOL, Proctor & Gamble, and Subway. In 2004 E. Neville Isdell became the CEO of Coca-Cola, and in 2005 Coca-Cola began targeting a younger, more health-conscious market by introducing a zero calorie cola. In that same year, sales in Japan and China helped to push third quarter profits up 37% to $1.28 billion. The company continued to sign deals, namely with Bally Total Fitness, the PGA Tour, and Papa Johns. Continuing its concentration on the health-conscious market, in 2005 Coca-Cola began its plans to introduce a new green-tea based diet soda named Enviga. Developed with Nestle, the product reportedly boosts metabolism and burns calories. Coca-Cola also began to develop products with less sugar, like Diet Coke with Splenda. 2005 also marked Coca-Colas return to Iraq after a 37 year absence. During this time, Coca-Cola restructured its overseas operations into three operating units: European Union Group; North Asia, Eurasia, and Middle East Group; and Southeast Asia and Pacific Rim Group. At this time, international sales accounted for almost 80 percent of the company's operating income and more than 70 percent of beverage volume.

Kotabe/Helsen, Global Marketing Management, 5e Case 8 In 2006 Coca-Cola trademarked Coca-Cola Green and Green by Coca-Cola as it continued its concentration on green tea based beverages. Then in 2007 the company expanded its line-up of tea, juice, and energy drinks via the acquisition of Fuze Beverage. It also acquired Vitamin Water in 2007. Proving its commitment to international expansion and customer satisfaction, Coca-Cola established a research center in China to develop beverages based on traditional Chinese herbs. By 2007, Coca-Cola grew to include more than 400 brands manufactured and sold in 200 countries--or virtually every nation on earth-- with sales reported at US$29 billion.

Case Exhibit 8-1 Financial Information

Case Exhibit 8-2 Coca-Cola Japan Ltd. million Net Sales Operating 1997 115,408 10,737 1998 117,991 12,533 1999 164,731 15,160 2000 207,827 17,449 2001 220,203 NA 2002 223,866 NA

Kotabe/Helsen, Global Marketing Management, 5e Case 8 Profit Net Profit Profit Margin 5,428 4.7% 5,872 5.0% 6,823 4.1% 5,700 2.7% NA NA NA NA

Note: net sales estimated 2001-2002 Financial year end: Mar

Dynamics of the Japanese Marketplace Japan is a high context culture, where the interpretation of messages rests heavily with cultural cues, in terms of age, gender, and balance of power. Japanese culture also tends to be group oriented with groups having similar expectations and experiences. Results from the NMIs LOHAS Consumer trends Database show Japanese consumers are more likely than US and EU consumers to choose products from firms whose values are like their own. Case Exhibit 8-3

Japans increasingly improving economy is causing consumers to emphasize quality over affordability. This can be seen in the beverage market where premium ready-to-drink coffees and teas as well as juices with real fruit or premium grapes are growing. The population is also aging, triggering a

Kotabe/Helsen, Global Marketing Management, 5e Case 8 shift away from sugary, sweet sodas to beverages with perceived health and functional benefits, like lowcalorie beverages, bottled water, and ready to drink tea and vitamin beverages. Historically, Japans economy has been tied to innovation, creating a frenzied pace to discover the next popular iteration of a product. Most Japanese TV ads for food and drinks incorporate the mantra shin hatsubai, meaning "new product for sale. According to the September/October issue of Marketing Science, out of a 31 nation study, Japan was the world's speediest economy in bringing new products to market. Much of this is due to the Japanese consumer liking choices and being notoriously fickle. For example, when a Japanese beer drinker goes to buy a can of Asahi at an average convenience store, he has the choice of Super Dry, Premium, Prime Time, Black, Stout, Orion Draft, Northern Style, Clear, Flavorful, Gubi Draft, New Draft 3 and Ginger Draft, among others.

The Japanese Beverage Industry In 2007 the Japanese soft drink market generated revenues of $48 billion, second only to the U.S. market The soft drink market in Japan is organized into the following categories: Carbonates, Fruit/vegetable juice, Bottled water, Functional drinks, Concentrates, RTD tea, RTD coffee, Asian specialty drinks, and Soft drinks. While the overall industry is relatively stable, segments within the industry are changing more rapidly in response to changing market conditions.

Case Exhibit 8-4 Consumption of Soft Drinks by Sector 2000/2005 % growth 2000 litres per capita / as onstated trade 2005 ontrade 20002000 2005 offtrade % growth

2005 on- offtrade trade

2000-2005 off-trade

Kotabe/Helsen, Global Marketing Management, 5e Case 8 Carbonates Fruit/vegetable juice Bottled water Functional drinks Concentrates RTD Tea RTD coffee Asian specialty drinks Soft drinks 0.0 0.5 0.4 0.4 6.7 0.0 0.8 0.4 0.7 6.6 6.5 45.88 3.77 54.33 -1.00 3.9 1.3 0.4 3.3 1.3 0.7 -15.01 -3.19 79.43 16.9 19.4 12.7 13.0 0.3 35.0 20.2 22.5 119.1 17.4 18.7 19.6 14.1 0.2 46.6 21.7 34.7 139.9 2.7 -3.4 54.4 7.9 -19.80 33.13 7.57 54.18 17.48

Source: Euromonitor International from trade sources

The beverage industry in Japan is mature and highly competitive. The Japanese food and beverage market is relentless and built upon innovation, with older products being cast aside for newer fads as the country is obsessed with novelty. Approximately 1,000 to 1,500 new drink products are introduced each year. Unlike in the United States, where single elaborate product launches are backed by huge budgets, endless product line and brand extensions are the norm in the Japanese marketplace. A desire for new products leads marketers to quickly bring new product offerings to market, sometimes creating outlandish ideas in hopes that market share can be gained for a short period of time. For example, in July 2008 Japan Tobacco Inc launched the fishy drink Unagi Nobori, which translated to "Surging Eel." This new beverage, believed to be the first mass-produced drink of its kind made in Japan, contains eel extract and vitamins found in the fish that many locals believe act as an energy booster during the summer's hot and humid conditions. The beverage has a similar taste to broiled eels, a popular form of the summer delicacy, and was launched to coincide with the start of Japan's annual eel-eating season.

Kotabe/Helsen, Global Marketing Management, 5e Case 8

Coca-Cola Japan vs. Coca-Cola USA The Coca-Cola Company has taken a very different approach to connecting with consumers in Japan than it has in the United States, and that is due to the contextual makeup of the markets. The companys presence in Japan is characterized by greater innovation in products, technology, distribution methods, and speed to market. However, the company has in recent years taken advantage of some decidedly U.S. practices, including increasing scale for the sake of operational efficiency. According to Coca-Colas president and CEO Muhtar Kent, "Across all geographies around the world, we are inspired and fortified by the leadership and innovations that we've come to expect over the last half-century from Coca-Cola Japan. Japan is absolutely critical to our system's future growth. Not only because of the sheer size of this market, but also because of the constant stream of leadership and innovation that springs from this great nation." Coca-Cola in Japan, like the beverage industry in the country as a whole, is more diverse in its product offerings than in the U.S. The company offers the Japanese market over 25 brands in 60 flavors and over 200 packaging formats, as well as significant volume in coffees, teas, and functional and wellness drinks and introduces new products each year to keep up with new aggressive competitors and dynamic, highly volatile consumer tastes. For example, Coca-Cola Japan has introduced a vitaminfortified Coke drink named Coca-Cola plus vitamin, a Diet Coke variant that is marketed as providing 81% of the daily requirement of vitamin C, with no calories. Water Salad, a beverage that taste as the name implies like salad flavored water. These product offerings are just a couple of the many that would be seen as odd to the American Coca-Cola consumer marketed by Coca-Cola in Japan. The companys innovativeness in Japan extends beyond products and encompasses marketing and distribution, primarily in the form of a network of technologically advanced vending machines. According to remarks by Mary E. Minnick, former president and COO of Coca-Cola Asia, "There is no such thing as a global consumer," adding that Cokes marketing and distribution are Japan-specific, with vending machines being a key channel to consumers. 9

Kotabe/Helsen, Global Marketing Management, 5e Case 8 Coca-Cola is continually advancing vending machine technology to stay ahead of consumer trends and to preserve its status as an innovator since the vending machine is such an important distribution channel in Japan. Coca-Cola has the largest network of vending machines in Japan, controlling approximately 980,000 machines nationwide, or 30% of all soft drink vending machines in Japan. Coca-Cola Japan operates both hot and cold vending machines as well as machines with innovative features, including ones that allow customers to purchase a Coca-Cola product with their cell phone and even a machine with an emergency phone that provides instant access to local police using 110 (the police emergency number in Japan) and activates an overhead security camera when the handset is lifted. CocaCola Japans newest vending innovation is a green vending machine, the e-40, a machine that is 100% hydrofluorocarbon (HFC) free providing more efficient heating and cooling as well as well as sophisticated insulation and LED lighting. These features make the e-40 40% more energy efficient than the conventional model. Case Exhibit 8-5

Innovative marketing is also a trademark of The Coca-Cola Company in Japan. From June to December 2007 a viral campaign of 22 short films in the style of a 1960s Japanese Tokusatsu live-action television shows, embracing the comedic stereotype of Japans film culture, were uploaded to YouTube to promote the launch of calorie-free Coke Zero. The shorts followed the exploits of a fictional hero, a CocaCola vending machine known as Vending Machine Red who traveled around Japan battling evil villains. An account for VM Red on Japans most popular social networking site, Mixi was created and VM Reds profile was updated daily with movies, pictures, and blog entries to help further humanize VM Red to the youth in Japan, particularly young males. Coca-Cola Japan has also released limited edition 10

Kotabe/Helsen, Global Marketing Management, 5e Case 8 scaled-down replicas of the robots from the campaign that have been one of the hottest collectables of 2007. In contrast, The Coca-Cola Company in the United States has a reputation of a storied company with products embodying Americana, tradition, and history. Innovation can be seen as a betrayal of that tradition, as illustrated with the backlash after the introduction of New Coke. Flavors like Water Salad are seen as weird in the United States. Marketing campaigns are nation-wide and they are introduced after years of market research. Economies of scale are seen as a path to success. Achieving economies of scale is a practice that Coca-Cola Japan has borrowed from its U.S. parent. While Coke management in Japan has established a reputation for innovation, they have also incorporated production strategies driven by cost leadership characteristics pioneered in the United States. Coca-Cola is integrating bottlers procurement, production and distribution systems. Coca-Cola reduced the number of factories from 34 to 30 by 2007 with further plans to shrink the number to 27, centralized the joint procurement of raw materials/ingredients, manufacturing on a national level and supply and demand planning and cooperation. In 2004 the company established a development department to develop health-related goods and to consolidate group-wide efforts in new product development previously undertaken by individual bottlers. One of Coca-Cola Japans targets was the unsweetened healthy drinks market with the launch of Sokenbicha Gokoku, a five-grain unsweetened tea. According to Japan Marketing News, Coca-Colas tea offering achieved the highest sales rank amongst recently released beverages in Japan. So while it took Coca-Cola over 70 years of operations to enter Japan, the companys Japanese operations serve as an engine of innovation that benefits the companys operations around the globe. Indeed, the Coca-Cola system in Japan has pioneered many beverage industry innovations - from new products to cutting-edge vending machine technology - serving as a model for Coca-Cola operations around the world.

Competition 11

Kotabe/Helsen, Global Marketing Management, 5e Case 8 The top five beverage providers in Japan are Coca-Cola, Suntory, Kirin, Ito En, and Asahi, respectively. The top three combined hold nearly 50% market share.

Suntory Suntory is certainly not new to the beverage industry in Japan. The company was founded in 1899 with the opening of a store that sold grape wine. The company opened the first malt whiskey distillery in Japan in 1923 and began exporting its products as early as 1931. Throughout the 1960s and 70s Suntory produced many different varieties of whiskey. Suntory Oolong Tea was introduced in 1981. Throughout the 1980s and 1990s Suntory continued working on new alcoholic drinks, including the release of a 100% malt beer in 1986. It established a strategic alliance with PepsiCo in 1998, making it responsible for all marketing, production and distribution for PepsiCo in Japan. Today Suntory has operations in Asia, the U.S., and Europe. The company prides itself on its Principle of Dividing Profits Three Ways, whereby one-third goes back to the customer, one-third goes back into the company, and one-third is contributed to society. With regard to its beverage and food company, Suntorys websites states, Determined to grasp consumer trends and to provide better-tasting products with greater consumer appeal, we are launching attractive new products that respond to the tastes of the times one after another. The company wants to work hard to innovate in ways that will keep customers satisfied in an ever-changing market. As described on the website, Suntorys product line-up in the soft drink market includes IYEMON, an authentic Japanese green tea that has grown since its launch in 2004 into a brand containing the nucleus of the green tea market; Suntory Oolong Tea, a brand known for its long-term popularity; BOSS, a canned coffee positioned as "My buddy coffee for working people"; Suntory Natural Water, a safe, natural drinking water from a carefully preserved water source; PEPSI, which cultivated a new current in the cola market; and DAKARA, which has earned high repute as a "daily health beverage". Suntory relies on its research and development department for innovation and development of new desirable products as it strives for growth. Management is said to ask itself, What would they like to 12

Kotabe/Helsen, Global Marketing Management, 5e Case 8 drink? and What would please their palates today? In addition, the company also developed a Quality Assurance Committee to ensure the production of safe, delicious products.

Kirin Johan Martinius Thoresen was a Norwegian who immigrated to Yokohama Japan in 1834. (He later became known as William Copeland when he became an American citizen.) Responding to a large demand for domestically brewed beer, he opened the Spring Valley Brewery in 1869. By 1884 he was running out of money and sailed to the United States. A year later British entrepreneurs took over the brewery and by 1888 all beverages were being produced under the Kirin name. By the mid-1930s Kirin was achieving record sales. Throughout the 1950s sales increased at an average of 17% a year and in 1954 it was the number one brewer in Japan. Kirin did not establish a presence in the soft drink market until the 1970s. During the 1980s and 1990s Kirin faced some challenges. The emergence of convenience stores opened a new outlet to purchase canned beer. Stores preferred cans for easier stocking. However, Kirins long-standing distribution network and bottled packaging put it at a disadvantage. Market share began to decline. Kirin worked to grow through mergers and acquisitions in the 1990s. Today the company is third in market share in Japan. The company achieved its status by applying a customer-focused approach on quality, innovation, and integrity. The Kirin Group places value on four stakeholders customers, employees, shareholders, and society. With a focus on developing products for health-conscious consumers, in October 2006 the company established a division that offers a range of health foods and functional foods that support health maintenance and improvement, including Genki na Hatake, a kale juice series designed to call to mind the fresh faces of farming households, and Lieta, a body-shape and fitness supporting food. In support of this initiative, the websites states that The Kirin Group, aims to develop products and services that stay ahead of the times, and to continuously assist customers in achieving rich, diverse lifestyles. we are pursuing research and development into new products based on the keywords: natural, healthy, authentic and innovative. 13

Kotabe/Helsen, Global Marketing Management, 5e Case 8 They also have a research and development arm that not only works to pioneer beverages for new soft drink categories but to also create packaging materials that are safer for the environment. The companys product line includes Kirin Gogo-no-Kocha (afternoon tea), which popularized Japans distinctive bottled black tea beverages. In addition, Koiwai Dairy Products Co., Ltd. provides dairy products, Kirin Tropicana Inc. provides Tropicana 100% Juice, and Kirin MC Danone Waters Co., Ltd. provides both the market-leading imported mineral water named Volvic and the ionized alkaline mineral water named Kirin Alkali-Ion-no-Mizu. Unlike Coca-Cola, Suntory and Kirin come from a history of producing and marketing alcoholbased drinks. That is where their expertise lies. As they have grown, both of these companies have diversified into other markets, some completely unrelated from beverages altogether. Suntory has ventures in health foods, foods service, and flowers. Kirin has ventures in pharmaceuticals. Research and development is important to both Suntory and Kirin, but its focus is not entirely on the soft drink market. At Suntory and Kirin, research and development has to produce new products for the other ventures these companies have. In fact, Suntorys most recently prides itself on the development of the first blue rose, a great success for its flower business. Kirins most recent focus has been an internal one; the company is looking to restructure itself to a holding company formation so that it can navigate the difficult marketing environment. Case Exhibit 8-6 Fortunes Worlds Companies with the Lowest Reputation for Innovation, 2006 1. 2. 3. 4. 5. Hanwha Chemical Corp. Saudi Basic Industries Corp. Huntsman Corp. Asahi Kasei Corp. Lyondell Chemical Co. 6. 7. 8. 9. 10. Delta Air Lines Inc. SABMiller plc UAL Corp. Suntory Ltd. Kirin Brewery Co.

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Kotabe/Helsen, Global Marketing Management, 5e Case 8

While they both maintain research and development departments, the soft drink market in Japan did not see a noticeable commitment from these two companies until the 21st century. In fact, as late as 2006 Suntory and Kirin were both on the list for Fortunes World Companies with the Lowest Reputation for Innovation.

Coca-Cola Japans Difficulties in the 21st Century Throughout the early 2000s, Suntory has been acting on its recognition that innovative ingredients and new product launches are essential in the soft drink market. Just in 2007 Suntory launched a new filter coffee based on premium beans and Lipton Chiffon Milk Tea made with condensed milk. They also launched Cool Mint Cider in carbonates using the flavor of Lottes Cool Mint Gum.

Case Exhibit 8-7 COMPETITIVE POSITION IN JAPAN BY % SHARE, 2007 (Euromonitor) Product Type Carbonates Fruit/Vegetable Juice Bottled Water Functional Drinks Concentrates RTD Tea RTD Coffee Asian Specialty Drinks Coca-Cola 9.6 12.1 7.2 29.1 6.7 20.8 29.1 18.9 Suntory 12.9 3.5 24.2 3.3 0.0 19.7 13.9 21.9 Kirin 2.4 7.7 11.4 1.1 0.0 19.2 9.9 11.6

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Kotabe/Helsen, Global Marketing Management, 5e Case 8 In addition to its partnership with PepsiCo, Suntory has been working with Nestle and Starbucks to gain edge in the market. Kirin Beverage recently developed new products under its Kirin Gogono-kocha brand, notably hot winter flavors and citrus-based summer variants. In 2007 the company began focusing on the health and wellness arena, launching Kirin Bunkaia Cha, a range of tea cariants said to be helpful in combating metablich syndrome. It also launched Kirin Nuda Grapefruit and Hop, a bitter soft drink containing fiber and theanine. It also focused on new ingredients, launching RTD green tea in 2007 made with premium milk. As Coca-Colas competitors in Japan have begun to realize the demands of the market and their potential within that market, Coca-Cola has faced declines in volume. Japan is one of Coca-Colas most important markets, generating roughly 20% of the company's annual profit, largely driven by its Georgia coffee brand. The brand has been popular ever since its launch in 1975. It serves as a quick pick-me-up for consumers who buy the caffeinated drink from the country's ubiquitous vending machines. Case Exhibit 8-8

According to the Wall Street Journal, the slide in Japan began after Coke launched a new marketing campaign and new packaging for the Georgia coffee line in fall of 2005. It wanted to attract younger people to the brand because its loyal consumers were aging. But while trying to attract new consumers, the campaign turned off some loyal fans that were confused by more-colorful graphics and 16

Kotabe/Helsen, Global Marketing Management, 5e Case 8 new flavors. Trying to fix the problem, Coca-Cola rolled out a new ad campaign in May 2006 featuring young and middle-aged men in business suits enjoying Georgia coffee at work, while refocusing on core flavors such as Mocha Kilimanjaro and Emerald Mountain Blend. In addition to trouble with its Georgia Coffee brand, an article in The Atlanta Journal-Constitution Knight Ridder indicates that bottlers in Japan are becoming concerned about declining profits. With the competition launching new, creative products made with premium ingredients, CocaColas dominance in Japan is threatened, and while the company has the know-how to remain successful in Japan for decades, the competition is becoming more sophisticated.

Case Exhibit 8-9 Overall Market Share % in Japans Beverage Industry 2000 Coca-Cola Co Suntory Ltd Kirin Holdings Co Ltd Ito En Ltd Asahi Ltd Other Source: Euromonitor Case Exhibit 8-10 Breweries 8 43 8 40 7 39 5 38 6 39 6 39 6 40 7 39 8 5 9 5 8 6 10 6 10 7 9 7 9 8 10 8 25 11 2001 29 10 2002 30 11 2003 31 11 2004 28 11 2005 27 12 2006 26 11 2007 26 11

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Kotabe/Helsen, Global Marketing Management, 5e Case 8

Coca-Cola M arket Share
Japan Beverage Industry 35% 30% 25% 20% 15% 10% 5% 0% 2000 2001 2002 2003 2004 2005 2006 2007
So urce: Euro mo nito r

Conclusion The Coca-Cola Company ranked 3rd in Asian specialty drinks in both off-trade volume (7% share) and value (10% share) in 2006. Unlike major competitors like Suntory, The Coca-Cola Company has offerings in all specialty drink categories, but they rely heavily on the sales of Asian RTD tea and coffee in Japan for a majority of sales (80% by off-trade volume).

Case Exhibit 8-11

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Kotabe/Helsen, Global Marketing Management, 5e Case 8 Coca-Cola suffered declining sales by both off-trade volume (-0.4% CAGR, 2001-2006) and value (-3% CAGR, 2001-2006) due to the increasingly competitive nature of the Japanese market, despite the successful introduction of new products in Japan such as Hajime, marketed on its authentic taste, Nanoirocha, a sugar-free RTD blend tea made from seven different colored Asian tea variants, which cannot easily be brewed at home, and Love Body Beauty Queen, a functional oolong tea which is marketed on the beauty platform. Coca-Cola has become a Japanese success story, unusual for an American company, by becoming a more effective innovator than the companys native Japanese competitors. By changing the way the company operates in Japan and adopting local product development, product introduction, and marketing techniques, Coke has thrived on foreign territory and exported many operating and product development enhancements to its operations elsewhere. Coke now faces the challenge of maintaining volume and market share in the face of increasing competition in a market where it has been number one for decades.

Discussion Questions 1. How have the United States and Japanese cultures affected Coca-Colas operations in each country? 2. How has Coca-Cola demonstrated the two birds with one stone method to global segments in their Japanese operations? 3. With increased competition in Japan and emerging trends in the market place, where does CocaCola Japan need to concentrate its efforts to remain number one?

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