Starbucks Plans Stores In Japan -- Joint Venture With Japanese Retailer Expected To Open Up To 12 Outlets In Next 18 Months

In an effort to take the gourmet-coffee craze global, Starbucks will open stores in Japan next year - its first outside North America.

The Seattle-based coffee company announced today it has formed a joint venture with Sazaby, a major Japanese retailer and restaurateur, to open as many as 10 to 12 Starbucks stores in Japan within the next 12 to 18 months.

The 50-50 joint venture - called Starbucks Coffee Japan Ltd. - will open its first store in Tokyo next spring, said Starbucks Chief Executive Howard Schultz.

"For us, this is really a major turning point," said Schultz. "We really believe we're going to position ourselves as the global brand by the year 2000."

Schultz said one of the reasons the company selected Japan as its starting point was that Japan is the third-largest coffee-consuming nation in the world.

"I think we have a significant opportunity to leverage the equity of our brand," he said, adding that "most of the coffee being consumed (in Japan) is not of the quality . . . of Starbucks."

Diane Daggatt, an analyst with Pacific Crest Securities in Seattle, agreed.

"Whether Starbucks takes hold in Japan will really depend on the consumers," Daggatt said. "I think the Japanese already recognize the Starbucks brand. When the Japanese come to Seattle and take tours on buses, one of the stops for all of the tours is Starbucks."

The 10-12 new stores to be opened in Japan are in addition to the 275 the company said it will build in North America in fiscal year 1996. The company, which currently has just under 700 stores in the U.S. and Canada, announced earlier in the year that it intends to have 2,000 stores open by 2000.

Starbucks said it plans to enter its next international market by 1997. Officials would not say where that market would be.

Starbucks Coffee Japan was formed with capital of $1.5 million, split between the two partners. Analysts said that's a relatively small price for beginning to expose Starbucks products internationally.

In the next fiscal year, company officials said they expect Starbucks to invest $5 million to $10 million to start up its international business.

Schultz said he expects the Japanese venture to experience an operating loss during that year because of initial construction costs. He said that loss has already been factored into most analysts' earnings estimates for the company.

Even if analysts haven't done so, Daggatt said the loss will be "so minimal" that it probably won't affect the company's overall annual earnings.

"(The joint venture) is going to be very positive for Starbucks," said Allan Hickok, an analyst with Piper Jaffray in Minneapolis. "The Japanese markets consume a lot of coffee. It's a very, very popular beverage there both on the hot and cold side."

"What Starbucks brings is a brand," Hickok added. "And the acceptance in Japan of strong American brands is a well-documented fact."

Still, Schultz said one thing Starbucks needs to do is imbue Japanese consumers with some American coffee-drinking practices, such as taking coffee-to-go in paper containers.

Starbucks officials said they haven't decided which kinds of coffees will be sold in Japan and what the price ranges will be.

"We don't know if a store in Japan will provide exactly the same items as ones in the U.S.," said a company spokesman.

Japanese staff from Sazaby have already been trained at Starbucks coffee stores in the U.S.

Information from Bloomberg Business News is included in this report.