Starbucks launched its first overseas store in 1995 in Tokyo, Japan. As the world’s third largest economy, the move to Japan proved to be very successful for the company and they now operate over 1,000 stores in the country1. What is more surprising than the company’s huge success in Japan is the fact that they have never exercised majority ownership of their own brand in the country. Instead Sazaby League Inc., primarily a clothing and furniture retailer, has exercised ownership of 39.5% of the company, with private investors owning 21%, leaving Starbucks with only 39.5% ownership2. In September, Sazaby struck a deal with Starbucks to sell their shares in the company for 965 Yen a share (roughly $10 USD) constituting a 31% discount in market value. Starbucks will purchase private investor shares for a 4.7% premium at 1465 Yen ($15) each, giving them full ownership over Starbucks Japan for $913 million USD by the end of 20153.
The Japanese market is not the only area in which Starbucks has expanded in such a manner. Until 2006 Starbucks was not a majority shareholder in its Beijing and Tianjin offices either4. The purchase does represent the company’s largest acquisition to date however, exceeding the purchase for Teavana in 2012, which was slightly over $600 million5.
Starbucks continues to thrive in Japan despite a damp economy and a rising sales tax. The company expects net profits to rise 28% by the end of the fiscal year6, and the company plans to expand in the country both by introducing its Teavana products and through store expansion7. Starbucks Japan already carries the highest profit margin for the company in the world8, though growth in same-store sales fall short of targets9. So why is Sazaby League so eager to sell its interest in the company when growth shows no sign of slowing? The catch comes from the initial agreement between Starbucks and Sazaby in 1995, in which Sazaby agreed to use the Starbucks name only until 2021 with no option to renew. Waiting until the end of the licensing agreement would have netted Sazaby market value for their shares – more than they are getting currently – but likely would have left shareholders in a worse position10.
Coffee in Japan used to be considered a drink that was only consumed in cafes. As low-cost coffee competitors began to enter the Japanese market – think McDonalds, 7-11, and Nestle – the modern trend has been towards fast and convenient coffee (See Mie Sakamoto, Nestle Takes Aim at Japan Market as Demand for Coffee Rises, Japan Times (June 17, 2014), http://www.japantimes.co.jp/news/2014/06/17/national/nestle-takes-aim-japan-market-demand-coffee-rises/#.VFUulsn57Rk.)). One very popular form of coffee consumption in the country is the sale of chilled or hot canned coffee and lattes. These are found in vending machines on every street corner, as well as supermarkets and convenience stores. Although Starbucks currently offers some to-go beverages, the company hopes this buy-out will allow them to more aggressively compete in this area as well11.
Lisa Baertlein, Starbucks Buying Control of Japan Unit for $914 Million, Reuters (Sep. 23, 2014 7:18 PM), http://www.reuters.com/article/2014/09/23/us-starbucks-japan-idUSKCN0HI2I820140923. ↩
Ángel González, Starbucks to Buy Out Japanese Partner for $913 Million, The Seattle Times (Sep. 23, 2014 2:33 PM), http://seattletimes.com/html/businesstechnology/2024610705_starbucksjapanxml.html. ↩
Starbucks Buys Out Japan Unit for More Than $900 Million, Business Insider (Sep. 24, 2014 1:37 AM), http://www.businessinsider.com/afp-starbucks-to-buy-up-japan-unit-for-900-mln-2014-9. ↩
Starbucks Poised for Continued Growth in Japan Through Full Ownership of Market, Starbucks Newsroom (Sep. 23, 2014), http://news.starbucks.com/news/starbucks-poised-for-growth-in-japan-through-full-ownership-of-market. ↩
Starbucks to Take Control of Japanese Unit, BBC News Bus. (Sep. 23, 2014 11:05 PM), http://www.bbc.com/news/business-29339023. ↩
Una Galani, No Froth in Starbucks’ Buyout in Japan, N.Y. Times Dealbook (Sep. 24, 2014 11:53 AM), http://dealbook.nytimes.com/2014/09/24/no-froth-in-starbucks-buyout-in-japan/. ↩
Supra, note 8. ↩
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