Making A (Yearly) Splash: How Coca-Cola Japan Stays Ahead in One of the Most Innovative Beverage Markets in the World

Not all billion-dollar brands are created equal—at least those of us in the western world don’t often recognize them as such. Coca-Cola’s leap outside the soda industry and into the fast-growing categories of tea, juice, sports drinks and even dairy has built an ever-expanding collection of increasingly well-known beverages that continue to conglomerate under the umbrella of a company that for a long time was known only for its signature soft drinks.

We know Powerade and Simply. People are getting to know fairlife.

But Aquarius? Georgia Coffee? Sokenbicha? Few Americans have heard of them, yet each of those has hit the billion-dollar mark at some point in the last five years. And Japanese consumers were the original inspiration behind the creation of all these brands.

In fact, the island across the Pacific Ocean has long been one of The Coca-Cola Company’s most fast-moving and inventive markets. The Japanese business unit released about 100 new products into the market last year alone. Some are brand new, others are fresh flavors and variations of popular favorites from years past.

“The Japanese consumer is very prompt to react very quickly to trends and to try new things,” says Khalil Younes, executive vice president of marketing and new businesses at Coca-Cola Japan. “In terms of what the Japanese are looking for, it’s some kind of… differentiation.”

This makes for a very keen consumer. In a market saturated with products and media, Japanese people intentionally seek out products that have made some sort of improvement on the last beverage that made a splash—whether it be in flavor, health benefits, or even the way it’s advertised.

“There is always a more perfect way of doing things according to the Japanese psyche,” Younes says. “It’s applied to everything—to self-perfection, agriculturally, industrially, to everything. And it applies, obviously, to products. It’s not acceptable in Japan to have a product that doesn’t evolve and get more perfect.”

Low- or no-sugar drinks account for 62 percent of Coke's portfolio in Japan, and these beverages accounted for 92 percent of Coca-Cola Japan's unit case volume growth in Japan in 2016.

In the buzz of the world’s third-largest economy (behind the U.S. and China), Coca-Cola Japan is vying for drink-lovers’ attention in virtually every beverage category. Japan is famous for its futuristic mindset balanced by rich cultural tradition, and the Japanese style of innovation (“kaizen”) presses forward-thinking companies and individuals to develop new products with a keen sense of both urgency and thoroughness. Not only has Coca-Cola Japan kept up the pace, but the company is a front-runner in the field of innovation when it comes to beverages.

And these products extend beyond soda. In fact, carbonated soft drinks made up around 25 percent of Coca-Cola Japan’s total sales volume in 2016. Instead, their products stretch across a wide spectrum of choices. Tea is the drink of choice in Japan, but coffee and juice are popular, too, making for a vast array of tastes and textures that go far beyond The Coca-Cola Company’s trademark brands.

When you look at the Japanese culture of consumption, it isn’t a surprise that some of the company’s biggest sellers in the country are the aforementioned tea, bottled water, sports drink and coffee brands. In fact, Younes says that having a range of choices is more than a smart move if you want to compete in the beverage industry in Japan; it’s a requirement.

Culturally, there are more entrenched and segmented associations between drink choices and daily occasions than in the western world, so Coca-Cola Japan wants to offer an option for every time of the day.

“When it comes to, for instance, eating a Japanese meal—let’s say sushi and sashimi—then you have to have a green tea,” Younes says. “If you’re eating a more oily type of meal, which could be like Chinese cuisine or something that has a little bit more fat, then you need an oolong tea.”

Tea is immensely popular in Japan, making up approximately 27 percent of the country's beverage business in 2016, according to beverage research institute Inryo Soken. And like the drinking habits of the Japanese people, the tea category itself is highly segmented. Green, oolong, black, blend and FOSHU (Food for Specified Health Use)—a distinction approved by the Ministry of Health, Labor, and Welfare—teas are all very popular depending on the situation. Coca-Cola has brands in all those categories, led by Ayataka, a green tea.

“There’s a much more developed understanding of tea and the benefit of teas in Japan compared to the western world,” Younes says.  

But that doesn’t mean drinks that are more popular in the west aren’t seeing a boom, too. Coffee sales (led by Georgia Coffee) grew in 2016 and is the business unit’s second-fastest growing category, trailing only bottled water, which posted double-digit growth last year, led by I LOHAS).

According to Younes, Georgia Coffee exploded when rapid urban reconstruction and expansion of mass transportation in Tokyo collided with the success of the vending machine business in the 1960s and 1970s. As blue-collar workers commuted to the city in the early mornings, ready-to-drink coffee became, quite literally, a hot commodity. Consumers could order it from the machine cold if they wanted, but they could also order it piping hot, and the steel (now aluminum) can could retain the heat for hours. After its launch in 1975, Georgia Coffee became known as the 10 a.m. break drink, and the slightly sweetened coffee-milk combination became the ideal on-the-go beverage for the working man.

Now the brand has expanded, selling various styles and flavors, including zero sugar, low-sugar,and milk blend drinks.

“It is fascinating to see how the Japan ready-to-drink coffee market has evolved over the last 50 years,” says Stan Mah, representative director and president of research and development, Coca-Cola Japan. “It started as a simple 1900-mL sweetened, milky, coffee can product and has evolved to cover a variety of taste.”

Another fast-growing beverage trend in Japan are drinks that have enhanced functionality or added health benefits. Most recent studies and measurements have found Japan to have the world’s largest aging population—according to a 2015 census, Japanese people who are 65 and older account for 26.7 percent of the country’s total population. That’s a 3.7 percent increase from 2010. The number of people living in welfare facilities for the elderly also ballooned to 1.69 million, a 40 percent increase from the previous census in 2012.

“Fat control, blood sugar regulation, gut regulation—they are looking for drinks that help them control the body that is getting a little bit older,” Younes says. “So we observe that these drinks with enhanced functionality are actually becoming more and more popular with this aging population.”

Among these is a blended tea called Karada Sukoyaka-Cha W that contains indigestible dextrin, which prevents fat absorption. Coca-Cola Plus, the first-ever Coca-Cola approved as FOSHU by the Japanese government, will hit the market in March featuring the same ingredient. The business unit also launched a new Aquarius product that contains 1,000 mg of Vitamin C.

But Coca-Cola Japan’s health-focused beverages aren’t just for older consumers, Mah says. Well-being has major appeal for young people, too. In 2014, a company called Jawbone, maker of a digital wristband called UP that tracks movement and sleep, conducted an intensive, worldwide study that named Tokyo the most sleep-deprived major city in the world.

Two years later, Coca-Cola Japan launched glaceau sleepwater. It’s a flavored, nighttime refreshment containing theanine, an amino acid first found in green tea that is thought to reduce anxiety and improve sleep. In a country that is notorious for its long working hours and competitive spirit, products with sleep-inducing effects can fill an important need for hard-working professionals.

“The nation is trained and has the expectation that everything can be progressed,” Younes says. “Everything can be perfected.”