Coca-Cola dominates in Japan, but not Coke

Coca-Cola has been the top beverage maker in Japan for half a century, but it's not thanks to the popularity of Coke. Instead, the American soft drink brand has adapted to the quirky ways this society quenches its thirst.

Coca-Cola's nearly 1 million vending machines account for about half of all the vending machines in Japan. Many of them do stock Coke and Coke Zero. But most of the beverages sold by those state-of-the art machines have nothing to do with the company's namesake soda.

Among the bigger favourites are "Georgia" brand canned coffee, orange flavoured water and of course, green tea, the traditional drink of choice.

Japan is Coca-Cola's second biggest market after the US, raking in more than 1 trillion yen ($US10 billion) in annual sales. But consumers here aren't crazy about bubbly drinks like Fanta and Sprite, other perennial US favourites.

Instead, the notoriously fad-loving Japanese flit from one trend to another across an array of weird product offerings, such as soda drinks with odd flavours like smelly durian fruit or garlicky kimchee that mostly are attention getting products intended for fun.

Though its product offerings don't go quite that far, Coca-Cola has 850 different beverages in Japan alone, not counting discontinued brands. Among the most popular is Qoo, a water-drop-shaped forest creature designed to appeal to Japan's cult of the cute.

"It is so difficult to survive," Takashi Wasa, senior vice president at Coca-Cola Japan, told The Associated Press at the company's Tokyo headquarters.

The odds of having a hit are "Maybe just three out of a thousand," he said.

Among 20 Coca-Cola global brands that bring in $US1 billion or more in annual sales, four came from Japan: the Georgia coffee lineup; Aquarius, a Gatorade-like drink; I Lohas bottled water and Ayataka green tea. Other global top-sellers are Coke drinks or were added through acquisitions, such as Minute Maid and Matte Leao.

Matte Leao, an herbal tea extremely popular in Brazil, is an example of adapting to local tastes.

But the company's Japan operations take that to an extreme, said Raymond Shelton, senior executive officer for Coca-Cola East Japan.

"I have travelled the world for Coca-Cola, and I have never seen such a variety of products, and such an intensive pace of new launches," he said.

"Japanese consumers drink across beverage categories each and every day so I would say they have a much broader set of demands," Shelton said.

Over the past decade or so, green tea has grown into a 777 billion yen ($US7.5 billion) packaged beverage market in Japan; many Japanese now prefer tea conveniently packaged in plastic bottles, rather than steeped in teapots.

That makes Ayataka, which sells for 140 yen ($US1.30) for a half litre bottle, an important brand for Coca-Cola. Developed in partnership with 1,600-year-old Kyoto-based tea grower Kanbayashi Shunsho, Ayataka also is sold in Singapore, Hong Kong and Taiwan.

Unlike acidic bottled Coke, green tea requires special precautions during is bottling to prevent spoilage and preserve its flavour. Coca-Cola has invested about 40 billion yen ($US360 million) since 2014 to double its assembly lines in Japan to nine and accommodate such aseptic production.

Since retailers only stock in-demand products, pressure is high to keep coming up with new products, or at least new adaptations.

Coca-Cola's competitors in this tea growing nation, led by Ito En, a traditional tea maker that pioneered bottled green tea in Japan, were quick to imitate Coca-Cola's lead in adding powdered tea to its green tea drinks to make them cloudier and more evocative of richer-tasting teas out of a teapot.

Some products are specifically developed as "kawaridane" or "weird items," just to attract attention, like cucumber-flavoured Pepsi. Or Pepsi Strong 5.0 GV, for "gas volume," which has extra fizz.

"It's that extra burp factor," said Akira Kiga, a spokesman for Suntory Beverages & Food, which sells Pepsi in Japan and trails Coca-Cola in market share. "We want people to notice and see that we're a fun brand."

Still, when it comes to solid earnings, Suntory, like Coca-Cola, is counting on three segments - water, coffee and green tea.

"We do want to work on building strong brands that have staying power," Kiga said.