October 8, 2007
The State of Japanese Nutraceuticals
By Paul Yamaguchi
Japan’s Economic Recovery Leaves Nutrition Industry Behind
Having finally emerged from a long period of stagnation, the Japanese economy is on the road to recovery. Corporate earnings are positive, and capital investment is on the rise. Growth in personal consumption has not fully recovered, but consumers are still spending and, paired with the improvement in employment figures, the economy is expected to regain momentum before long. Despite the economic recovery, the nutrition business in Japan in 2006 did not exactly have a great year. In fact, for the first time in its history, the size of the market contracted relative to the previous year.
Japanese NutritionMarketFalls 2% to $25.9 Billion
For the last 20 years the Japanese nutrition industry has averaged 12% annual growth. Between 2000 and 2001, it grew 22%, its biggest gain in a decade. Between 2002 and 2004, the growth rate was a modest 4% a year. Growth started to slow in 2005 to 2% a year—but it was still growing.
We can all experience a slow year in business, but whoever thought the market would contract? In 2006, the Japanese nutrition market fell by 2% to $25.9 billion from a year ago. Is this a growing pain or an indication of larger issues for the nutrition industry?
There are plenty of sources to blame for the shrinking market. The most damaging was the government, particularly the enforcement (unfairly, in our opinion) of a new Health Promotion Act that severely limits expression of health benefits on nutritional products. An old Pharmaceutical Affair Law didn’t help either. It seems that the government is trying to put a cap on the nutrition industry to benefit the pharmaceutical industry. “It may be doctors, drug companies and pharmacists who are adding pressure to government agencies, particularly influencing the Ministry of Health Labor and Welfare (MHLW) to limit the rapid growth of the nutrition industry,” reported Japan’s largest nutrition industry newspaper, The Health Industry News (HIN). This may have been the single biggest cause of negative growth of our industry in 2006.
On the manufacturing side, absence of scientific data for safe upper daily dosage limits on supplements triggered nervousness among consumers. What is the safe dosage for soy isoflavones? (Our daily diet of tofu and miso counts as isoflavones dosage.) How about CoQ10, would 300 mg a day be safe? Industry has failed to provide leadership and consumer education.
The nutrition industry in general, and the Japanese market in particular, needs a boost every few years in order to grow. A new ingredient triggers that momentum. Since CoQ10 and alpha lipoic acid, there have been no new ingredients to excite consumers, which therefore also contributed to negative growth in 2006.
Faced with these circumstances, in what direction should the Japanese nutrition industry be heading? Is this all part of the growing pains that industries must suffer to become more mature and better equipped? We’ll see.
Supplement Market Down 12% to $9.2 Billion
The hardest hit segment was nutritional supplements, which declined from $10.4 billion in 2005 to $9.2 billion in 2006. The market is now smaller than it was three years ago. Regulation, food safety and contamination were the main causes of the negative growth, but most damaging was a lack of new ingredients and new product introductions to excite consumers. CoQ10 and ALA, two ingredients that have been carrying the market for the last couple of years have lost momentum, and created a vacuum in the market, in addition to diminishing consumers’ interest in supplements.
The CoQ10 market was just over $80 million and rose as high as $180 million, but now it’s at $140 million. ALA was $25 million and soared to as high as $80 million, but now it’s at $50 million. Agaricus was $350 million in 2003 and is now believed to be less than $300 million. What were hot ingredients three years ago lost 15-20% of their market. In fact, 30% of the top 50 nutritional supplement companies saw their sales fall from the previous year, including major companies like Nu Skin, Sunny Health, Orbis and Japan Health Summit, to name a few, according to HIN.
Major drugstore chains have also had difficult time. Japan’s three major nutritional product channels—food stores, drugstores and direct sales—all experienced shrinking sales. Drugstore channel sales were down 11% from a year ago compared with 10% and 5% declines for food store and direct sales channels. Even the direct sales channel, by far Japan’s largest and strongest nutritional product channel, has been hit by the slowdown. In 2005, over 25,000 nutrition companies operated in Japan. Over the last two years, this sector has lost 20% of its numbers, according to the Health Food Report 2007.
The supplement market remains a challenge, and the industry needs to regain consumer confidence before it will see sales improvements. According to the Ministry of Internal Affairs and Communications (MIC), supplement expenditure per family in 2006 was down 4% from a year ago. The Japanese supplement market is having a difficult time indeed.
The only bright sign is the government initiative for metabolic syndrome. Metabolic syndrome research results were published in MHLW’s National Health Research 2006 report. According to the report, one out of every two men between 40 and 74 years of age and one in every five women in the same age group show some sign of metabolic syndrome. It means that 20 million people have some type of metabolic syndrome. The Japanese nutrition industry sees this is an opportunity to restart the market. If everyone jumps on this band wagon, the market may show some signs of growth in coming years. This year the market may increase 5% from a year ago.
Functional Foods Rise 2%
The functional food segment is historically strong in Japan. In functional foods, the picture is a little better, but not as good as a few years ago. In 2005, Japan’s functional food market was $16.4 billion, including $5.1 billion generated by government approved health claim products, also known as ‘FOSHU’ (or Tokuho in Japanese). Today the market is at $16.7 billion, up only 2 percent.
In the functional food segment, functional water has been the strongest category, and a spate of new product introductions propelled the market.
But not any more.
New product introductions in 2006 were down 15% from two years ago- the most noticeable being amino acid sports drinks. Just 2 short years ago, amino acid drinks shared 31% of the $1.6-billion sports beverage market. Today this number is at only 29%, having lost 13% of its value in the same period. Just two years ago, every beverage brand manufacturer had introduced amino acid beverages, saturating the category. Today only a handful of large brands, like Coca-Cola, Ajinomoto, Suntory, and Asahi are still in the game.
Functional water, fortified with vitamins, minerals or herbal ingredients, was the second largest market with $950 million, down 3 percent. Functional water started in the late 90s in Japanwith simple flavored water and expanded quickly into vitamin, mineral and amino acid fortification. Today, functional water is more sophisticated and provides a wide variety of functions. Asahi’s Collagen Water has collagen and skin beauty in mind. Kao’s Healthya Water has tea catechins. There is water with soy isoflavones, water for a good night’s sleep, water for aromatherapy, and water for stress relief fortified with gaba. They are more lifestyle waters than nutrition-enhanced waters. These ‘second generation’ functional water products have been introduced in the last two years or so. In our estimate, the market is $60 million today and expected to average 15% annual growth for the next six years.
With all the beverages available in the world, Japanese consumers always come back to tea, which remains by far the largest beverage market. We consumed twice as much RTD tea than carbonated beverages, the next largest category. Last year, the RTD tea market was $8.5 billion, and tea with fortified with beneficial nutrients was $500 million, up 6% from two years ago.
Green and oolong are the two most popular teas. Recently one of the most successful functional teas has been Suntory’s Black Woolong Tea OTPP, which contains oolong polyphenols that may reduce fat absorption in the body. It sold $80 million last year. There is black bean tea, black barley tea or black pu-erh tea. It seems that ‘black’ sounds healthier and attracts Japanese consumers.
Yogurt containing potentially beneficial bacteria, probiotics and fermented milk drinks comprise the second largest category in unregulated functional foods, generating $3.44 billion, up 7% from two years ago. In this category, the trend is shifting from basic GI health and an immune-enhancing to lifestyle products, like, allergy, relaxation, beauty enhancement, vision aid and sleep; there is even a yogurt that prevents bad breath. Lifestyle yogurt may even expand into other areas such as hair loss, PMS, dental health or healthy nails. This may be the future of functional foods. For your headaches, take a Painless Yogurt and get to work.
Only Bright Sign Is FOSHU, Up 11%
The brightest sign in the Japanese functional food category are government approved health claim foods or Tokuho (called FOSHU outside Japan). This is the only category showing steady growth since it started 16 years ago. Two years ago, the market (FOSHU) was at $5.1 billion with just over 300 products. Today, the number has more than doubled and sales are up 11% or $5.7 billion from the last report provided by the Japan Health & Nutrition Foods Association. The number of products in the basic health claim category hasn’t changed, but more products have been approved for high blood pressure, cholesterol-lowering and high blood glucose. The largest gain was cholesterol-lowering, which rose 100% to $115 million, with 92 approved products. As baby boomers enter the prime metabolic syndrome age group, those categories will likely increase.
The Japanese nutrition industry, especially the nutritional supplement category, is still fragile and unsettled because of the lack of nutritional supplement laws. Until the laws that recognize supplements are written, the Japanese nutritional supplement market will remain unsettled.
Paul Yamaguchi & Associates Inc. (Tarrytown, N.Y.) is a publishing, research and consulting firm specializing the Japanese nutrition, functional food and nutraceutical market. For more information and to view reports visit www.functionalfoodsjapan.com; email: [email protected]
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