The Expansion and Contraction of the Japanese Health Foods and OTC Markets

Ongoing aging of our population and growing interest in health matters are continuously expanding the market of common processed foods employing a healthy image as well as tablet-capsule formed foods (health foods). However, nutrients, which are oral drugs also used for health proposes, have been showing poor sales recently.

According to the Family Income and Expenditure Survey of 1995, annual expenditures per household for nutrients and tablet-capsule formed foods were almost equal to each other, with 6,869yen (about $63 US) and 6,620yen respectively. However, the numbers reversed just one year later in 1996. Annual expenditure for nutrients was 6,146yen, which was 89.5% of the amount the previous year and the trend continued, especially in 2004, as it dropped 10.6% from 2003 numbers. Meanwhile, expenditure per household for tablet-capsule formed foods grew significantly, achieving 15,041yen in 2004, which was 227.2% of the number for 1995. The market for tablet-capsule foods has now become 2.5 times larger than that of nutrients in the nine years since 1995.

The contraction of the OTC market is a serious concern for the pharmaceutical industry. According to the Survey of Pharmaceutical Industry Production, conducted by the Ministry of Health, Labor and Welfare of Japan, production of OTC products (total drug production - ethical drug - in-house drug) was at its peak in 1996 at 892.1billion yen, and started to decline 5% annually until it reached a total of 671.8 billion yen in 2003, indicating a significant scale-down of the market.

Moreover, by examining these products by health-related category, one sees different rates of decline: Vitamins dropped by 7.5% and nourishing tonics by 21.7% (in the Family Income and Expenditure Survey, nutrients are included in drugs). It is apparent, that even amid today’s health trend, demand for OTC products, including nutrients used for health purposes, is essentially non-existent. Although nutrient products were thought to be advantageous in positioning relative to health foods since they can indicate their health benefits, these products remain in a slump.

On the other hand, the market for tablet-capsule formed foods is continuously expanding, even apparently absorbing part of the market for nutrients. Consumers seem more likely to choose foods with a “natural”, “mild”, “moderate” image, and to stay away from “artificial”, “chemical”, and “synthetic” drugs.

Production of OTC and tablet-capsule formed foods was 752.2 billion yen and 355.2 billion yen respectively in 2000. Since then, OTC production has decreased 5% annually, at the same time as tablet-capsule foods have shown a double-digit growth rate, reducing the gap between the two categories.

“Over The Counter” drugs and medicines are sold exclusively at pharmacies, with favorable legal treatment on and flexibility in sales channel and promotion, but nonetheless, sales have still gone downhill. On the other hand, tablet-capsule formed foods are set to acquire a market nearly as huge in sales as that of OTC products.

In 2003, the market size for OTC products was 671.8billion yen and tablet-capsule formed foods 588.5billion yen. In the same year, Foods for Specified Health Use had a 566.7billion market size. It is obvious that the OTC market will become smaller than these two other markets in the near future. Ultimately, health food is the winner, and drugs the looser. Drug stores and pharmacies, which are now aggressively selling more health food products, are also contributing to the market expansion.

In the market for tablet-capsule formed foods, the proportion of distribution channels (ie. over-the-counter, door-to-door, mail-order including internet) may change rapidly. Companies must act immediately to cope with this transition.

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