Growing Opportunity, Shifting Attitudes Drive Japanese Natural Products Industry

The natural products industry in Japan, like the U.S. natural products market in the 1990s, is showing signs of significant growth. The entrance of major companies from adjacent industries, changes in purchasing patterns of increasingly health-conscious consumers, expanding opportunities for contract manufacturers, and diversification of distribution channels are working in concert to drive growth of the industry and presage huge potential for continued growth in the future.

One key factor in the growing success of the Japanese natural products industry is the entry of leading corporations from the pharmaceutical, cosmetic, beverage, trading and distribution industries. Entrance of these major players is stimulating the market, enlarging its capital resources, increasing exposure of the industry to the mass media and enhancing awareness and confidence among consumers.

Another indicator of a positive outlook for the Japanese health industry is the increasing opportunity for contract manufacturers. At present, there are more than 300 contract manufacturers in operation, and new companies continue to enter this sector, many with ISO and GMP (good manufacturing practice) certifications.

One of the final parts of this growth market is the diversification of distribution channels. In the past, the dietary supplement industry in Japan has relied upon direct sales (person-toperson and mail order) for more than 65 percent of its sales.However, as the popularity of dietary supplements has grown in the direct sales sector, direct sales companies are increasingly using newspapers, TV and the Internet to advertise dietary supplements.

Person-to-person dietary supplement sales companies primarily consist of multilevel marketing (MLM) businesses. Japan has the world’s largest network of MLM enterprises. On top of this, many person-to-person sales companies of Japan involved with cosmetics, foods, household goods and over-the-counter (OTC) drugs now concentrate on dietary supplements, focusing on the uniqueness, history and exclusiveness of the ingredients to drive sales. Products that have been successful include royal jelly, chlorella and fungi. Recently, more companies are offering supplements and cosmetics formulated with lutein, blueberry and CoQ10.

The cost of advertising in Japanese newspapers and traditional TV is extremely high.However, the development of satellite and cable systems has made it possible to provide infomercial programs for lower costs. This has rapidly enhanced consumer interest in mail ordering. Jupiter Shop Channel, which has its own cable shopping channel, realized 41- percent growth over the previous year; QVC saw sales increase by more than 165 percent over the previous year.

Japan’s land and labor costs are also high. Especially in metropolitan areas, retail stores have been forced to limit their merchandise to popular items, with a minimum selection of dietary supplements, in order to maximize sales in limited space.However, with the recent entry of leading enterprises with strong and established sales channels and selling power, the presence of dietary supplements at retail shops is increasing. The top four best selling items at drug stores in 2004 were CoQ10, green tea, alpha-lipoic acid (ALA) and black vinegar. As for health food stores, natural food stores and supplement stores, there are approximately 3,000 retail locations.Their sales power is still comparatively weak, but growth in near future is expected.

The increasing prosperity of the Japanese health supplement industry makes it is an extremely attractive time for foreign enterprises to enter the Nippon market.

Takao Isobe is president of International Nutraceutical Network Inc., based in Los Angeles and Tokyo.