Nutraceutical Beverages In Japan

An update on recent activity in the industry.

By Ron Bailey

Although the overall business climate in Japan is still very much unsettled, there continues to be significant positive growth in many areas of commerce. The development of new nutraceutical beverage products and packages and important changes in product distribution patterns are all positively impacting the market.

Changing Distribution Patterns. Since over 50% of “soft drink” sales in Japan (including ready-to-drink coffee and tea) are now from vending machines, this distribution channel is of critical im­portance in the nutraceutical beverage market. It is generally agreed that the vending machine market is essentially saturated, with well over two million beverage machines in place. Nearly all of the prime locations in the cities have been taken and there have been protests against further expansion. As a result, the current trend is for companies to establish joint marketing relationships with other companies that have vending machines in place. For example, Nestle Japan, Pokka Corporation and Ohtsuka Beverage have a “machine sharing” relationship for the 400,000 machines that they control. Asahi Soft Drinks is allowing Kagome access to 80,000 of its 170,000 machines for Kagome juice products and Taisho Pharmaceutical 40,000 of its machines for the popular Lipovitan D medicinal drinks. Other joint relationships are certain to follow once the benefits of such partnerships have been confirmed.

The important convenience store distribution channel is also changing, with new store growth finally slowing as prime sites become saturated. It has been estimated that 70% of new food products are first introduced through the nearly 40,000 store convenience store channel. Food companies (including nutraceutical beverage companies) have begun to develop new products that will be sold exclusively by a single large convenience store chain as a way of getting better shelf exposure and rapid national distribution of new products. For perspective, the largest convenience store chain, Seven-Eleven Japan (with over 8000 stores), has now become the largest retailer in Japan, overtaking supermarket chain Daiei in this past year.

Packaging Developments. Although the shift from metal cans and glass bottles to PET plastic bottles for beverages has been going on for some time (PET use has doubled since 1996), the trend to smaller 500 ml and 350 ml PET bottles is increasing even more rapidly for most beverage categories. At the same time, the recycling rates for PET mandated by the Recycling Laws in Japan are apparently not being met, which is causing some consumer backlash. A new target calling for 50% of PET bottles to be recycled by 2004 (up from only 17% in 1998) may relieve some of the pressure.

A relatively new development in the beverage category (including beer) is the “bottle can” aluminum can with a screw cap, which is showing very strong growth. The advantages for the bottle can are its light weight versus steel and glass, its light-blocking ability, resealability comparable to PET and a more advanced recycling system already in place. Products using the bottle can are generally priced similar to the competition, at least in the non-alcoholic beverage category.

Beverage Product Developments

Two of the “hit products” from the past year can be considered nutraceutical beverages. Namacha from Kirin Beverage is a specially processed green tea drink that contains added green tea essence with L-theanine for relaxation. A total of 20 million cases (480 million 350 ml equivalents) of Namacha were sold during the 2000 calendar year. The other product, Dakara from Suntory, is a sports drink that includes octacosanol, amino acids and minerals and is positioned “to help excretion of fat and salt and to take minerals into the body.” Dakara sold well over 14 million cases during a similar time period. Both products are being sold in a range of packaging configurations, from 330 ml aseptic prisma and/or tetra packs to two liter size PET bottles.

Green tea beverages overall, sometimes with added polyphenol catechin concentrates, are continuing to grow, helped by the Namacha success. The ready-to-drink market for these products is now over $1.5 billion U.S. at retail and showing no signs of slowing down. Re­search on green tea components for a range of health conditions is continuing, including various types of cancer, often with government support.

Health teas positioned for allergies (“tencha”), antioxidant properties (“rooibos” from South Africa) and mild hypertension (“tochucha”) are regularly exhibited at health-oriented trade shows in Japan, along with a range of diet/weight loss teas from other Asian countries.

Traditional health drinks in small glass bottles, such as Oranamin C from Ohtsuka, which contains amino acids and vitamin C, have been declining in sales from their historic highs, related primarily to the intense competition in the nutraceutical beverage categories. On the other hand, the long-lived Lipovitan D medicinal drink line has had significant sales increases related primarily to regulatory changes allowing sales of such products from convenience stores rather than just pharmacies. Sales of the Lipovitan D line have in­creased by nearly 40% in the past two years to over 765 million bottles in 2000.

The recent history of two relatively new categories of nutraceutical beverages in Japan is also interesting. The “near water” drinks, which generally were slightly sweet vitamin and mineral fortified beverages, including the popular Supli FOSHU (Food for Specified Health Use) brand with indigestible dextrin for intestinal health, had peak sales of over $2.5 billion a couple of years ago. The near water brands are in serious decline, however, indicating that the category may have just been one of the “fads” that are common in Japan. The market for “jelly” drinks, however—although much smaller with total sales of only $250 million—is continuing to grow as new products are introduced. These products are often in a flexible Cheer-pack package with a spout dispenser and include ingredients such as indigestible dextrin, amino acids, protein, collagen, etc., each positioned for a specific age level and health-related interest.

Of the more than 250 approved FOSHU food products, well over 50 are categorized as “soft drinks” by the regulatory authorities and it is appropriate to consider all of these products nutraceutical beverages. Recent FOSHU beverage ap­provals have incorporated as functional components sardine peptide for mild hypertension, soy isoflavones for healthy bones and indigestible dextrin for blood glucose control. Although the FOSHU market appears to have stabilized somewhat, more new beverages with new functional components can be expected in the future.

Expected Future Developments

The nutraceutical beverage category in Japan will continue to expand, since the interest in maintaining health is growing as the population ages. Some of the beverages are now being positioned for the older population for the first time, which will further stimulate new product and new package developments. The in­creasing access to convenient vending machine and convenience store distribution channels will add to the growth potential. Clear incentives exist for companies to develop strong scientific support for their products and functional components, to better attract the attention of Japanese consumers.NW