JAPANESE 2002 YEAREND UPDATE
Japan’s economy is still struggling but consumer acceptance for functional foods and nutraceuticals remains very promising.
By Ron Bailey
Unfortunately, for yet another year it is necessary to report that the Japanese economy has not turned around, even though there had been signs during the year that the “bottom” had finally been reached. The negative sentiment regarding the overall economy continues to impact the Japanese market in many ways. According to an article on Japan in a recent issue of Business Week magazine, property values have declined by 75% in the past decade, which is just one example of the crises affecting the Japanese economy.
The consumer reaction to this lack of progress is now well established in Japan—they reduce their level of spending, which of course helps to extend the recession. Even though prices for many consumables and services are continuing to decline, there is real fear that the deflationary cycle may lead to more problems in the future.
Although these negative macroeconomic conditions have less immediate impact on the markets for relatively low cost functional foods and nutraceuticals, they are affecting the usually-positive Japanese consumer attitudes.
The Nikkei Weekly newspaper reported in its August 12, 2002 issue that the “Japanese set new records for longevity in 2001, at 78 years for men and 84.9 years for women, according to the Ministry of Health, Labor, and Welfare.” Japanese women have led the world in longevity for 17 years. By comparison, U.S. longevity records were announced in September, with an average of 76.9 years for men and women combined versus 81.5 years for Japan. It is now estimated that over 35% of the Japanese population will be 65 years of age or older by the year 2050, up from just over 17% currently.
The Nikkei Weekly also reported in June that the number of babies born in Japan last year hit a record postwar low of 1.17 million…according to the Ministry of Health, Labor, and Welfare. It also indicated that the fertility rate—the average number of children women bear in their lifetime—dropped…to 1.33, the lowest level ever (the only nation with a lower rate than Japan was Italy at 1.23). By comparison, the U.S. fertility rate was 2.13 in 2000.
Not surprisingly, medical costs are continuing to increase in Japan, where nearly 50% of all medical costs are for people aged 65 or older, according to the Ministry of Health, Labor, and Welfare. The Nikkei Weekly in its September 16 issue highlighted “the chronic rise in medical spending,” which is up nearly 50% since 1989.
It is not difficult to conclude from these data that the healthcare challenge in Japan is real and growing. There will simply not be enough working people available to provide the funds (through taxes primarily) necessary to care for the aging population, unless of course the aging population is able to maintain health as they age. This is the primary incentive for the functional foods and nutraceuticals markets in Japan.
Although the basic regulations for functional foods and nutraceuticals have not been significantly changed during the past year, there have been some interesting developments in the Foods for Specified Health Use (FOSHU) and “Foods with Nutrient Function Claims” (sometimes translated as “Nutrition Function Foods”) categories, which are worth noting.
In January, 2002, the Japan Health Food and Nutrition Food Association (JHNFA), which is the non-governmental coordinating body for FOSHU application procedures, defined FOSHU products. It said, “Foods for specified health uses (FOSHU) are foods that are composed of functional ingredients that affect the structure/function of the body. These foods are used to maintain or regulate specified health conditions, such as gastro-intestinal conditions, blood pressure and blood cholesterol levels.”
This working definition for products in the FOSHU category is much more consumer-friendly than the original bureaucratic prose.
The Nutrition Function Foods are foods and/or dietary supplements, which contain one or more of 12 “vitamins” A, D, E, B1, B2, niacin, biotin, pantothenic acid, B6, folic acid and C or two minerals (calcium, iron) in amounts that meet maximum and minimum limits. The nutrients can be added via fortification or can be naturally-occurring, and the product form is not specified. There are authorized claims allowed for each of the nutrients. The product label must indicate that the food is a Food with Nutrient Function, and must also have a disclaimer indicating that the food is not FOSHU.
Although it is relatively easy to find new Foods with Nutrient Function in the stores in Japan, it is believed that the category is still relatively small. Perhaps by this time next year a market status summary will have been authorized by the government, an indication that the category has become mainstream in Japan.
FOSHU Category Update
At the “Marketing Nutraceuticals & Functional Foods” conference in Singapore earlier this year, a representative from JHNFA reported that 2001 sales for all FOSHU products were nearly $3.5 billion at retail. It is expected that growth has continued this calendar year as well, since the number of approved products is now 309 as of the end of September, up from 271 a year ago.
Within the FOSHU category, products with gastrointestinal claims (mainly with Lactobacillus, dietary fiber and oligosaccharide functional ingredients) accounted for over 80% of total sales. Yakult Honsha has converted nearly all of its line of fermented milk drinks and yogurts to FOSHU status, and it dominates the category in terms of numbers of products and in sales. Morinaga Milk and Meiji Dairies yogurts are also major players.
Other active areas of health claims, by product sales, include dental caries (5%), blood glucose control (4%), neutral fat reduction (4%), mineral absorption (3%), hypertension (2%) and cholesterol lowering (1%).
By food type, JHNFA reported that yogurts (42%) and Lactobacillus drinks (38%) were the market leaders, followed by other soft drinks (8%).
New claims for the functional ingredients used in the FOSHU products are continuing to be developed, with more products gaining approval for more than one claim, or a second claim for a single ingredient. This is part of the trend to stronger claims, as more scientific data are developed.
One of the non-Japanese products approved during the year was “Benecol Fat Spread” from Johnson & Johnson. The product “contains phytostanol ester which suppresses the absorption of cholesterol and lowers blood cholesterol, in particular LDL-cholesterol (bad cholesterol). It is recommended for people with a tendency towards high cholesterol.”
Distribution Channel Developments
Supermarket sales are continuing to decline in Japan and now the convenience stores are experiencing a downturn as the market reaches saturation (40,000 stores). One major convenience store, Lawson’s, is experimenting with a new “Natural Lawson” format in a few (6-8) Tokyo area stores. The approach is more like a natural food store, with many more fresh organic fruits and vegetables, and a larger number of FOSHU products available than can be found in most other locations. There is a price premium for the products, so the test stores tend to be located in up-scale neighborhoods in Tokyo. The Natural Lawson stores certainly offer a more refined convenience store shopping experience.
Expectations for the Future
There have been no material changes in the outlook from one year ago. The need for functional foods and nutraceuticals is as strong as ever—based on demographics—and the consumer interest in healthy foods is growing as well. The government regulations are gradually being simplified and strengthened and the distribution channels remain very receptive to the category. It is likely that the Japanese economy will eventually recover, which will provide the incentive for new technical developments by companies and new product experimentation by consumers. NW
Note: Important sources of information for this article are the Nikkei Weekly, the Japan Health Food and Nutrition Food Association, and the Japanscan Food Industry Bulletin.