Tom Branna, Editorial Director11.03.14
Who’s got the best-selling skin care line in Saudi Arabia? Unilever? Could it be Procter & Gamble? Or maybe L’Oréal? You may be surprised to find out that the correct answer is Kao, the more than a century-old household and personal product company from Japan, whose Jergen’s brand is a favorite of Saudis. That bit of trivia underscores the company’s position in the global market and at the same time, its perception in the global market as well. Since its inception in 1887, the company, like many other Japanese firms, relied on its home market for growth. It was a strategy that served many of them well, until Japan began to spiral into deflation in 1989, a condition that the country and its consumers are still struggling to overcome in many ways.
While Kao president and chief executive officer Michitaka Sawada praised the leadership of Japan Prime Minister Shinzo Abe and his three-pronged strategy of returning to growth through fiscal stimulus, monetary easing and structural reform (commonly referred to as “Abenomics”), he is not content to let government policy run its course in hopes that the Japanese economy will begin to grow again. Instead, Sawada is leading Kao on its own path toward growth, one that includes launching premium products, targeting key Japanese consumer groups and reaching new consumers in countries such as Indonesia, Malaysia, Russia and yes, Saudi Arabia. Specifically, Sawada’s plan calls for international sales to account for 50% of results by 2020. While historically Kao has been focused on Japan, it has kept the company from becoming a leading player in the consumer packaged goods category (see chart, below).
A Strong Start to the Year
Sawada’s strategy has worked well during the first half of 2014, as sales rose 6% and international sales exceeded 31% for the period—a year ahead of schedule. At press time, third quarter results hadn’t been announced, but Sawada was expecting a dip in sales as Abe’s consumption tax went into effect in Japan.
“Abenomics is quite effective and working well, but there was a long period of deflation,” he explained. “The increase in the consumption tax was expected and when that tax went up, there was a decline in July and August sales. As a result, we are a month behind where we want to be.”
But the slowdown is merely a bump in the road toward long-term growth, Sawada insisted. His confidence is due, in part, to the second half launch of new products including reformulated laundry and dish detergents, as well as shampoos and conditioners. Kao researchers were able to improve all the formulas without increasing prices for cash-strapped consumers.
Premium Products
In contrast, a new series under the Bioré umbrella, called Prime Body, costs three times more than other Bioré products, but Sawada insists the body wash, lotion and wash are worth it as they contain special oils and great fragrances all wrapped up in an elegant presentation. The line is aimed at working women, in their 30s and 40s, who want a little indulgence in their busy, time-strapped lives. The other key consumer group is the 50+ consumer who is responsible for purchasing half of Kao’s products.
Interestingly, one category that Kao is reluctant to enter is unit dose laundry products. Sawada told Happi that his focus is on concentrated detergents where the shift from powders to liquids continues. In fact, he took a swipe at today’s popular unit dose products, noting that consumers may be overdosing when they toss a “gel ball” into a less than full load of dirty clothes.
“They don’t always have an ecological theme,” he insisted, referring to unit dose products. “Even when you have a small washload, you have to use an entire gel ball.”
Japanese consumers, Sawada explained, have a high level of environmental awareness; so does Kao. The company conducts life cycle assessments on all of its products, household and personal care. If the LCA doesn’t show improvement, it doesn’t go to market.
He explained that consumers are very responsive to the message of less water, less electricity and less waste, which explains why refills are so popular in Japan, as is washing in cold water.
“Why can’t the West be more like Japan?” he asked.
Although Japanese consumer practices may not be readily exported, effective products can be, Sawada insisted.
“One priority is to expand our concepts elsewhere; that is what we are doing,” Sawada said.
He pointed out that in China and in other Asian countries, a lot of consumers still wash clothing by hand. Kao is making the labor-intensive process easier, by offering products that shorten initial soak times and reduce the number of rinsing processes.
“In these markets we are reducing labor, water usage and time,” Sawada said. “These concepts were important in Japan and we are now taking them to the rest of Asia.”
Specifically, in recent years Kao has expanded into Myanmar, Laos and Cambodia. Elsewhere, the company has a strong presence in the aforementioned Saudi Arabia via its Jergens brand and has an excellent export diaper business to Russia, according to Sawada.
In Western Europe and North America, Kao has a bevy of beauty brands such as John Frieda, Gül, Molton Brown, Ban, Curel and of course, Jergens.
To Your Health!
“All of them are in the beauty space,” noted Sawada, who expects the Kanebo beauty brand to become more global as well. “But I think we can also expand in the health and wellness category, too.”
One way to do that is expanding distribution of novel products such as a Kao’s Steam Relaxing Eye Mask that relaxes and relieves stress for tired eyes. According to Kao, the mask soothes and relieves the muscles around the eye area and promotes blood circulation for reducing puffy eyes and dark circles. Similarly, Kao’s Good Night Steam Back Patch warms to 40°C to provide relaxing heat for up to 30 minutes. The formula’s lavender scent is said to bring even more relaxation to tired consumers.
Outside Happi’s coverage area, Kao is determined to expand its functional drink category beyond Japan, where the company offers a range of coffees and teas that promise to improve human health by helping the user burn body fat. The products, sold under the Healthya brand in Japan, would cost more than regular coffee, “but it’s not as expensive as Starbucks!” joked Sawada.
Merries disposable baby diaper was one of the first product lines to benefit from Kao’s international focus. Ten years ago, Kao renewed the brand with new nonwovens technology and Merries became the No. 1 diaper in Japan. But in an aging society, where the birth rate is just 1.41 children per woman (2012), Kao needed new customers and found them in China and Russia, where consumers appreciated the superior structure which promotes high absorbency in a very thin layer. Russian moms appreciate Merries so much, in fact, that they are willing to pay twice as much for the technology. Now, Sawada wants more.
A World of Opportunities
“I would like to see Merries available in Western Europe; with Kimberly-Clark out of Europe there is an opening there,” stressed Sawada. “Of course, it’s not that simple!”
The CEO sees more opportunities for Merries in the Middle East where the birth rate, though dropping, still remains well above Japan’s rate. Besides its No. 1 position in the Saudi Arabian skin care market, Kao is making inroads in other Islamic countries and is taking the lessons learned from places like Malaysia and Indonesia and bringing them elsewhere. For instance, women prefer washable sanitary napkins in Indonesia, where Kao has a strong feminine hygiene business.
“I want to take advantage of what we’ve learned in Islamic countries,” Sawada explained. “There are a lot of opportunities.”
Global Reach
As Kao works toward its 50% goal for international sales, one segment of its business reached that level long ago. Driven by demand for oleochemicals, 70% of Kao’s chemical revenues now take place outside Japan, he noted. Also driving growth within the chemical segment is Kao’s ink and toner business.
To boost its share in new markets, Kao is putting boots on the ground and facilities in place. In June, for example, the company dedicated a second plant at Karawang International Industrial City (KIIC) in Karawang Regency, West Java, Indonesia. According to Kao, the new plant will be the first in Indonesia to produce Merries baby diapers, and add to Kao’s local production capacity for Attack laundry detergents. Kao’s two consumer products plants in Indonesia will build Kao’s capacity to respond to the needs of the growing Indonesian market with a stable supply of goods. Kao will also work to improve production efficiency through synergies with the adjacent Kao Indonesia Chemicals chemical plant. The Karawang site is 140,000 square meters and represents a ¥10 billion investment.
“Indonesia is a critical market for success of Kao’s global growth strategy. The new plant will play an important role as a production base for both the domestic Indonesian market and other Asian markets in the future,” explained Sawada at the dedication ceremony. “We continue to strive to contribute to the economic development and enrichment of the lives of people in Indonesia.”
Whether serving its home market of Japan, expanding in neighboring Asian countries such as Indonesia or entering new markets in Latin America, Sawada and his team is determined to enrich consumers’ lives and improve their hygiene practices wherever they may be.
Here’s a look at the top 20 consumer packaged goods companies (excluding food and
beverage), ranked by sales, in 2013. Source: Hunt Executive Search, Inc.
While Kao president and chief executive officer Michitaka Sawada praised the leadership of Japan Prime Minister Shinzo Abe and his three-pronged strategy of returning to growth through fiscal stimulus, monetary easing and structural reform (commonly referred to as “Abenomics”), he is not content to let government policy run its course in hopes that the Japanese economy will begin to grow again. Instead, Sawada is leading Kao on its own path toward growth, one that includes launching premium products, targeting key Japanese consumer groups and reaching new consumers in countries such as Indonesia, Malaysia, Russia and yes, Saudi Arabia. Specifically, Sawada’s plan calls for international sales to account for 50% of results by 2020. While historically Kao has been focused on Japan, it has kept the company from becoming a leading player in the consumer packaged goods category (see chart, below).
A Strong Start to the Year
Sawada’s strategy has worked well during the first half of 2014, as sales rose 6% and international sales exceeded 31% for the period—a year ahead of schedule. At press time, third quarter results hadn’t been announced, but Sawada was expecting a dip in sales as Abe’s consumption tax went into effect in Japan.
“Abenomics is quite effective and working well, but there was a long period of deflation,” he explained. “The increase in the consumption tax was expected and when that tax went up, there was a decline in July and August sales. As a result, we are a month behind where we want to be.”
But the slowdown is merely a bump in the road toward long-term growth, Sawada insisted. His confidence is due, in part, to the second half launch of new products including reformulated laundry and dish detergents, as well as shampoos and conditioners. Kao researchers were able to improve all the formulas without increasing prices for cash-strapped consumers.
Premium Products
In contrast, a new series under the Bioré umbrella, called Prime Body, costs three times more than other Bioré products, but Sawada insists the body wash, lotion and wash are worth it as they contain special oils and great fragrances all wrapped up in an elegant presentation. The line is aimed at working women, in their 30s and 40s, who want a little indulgence in their busy, time-strapped lives. The other key consumer group is the 50+ consumer who is responsible for purchasing half of Kao’s products.
Interestingly, one category that Kao is reluctant to enter is unit dose laundry products. Sawada told Happi that his focus is on concentrated detergents where the shift from powders to liquids continues. In fact, he took a swipe at today’s popular unit dose products, noting that consumers may be overdosing when they toss a “gel ball” into a less than full load of dirty clothes.
“They don’t always have an ecological theme,” he insisted, referring to unit dose products. “Even when you have a small washload, you have to use an entire gel ball.”
Japanese consumers, Sawada explained, have a high level of environmental awareness; so does Kao. The company conducts life cycle assessments on all of its products, household and personal care. If the LCA doesn’t show improvement, it doesn’t go to market.
He explained that consumers are very responsive to the message of less water, less electricity and less waste, which explains why refills are so popular in Japan, as is washing in cold water.
“Why can’t the West be more like Japan?” he asked.
Although Japanese consumer practices may not be readily exported, effective products can be, Sawada insisted.
“One priority is to expand our concepts elsewhere; that is what we are doing,” Sawada said.
He pointed out that in China and in other Asian countries, a lot of consumers still wash clothing by hand. Kao is making the labor-intensive process easier, by offering products that shorten initial soak times and reduce the number of rinsing processes.
“In these markets we are reducing labor, water usage and time,” Sawada said. “These concepts were important in Japan and we are now taking them to the rest of Asia.”
Specifically, in recent years Kao has expanded into Myanmar, Laos and Cambodia. Elsewhere, the company has a strong presence in the aforementioned Saudi Arabia via its Jergens brand and has an excellent export diaper business to Russia, according to Sawada.
In Western Europe and North America, Kao has a bevy of beauty brands such as John Frieda, Gül, Molton Brown, Ban, Curel and of course, Jergens.
To Your Health!
“All of them are in the beauty space,” noted Sawada, who expects the Kanebo beauty brand to become more global as well. “But I think we can also expand in the health and wellness category, too.”
One way to do that is expanding distribution of novel products such as a Kao’s Steam Relaxing Eye Mask that relaxes and relieves stress for tired eyes. According to Kao, the mask soothes and relieves the muscles around the eye area and promotes blood circulation for reducing puffy eyes and dark circles. Similarly, Kao’s Good Night Steam Back Patch warms to 40°C to provide relaxing heat for up to 30 minutes. The formula’s lavender scent is said to bring even more relaxation to tired consumers.
Outside Happi’s coverage area, Kao is determined to expand its functional drink category beyond Japan, where the company offers a range of coffees and teas that promise to improve human health by helping the user burn body fat. The products, sold under the Healthya brand in Japan, would cost more than regular coffee, “but it’s not as expensive as Starbucks!” joked Sawada.
Merries disposable baby diaper was one of the first product lines to benefit from Kao’s international focus. Ten years ago, Kao renewed the brand with new nonwovens technology and Merries became the No. 1 diaper in Japan. But in an aging society, where the birth rate is just 1.41 children per woman (2012), Kao needed new customers and found them in China and Russia, where consumers appreciated the superior structure which promotes high absorbency in a very thin layer. Russian moms appreciate Merries so much, in fact, that they are willing to pay twice as much for the technology. Now, Sawada wants more.
A World of Opportunities
“I would like to see Merries available in Western Europe; with Kimberly-Clark out of Europe there is an opening there,” stressed Sawada. “Of course, it’s not that simple!”
The CEO sees more opportunities for Merries in the Middle East where the birth rate, though dropping, still remains well above Japan’s rate. Besides its No. 1 position in the Saudi Arabian skin care market, Kao is making inroads in other Islamic countries and is taking the lessons learned from places like Malaysia and Indonesia and bringing them elsewhere. For instance, women prefer washable sanitary napkins in Indonesia, where Kao has a strong feminine hygiene business.
“I want to take advantage of what we’ve learned in Islamic countries,” Sawada explained. “There are a lot of opportunities.”
Global Reach
As Kao works toward its 50% goal for international sales, one segment of its business reached that level long ago. Driven by demand for oleochemicals, 70% of Kao’s chemical revenues now take place outside Japan, he noted. Also driving growth within the chemical segment is Kao’s ink and toner business.
To boost its share in new markets, Kao is putting boots on the ground and facilities in place. In June, for example, the company dedicated a second plant at Karawang International Industrial City (KIIC) in Karawang Regency, West Java, Indonesia. According to Kao, the new plant will be the first in Indonesia to produce Merries baby diapers, and add to Kao’s local production capacity for Attack laundry detergents. Kao’s two consumer products plants in Indonesia will build Kao’s capacity to respond to the needs of the growing Indonesian market with a stable supply of goods. Kao will also work to improve production efficiency through synergies with the adjacent Kao Indonesia Chemicals chemical plant. The Karawang site is 140,000 square meters and represents a ¥10 billion investment.
“Indonesia is a critical market for success of Kao’s global growth strategy. The new plant will play an important role as a production base for both the domestic Indonesian market and other Asian markets in the future,” explained Sawada at the dedication ceremony. “We continue to strive to contribute to the economic development and enrichment of the lives of people in Indonesia.”
Whether serving its home market of Japan, expanding in neighboring Asian countries such as Indonesia or entering new markets in Latin America, Sawada and his team is determined to enrich consumers’ lives and improve their hygiene practices wherever they may be.
Here’s a look at the top 20 consumer packaged goods companies (excluding food and
beverage), ranked by sales, in 2013. Source: Hunt Executive Search, Inc.
1. Procter & Gamble | $83.6 billion |
2. Unilever | $44.8 billion |
3. L’Oréal | $29.0 billion |
4. LVMH | $21.0 billion |
5. Kimberly-Clark | $17.7 billion |
6. Colgate-Palmolive | $16.7 billion |
7. Johnson & Johnson | $14.4 billion |
8. Reckitt Benckiser | $12.1 billion |
9. Nestlé HealthCare | $11.3 billion |
10. Avon Products | $11.2 billion |
11. Amway | $10.9 billion |
12. Kao | $10.6 billion |
13. Henkel | $10.3 billion |
14. Limited Brands | $10.3 billion |
15. Estée Lauder | $9.7 billion |
16. SC Johnson | $9.0 billion |
17. Shiseido | $8.6 billion |
18. Beiersdorf | $7.8 billion |
19. GlaxoSmithKline | $7.7 billion |
20. Sealed Air | $7.6 billion |