drink Technology + Marketing · March 201710

Marketing

A common definition of functional products today usually states that they contain health ingredients and can claim health benefits beyond their nutritional value.

Trendy and hype, functional foods and beverages are kings on the Japanese supermarket shelves. The country is often considered as the home of healthy food innovation, maybe due to Yakult’s entry into the market around 1935. Later the Foshu system (or Food For Specified Health Uses) started to strictly regulate the claims. However, last year new rules came into effect and widened the scope of health claims, opening brand new grounds to manufacturers of all size.

Dominique Huret and Jean Schrurs from Cape Decision, the Brussels based consultancy practice, report from Tokyo.

Japan: Functional Drinks and Health Claims in an Era of Post-“Foshu”

The Japan’s population of 126.8 million in 2015 is expected to drop to 124.5 million by the year 2020. This state of contraction has to be combined with a serious ageing trend where 30% of the population will be over 65 years of age by 2025. Following Euromonitor International’s 2015 study, Japan’s extended period of economic stagnation has resulted in Japanese consumers becoming increasingly price conscious. This trend was further encouraged when the government increased the sales tax from 5% to 8% in April 2014. According to a survey conducted by the Bank of Japan in March 2015, 60% of respondents reduced their consumption of goods and services after the sales tax increase. But despite this shrinking and price sensitive population, Japan keeps the highest per capita spending power in Asia (BMI Research 2015).

The growing middle-class with increased per capita spending power combined with the large ageing population have transformed this society into very health conscious consumers. As a result, the Japanese consumers are very inclined to splurge on products that claim to have added health.

Not surprisingly, the retail value of the Japanese functional packaged food was about 8 billion US$ in 2015 with an 8% increase in retail value since 2010. The functional beverages sector, however large has been stagnant for the past five years, with a retail value of 6.5 billion US$ in 2015. Among other characteristics of this market, research institutes often point out the high degree of local loyalty of Japanese customer, always more at ease with Japanese made products. Importers into Japan are far better off with local partners. Manufacturers can have mass appeal when functional products are launched under popular brands. The recent launch by The Coca Cola Company of an exclusive tea with Foshu claims is a perfect example.

This tea, sold for 140 yen ($1.60) for a half liter bottle, was developed in partnership with 1,600-year-old Kyoto-based tea grower Kanbayashi Shunsho. This Ayataka tea features a taste test by Kyoto apprentice geishas and Japanese chefs vouching that its flavor

drink Technology + Marketing · March 201712

Marketing

is undistinguishable from tea from a teapot, although packed in a PET bottle.

As can been seen in the table below representing retail sales in 2015, the top three segments for beverages are sports drinks, energy drinks and carbonates. The top segment within functional beverage is sport drinks. The Coca-Cola Company is leading with 43% market share for Aquarius.

A similar product is Pocari Sweat, the runner up with 23%, manufactured by Otsuka Pharmaceutical Co. It was launched in 1980, and is available all over Asia and the Middle East.

Pocari Sweat is a mild-tasting, relatively light, non-carbonated sweet beverage and is advertised as an "ion supply drink". Like many sports drinks it has a fruity, grapefruit flavor. The reference to sweat in the name of the beverage has an off-putting or humorous connotation for native English speakers. But the name was chosen originally for marketing purpose. In Japan, English words are used differently and the drink is intended

to supply the drinker with all nutrients and electrolytes lost when sweating.

Green Dakara is a Suntory drink with 14% of market shares. Between a sports drink and a flavored water, it is presented as "a less fruity tasting version of Vitamin Water” with juices and extracts of 14 different ingredients. Other than fruit extracts, it contains aloe vera, salt, seaweed , sesame seed, sugar, and honey.

Kirin also has an offer of sport drink with Kirin Amino. This drink includes 1000mg of Vitamin C and 400mg of an amino acid called Ornithine.

The energy drink category has experi-enced an impressive 6% growth in retail sales the last 6 years in Japan. Several products share the shelves, but Oronamin (24%) Red Bull (16%) and Real Gold (11%) are top three. Also an Otsuka product,

Oronamin has been on the market for more than 50 years: it contains isoleucine, amino acids and the daily suggested intake of various vitamins.

The drink's slogan “genki hatsuratsu" or "lively vigor" is also well known. This drink is very present in the Japanese pop, sport and TV culture. It comes in a distinctive glass bottle which has not changed much since the drink was first sold. It also has a distinctive cap which can be removed by pulling the plastic lever connected to it. In 2000, a "sister" product Oronamin C Royal Polis was introduced, with royal jelly and propolis extracts.

Real Gold is a Japanese energy soda made by Coca-Cola Japan. It contains ingredients intended to give your day a boost, including royal jelly, ginseng extract for 140 calories a can. Toughman V is sold by Yakult. This drink contains

Retail Sales of functional beverages by segment in US$Period Growth in %

Categories 2010 2015% CAGR 2010-2015

Sports drinks 3.082 2.791 -2

Energy drinks 1.446 2014 +6.8

Carbonates 732 861 +3.3

Bottled water 1.183 651 -11.2

Fruit/ veg Juices 231 339 +8

Asian speciality drinks

210 239 +2.7

RTD coffee & tea 53 73 +6.7

Current prices- fixed 2015 Exchange RatesSource: Euromonitor International

Retail Sales of Functional beverages by segment in US$

Categories 2016 2020% CAGR 2016-2020

Sports drinks 2772 2880 +1

Energy drinks 2133 2558 +4.6

Carbonates 831 815 -0.5

Bottled water 629 587 -1.7

Fruit/ veg Juices 346 377 +2.1

Asian speciality drinks

237 241 +0,5

RTD coffee & tea 68 64 -1.6

Current prices- fixed 2015 Exchange RatesSource: Euromonitor International

drink Technology + Marketing · March 2017 13

Marketing

vitamins, niacin, ginseng extract and royal jelly. Usually energy drinks of this sort contain caffeine but this drink is unique in that it does not contain any.

Finally, functional carbonated drinks in Japan are also on the rise in the last five years.

Non-cola represent 75% of the segment. Their functional key ingredients are vitamin C, polyphenols and fiber. The Suntory CC Lemon is the third most popular drink in Japan after the two giants Cola. It has 28% market share and often bears the Simpsons cartoons. It is followed by Kirin Wets and Match. In the coming years a slight decrease is expected. On the functional cola segment, low calorie and fortified cola saw a decline of about 15 % in the last two years and a similar drop is expected in the next 5 years.

As the numbers show, the future is bright for energy drinks and also in

sports drinks, as sales are expected to increase of 20% in retail value from now to 2020. But another drink that is “controversially” functional is taking a leading edge: green tea. Over the past decade or so, green tea has grown into a $8.9 billion packaged beverage market in Japan. Many Japanese now prefer tea conveniently packaged in plastic bottles, rather than steeped in teapots.

Unlike acidic bottled Coke, green tea requires special precautions during is bottling to prevent spoilage and preserve its flavor. Coca-Cola has invested about $458 million since 2014 to double its assembly lines in Japan to nine and accommodate such aseptic production. Coca-Cola’s competitors in this tea growing nation, led by Ito En, a traditional tea maker that pioneered bottled green tea in Japan, were quick to imitate Coca-Cola’s lead in adding powdered tea to its green tea drinks to make them cloudier and more evocative of richer-tasting teas out of a teapot.

Takashi Wasa, senior vice-president at Coca-Cola Japan, at a recent press meeting at the company’s Tokyo head-quarters said “Coca-Cola has had 850 different beverages in Japan alone, not counting discontinued brands. The odds of having a hit are maybe just three out of a thousand. It is so difficult to survive in Japan.”

Raymond Shelton, senior executive officer for Coca-Cola East Japan con-cludes: “I have travelled the world for Coca-Cola and never seen such a variety of products and such an intensive pace of new launches”.

The notoriously fad-loving Japanese swaps from one trend to another across an array of healthy but also often weird product offerings. They drink across beverage categories each and every day so the set of demands is clearly broader there than elsewhere. The market remains amazing to monitor.

Key No. 90158