Bloomberg News

Kao to Expand Into Smaller China Cities With Jahwa’s Network

November 25, 2011

(Updates with comment from Kao’s CEO in third paragraph.)

Nov. 25 (Bloomberg) -- Kao Corp., Asia’s biggest cosmetics maker by market value, plans to expand its reach into smaller Chinese cities by leveraging the network of Shanghai Jahwa United Co. in the world’s second-largest economy.

Kao, the maker of Biore soap and Asience shampoo, expects sales in China to rise fivefold to 50 billion yen ($646 million) “in the near future” from the current 10 billion yen, Chief Executive Officer Motoki Ozaki said at a press conference in Shanghai today. Tokyo-based Kao agreed to use Shanghai Jahwa’s sales and distribution network.

Kao, which competes with domestic rival Shiseido Co., Unilever and Procter & Gamble Co. in China, will work with Shanghai Jahwa to tap demand in a beauty and personal care products market that’s expected to surge 58 percent to 255 billion yuan ($40 billion) in 2015 from 2010, according to London-based researcher Euromonitor International.

“We hope China sales can reach 100 billion yen eventually,” Ozaki said, without giving a timeframe. Kao will use the network of Jahwa, a Shanghai-based cosmetics and household goods maker, to gain greater access into the Asian country’s third and fourth-tier cities, he said.

Ozaki said last month Kao may acquire overseas beauty care companies as it seeks to expand outside Japan, where a stagnant economy and an aging population are dampening growth.

Kao in 2005 agreed to buy Kanebo Cosmetics Inc. for about $3.6 billion, its biggest acquisition so far, according to data compiled by Bloomberg. It has not made any acquisitions in more than two years, the data show.

Jahwa’s Overseas Acquisitions

Today’s agreement is the first after Shanghai Pingpu Investment Co., an investment arm of Ping An Insurance (Group) Co., on Nov. 7 won the right to acquire Shanghai Jahwa Group.

Shanghai Jahwa is in talks with three to four overseas cosmetics companies for possible acquisitions, Chairman Ge Wenyao said today, without elaborating.

Shanghai Jahwa Group announced plans to sell assets, including a 29 percent stake in its Shanghai-listed unit Shanghai Jahwa United for 5.1 billion yuan in a move to raise funds for expansion into the luxury products market and to help it compete with overseas rivals.

It also plans to expand into the luxury segment such as jewelry, watches and may also acquire overseas brands, Ge said in an interview in August.

--Jin Jing in Shanghai and Vinicy Chan in Hong Kong, with assistance from Herngshinn Cheng in Tokyo and Stephanie Wong in Shanghai. Editors: Subramaniam Sharma, Suresh Seshadri

To contact Bloomberg News staff for this story: Jin Jing in Shanghai at jjin32@bloomberg.net; Vinicy Chan in Hong Kong at vchan91@bloomberg.net;

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net


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