Bloomberg News

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

November 27, 2011

Nov. 26 (Bloomberg) -- Kao Corp., Asia’s biggest cosmetics maker by market value, plans to expand its reach into smaller Chinese cities by using the sales and distribution 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 yesterday. Tokyo-based Kao agreed to use Shanghai Jahwa’s sales and distribution network.

Kao, which competes with domestic rival Shiseido Co. as well as Unilever and Procter & Gamble Co. in China, will work with 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 work with 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 buy overseas beauty care companies as it seeks to expand outside Japan, where a stagnant economy and an aging population are damping growth.

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

Overseas Acquisitions

Jahwa is in talks with “three to four” overseas cosmetics companies about possible acquisitions, Chairman Ge Wenyao said today, without elaborating. It’s also in talks with L Capital, the private-equity unit of LVMH Moet Hennessy Louis Vuitton SA, over cooperation, and the French company is interested in its spa business and Shanghai VIVE, Jahwa’s high-end cosmetics line, he said.

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

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

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

--Jing Jin in Shanghai, Vinicy Chan in Hong Kong, with assistance from Cheng Herng Shinn in Tokyo and Yang Huiwen and Stephanie Wong in Shanghai. Editors: Subramaniam Sharma, Joshua Fellman

To contact Bloomberg News staff for this story: 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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