Among an aging population that has lost interest in sweet, fizzy drinks, healthy tonics have become an elixir for Japanese beverage makers
Kozo Toyoda, a 55-year-old yakitori restaurant owner in Tokyo's Koto ward, says he hopes he can shed a few pounds by drinking a diet-assisting tea. He's certainly no health freak. Overweight, he admits to drinking large amounts of beer and doesn't have the time to do more exercise. But after quitting smoking, he now plans to use the extra cash to buy tea drinks that can aid in weight loss. "I'm thinking of trying some of the ones endorsed by the government," he says. At $1.70, one bottle of Suntory's Kuro Oolong-cha tea is a little more than half the price of a pack of cigarettes.
Japan's $48-billion-a-year soft drink industry, second in size only to that of the U.S., is increasingly looking to consumers like Toyoda. Stymied by a shrinking—not to mention graying—population, drink sales in 2007 dipped 0.5% despite around 1,500 new teas, juices, and other drinks making their debut every year. Prices have barely risen in a decade, hurting earnings and forcing companies to conjure up increasingly innovative marketing ideas. In June, PepsiCo's (PEP) Japanese partner Suntory even resorted to discontinuing a new Ice Cucumber brew after just two weeks to create a marketing buzz (BusinessWeek.com, 8/6/07).
Yet amid the gloom, one segment of Japan's beverage market is booming: drinks that offer health benefits. With soda sales flat, beverage companies are flooding the market with a spectacular array of new products that offer far more than simple refreshment. There are teas, such as Kao's Healthya Ryokucha, a green tea, which are touted as slimming, and vitamin drinks packed with 2000mg of vitamin C, equivalent to 20 lemons, that are meant to ward off colds. For the beauty-conscious, there are bihade, or beautiful skin, drinks containing collagen and hyaluronan, while Kirin's Sapli, launched this month, claims to wards off constipation.
A Good-for-You Surcharge
Many are incredibly popular. Suntory's Kuro Oolong-cha tea, launched in 2006, is one of Japan's best-selling soft drinks. Containing 70mg of polyphenole per 350ml bottle, the drink helps the body absorb fats. In its first year, Suntory sold 148 million bottles, three times more than expected, helping its health drink division's sales increase nearly 90%, to $330 million. "Japanese are addicted to healthy drinks," says Yasuhiro Matsumoto, an analyst at Shinsei Securities in Tokyo. He adds that drinkmakers can also charge a little more for products that contain less fat, fewer calories, or offer weight-loss advantages.
It's hard to define exactly how big the sales of healthy drinks really are. One problem is that many are marketed as "healthy" even if benefits are limited, unknown, or in some cases downright dubious. One example: Sales of bottled water with an extra shot of oxygen have increased 71% in the past five years. Nevertheless, analysts estimate sales of health-related drinks were roughly $6.2 billion in 2007, with products containing health-promoting ingredients such as catechin, amino acids, collagen, or vitamins accounting for 82% of the total.
Many of the most successful new drinks are those that receive a governmental stamp of approval, confirming healthy properties. The market of food and drinks deemed by the government to have special health benefits, known as tokuho, has grown five times in the past decade to $6.5 billion a year, with drinks such as Suntory's black tea accounting for $963 million of the total.
It's easy to identify the attraction. In a country with an aging population (the average age is now 46), demand for sweet, fizzy drinks beloved by younger generations is falling. Meanwhile, for salarymen who have long sipped energy drinks crammed with caffeine and other pick-me-ups to make it through long working days, a tea or soda that promises health benefits isn't a big leap of faith.
"It's Not Just a Fad"
Perhaps most important, health concerns are rising. In particular, worries over metabo, a buzzword covering a host of metabolic disorders, are at epidemic levels. One driver: a government warning that men with waistlines more than 33 inches (35 inches for women) are at greater risk of falling victim to high blood pressure, diabetes, or other ailments. That might not be news in many industrialized countries, but in Japan, aided by a huge media debate, it triggered beverage makers to set about developing more healthy offerings. "The health of the aging population is definitely at the core of some of these products—it's not just a fad," says Michael Fiorella, who runs strategic marketing firm Spark Productions in Tokyo and blogs on trends on the Japan Marketing News Web site.
While hardly a panacea, health-improving soft drinks offer an easy fix without the need to drastically alter lifestyles. Drinks aiding in weight loss are especially popular. Drinks without government approval can also be successful if the marketing is right. At Kagome, another drinkmaker, sales of Labre, a vegetable-based lactic acid drink, reached $96 million last year, in only its second year. Rather than seek government backing, Kagome relied on a TV ad campaign featuring a popular actress to buoy sales. It was so successful that the company couldn't keep up with demand in Labre's first year and had to halt sales for several months in much of Japan. "People who actually drink it realize its efficacy and many of them became regular customers. We don't see any need to apply for governmental approval at the moment," says Takashi Kono, a spokesperson for Kagome.
Still, a huge array of healthy brews isn't guaranteed to increase drinkmakers' sales and earnings indefinitely. One challenge is keeping down costs. Developing new drinks requires sizable research and development investments that often don't pay off. To succeed, "they have to provide something new, they have to be quality, and then on top of that they have some special ingredient," says Dave McCaughan, director of strategic planning at McCann WorldGroup Asia-Pacific in Tokyo. "A lot of the drinks don't make money." Indeed, McCaughan knows of one drinkmaker that saw a loss on 33 of 37 soft drinks in 2006. Thankfully, the profitable ones were huge hits.
In time, customers might also begin to question the effectiveness of the drinks. Kazuhiro Aizawa, 45, a Tokyo-based securities trader, used to drink a bottle of Kao's Healthya tea each day, hoping that drinking a health drink every day would decrease his body fat. After six months, however, he stopped. "I couldn't see any apparent differences," he says. These days, he's swimming three times a week instead.