The race to innovate
Japanese firms are developing innovative new products for the domestic market while expanding overseas. Julian Ryall reports.
Consumers in Japan are notoriously fickle and constantly in search of the next greatest product – and for a nation that takes its food very seriously, that applies doubly to the confectionery sector.
Sales of ice cream have been strong in recent years and continue to grow, although chocolate confectionery sales equated to €2.5bn in 2013, a minor contraction on the previous year – blamed on poor weather during the traditionally busy summer months. Looking to the future, market watchers warn that a more intractable problem will be a shrinking and ageing population, with fewer youngsters in the average Japanese family.
Analysts do not expect that shrinking domestic consumer base to be reversed any time soon. Indeed projections suggest that the country’s total population could fall by one-quarter from 127.8 million in 2005 to 95.2 million by 2050. As a result, leading Japanese firms are increasingly looking to develop eye catching new products to command more domestic market share and simultaneously expand into markets overseas.
“In Japan, more so than other markets, packaged food products tend to have a very short product life cycle,” says Yukino Kawabata, a research analyst for Euromonitor International.
“New products are launched almost every week and even more frequently in the chocolate and ice cream markets due to the popularity.
“The frequency of launches also depends on seasonality, as more ice cream and chocolate varieties are launched at the beginning of spring and autumn,” Kawabata tells Confectionery Production. “Japanese companies can release new products without the expectation that these products will be around for a while as there are a lot of consumers that expect these new product varieties.”
Forward thinking
An interesting example of a company thinking a long way outside the box specifically for the Japanese market was the introduction by Häagen-Dazs of vegetable-flavoured ice creams. While its carrot and tomato varieties failed to generate major sales, the initiative attracted a lot of attention and the company is faring well in Japan, an outlier for international brands.
“While imported chocolate products are equally popular as domestic chocolate brands, domestic brands dominate the retail landscape within the ice cream market – with the exception of Häagen-Dazs,” says Kawabata.
The US brand has been able to appeal to consumers thanks to its branding as a luxury product and popular flavours, with domestic brands catching on to the way in which overseas firms do business.
“Besides positive growth from weather related drivers, ice cream is growing as an increasing number of adults are consuming more premium position products, which serve as a small indulgence for adults,” adds Kawabata.
It also helps that manufacturers are taking advantage of flavours that are extremely popular in Japan, but are far more niche in other markets, such as green tea ice cream. “Even though the population of Japan is expected to fall, an increasing base of middle aged and elderly consumers are consuming premium ice cream products, such as Morinaga Milk’s ‘Parm’ and Meiji’s ‘Gran’, which is a positive thing for this category.”
Outside the major manufacturers, small concerns, which are often family run, produce limited amounts of truly exotic ice cream each year, many of which are only available locally or in food theme parks. Flavours can range from the unusual to the downright odd and include squid ink, shark fin, crab, horse meat, spicy chicken wings, pearl shavings (an unusual additive from a seaside town), beer, dried shrimp, salad, octopus with soy sauce, cow tongue and even hard boiled egg.
Quality trends
However, sales in the chocolate confectionery sector are expected to remain flat or even decline as products increasingly face competition from a variety of snacking options. The average unit price of chocolate confectionery in Japan continued to decline in 2013, according to a report on the sector by Euromonitor, with the price of cocoa on the international market rising and the yen weakening, putting manufacturers in a difficult position.
Nevertheless, there has been a clear trend towards adults selecting high-quality products, with manufacturers looking to meet that demand with targeted launches. In 2013, for example, Meiji Co Ltd launched Kyo Matcha Chocolate, flavoured with green tea from Kyoto, with the rich and bitter taste popular among adult consumers.
Meiji is the largest of Japan’s chocolate companies, with an 18.5 per cent share of the market in 2013. Lotte Co Ltd is the second largest player, with 13.4 per cent of the market, followed by Morinaga & Co Ltd, with 11.8 per cent. The top five firms are rounded out by Fujiya Co Ltd and Nestlé Japan Ltd.
“We launch new confectionery products every month, but for ice cream we release new ones mainly in March and September,” Tomohiko Uchita, a spokesman for Meiji, tells Confectionery Production. “It varies between products, but development of new lines generally takes between six and 12 months and products that incorporate health and premium value have been performing well lately.”
The company has seen the popularity of products containing high amounts of cocoa soar, which is largely due to a television programme that focused on the benefits of cacao polyphenol.
But with 90 per cent of its total revenue coming from the domestic market, Meiji is aware that it needs to broaden its horizons, although Uchita points out that some of the company’s products, such as ‘Hello Panda’ and ‘Yan Yan’, are already available in more than 40 countries around the world.
Specialist stores
Other firms are following suit, with specialist confectionery brand Yoku Moku, opening a number of stores in the United Arab Emirates (UAE)
and other Gulf states beyond. The first store opened in the region in October 2012.
There are 15 outlets at present and a further three shops scheduled to open in Abu Dhabi, Dubai and Sharjah in the coming months.
In June, Ezaki Glico Co Ltd, the seventh largest company in the sector in Japan and the creator of the Pocky chocolate covered biscuit stick, announced that it was increasing output at its production facility in Thailand to meet demand from across south east Asia.
The Osaka-based firm has invested several hundred million yen in its existing Bang Kadi factory, outside Bangkok, to upgrade one Pocky production line and improve productivity by 50 per cent. The company is predicting a 20 per cent increase in revenue in Thailand for 2014 and is considering further expansion of other production lines.
Similarly, Fujiya is aiming to take a bigger presence in China’s booming confectionery market, expanding its sales network from the eastern coastal area to inland regions. The company is targeting Chinese sales of €32m for the year to 31 December 2014, which would be a 30 per cent rise compared to 2013. And while that would be an impressive increase, Fujiya saw its sales in China leap 40 per cent in 2013 compared to 2012.
By signing sales contracts with agents across the country, Fujiya is aiming to get its products into 50,000 mainland Chinese shops. And while its products are substantially more expensive than locally produced items, its high quality range is proving popular with middle class consumers.
Moving ahead
In June Morinaga broke ground on its first US production facility, in the town of Mebane, North Carolina. Scheduled to become operational in June 2015, the 115-year-old company is investing €41m in land, buildings and equipment.
“We already have production sites in Taiwan, China and Indonesia to sell to the Asian and American markets,” a spokesperson for the company tells Confectionery Production, adding that the firm is responding to the rapid ageing of the Japanese population.
“We are losing our primary consumers – that is kids – so we have started to develop products that are also for adults,” the spokesperson says. “Trends in consumption are constantly and drastically changing,” she adds. “Consumers’ demands have diversified; consumers now love reasonable items and they also like products that ‘feel authentic’ but are still high in quality.”
The company prides itself on the unique and advanced technologies that are used in the research and development of new lines. Its Hi-Chew candy, for example, is very popular both in Japan and abroad due to its unique chewy texture and long lasting flavour.
“We have also been successful in adding innovative textures and significant flavours to chocolate, cookies and ice cream products through our original technologies,” says the spokesperson.
And Japanese buyers are a demanding audience, she adds. They want to know where the raw materials are sourced from, they want to know about the packaging materials, the production process and food safety.
“And they are very health conscious, interested in the calories and nutritional information on each product,” she adds.
But to really stay ahead of the competition in Japan’s tough domestic market, manufacturers know that they must not only offer quality and transparency, they need to offer something different, something unique. The world-famous Kit Kat bar marked its 40th anniversary in Japan in 2013, with Nestlé Japan running a special ‘arigatou’, meaning ‘thank you’, campaign for its loyal customers. A QR code on the packaging enabled purchasers to watch a special music video featuring popular singer Ayaka. Similarly, Fujiya held an open product development project that involved customers voting for their favourite flavour, with the winner going into production. Of the 12 flavours options, consumers chose the Mont Blanc dessert flavour and the chocolate has since gone into production.
