Pigeon expands in the US with Lansinoh pioneering IoT

Japan is the 3rd largest market worldwide. Nonetheless, the country can no longer afford to over rely on its huge-yet-aging-and-isolated domestic market. How is Pigeon trying to overcome the challenges posed by the negative demographics and what is its position in the domestic market?

The decline of the birth rate has not completely stopped. The Abe’ administration is putting forward many measures to curb this challenge. The government is working in terms of improving the environment for working mothers in order to be able to take care of their children. As a matter of fact, last year the number of babies increased by 2,138. Therefore, it seems like this challenging trend is not over yet, but at least softening.

As far as our business is concerned, our sales are 50% in the domestic market and 50% from overseas. When you look at the Japanese market, although we see some positive trends, we already have a very high market share in the domestic market with 80% market share in nursing bottles and 70% in pumping bottles. Even in the skin care and toiletries area, we have 40% market share. Continuing to grow in the domestic market will be challenging given the large share of our market. So, we are diversifying in Japan and also abroad with the launch of lifestyle products.

Many other developed countries will be facing the same challenges Japan is facing today. How would you describe the contribution of Pigeon towards a more sustainable welfare system with the provision of healthcare and nursing care products and services?

Our mission is to bring joy, happiness and inspiration to babies and families around the world by providing them with products and services that embody love. Our key corporate value is love, which is reflected in our logo that represents a double-heart. The bigger one for the mom and the small one inside for the baby. We will take this love and turn it into our products and services to provide better welfare to families and babies. Delivering our mission makes us an indispensable company to society. In order to provide products and solutions to our target customers, we are expanding our offer based on values such as comfort, convenience, and design. Our core strength resides in our employees that make these values possible as well as our product development division that enables us to provide such values.

As an example of our product development capability, one of the biggest problems babies and mothers face is nipple confusion. Some babies do not want to drink from nursing bottles because they are used to being breastfed; they know that something is different. In other cases, some babies will not drink from the breast after getting used to drinking from nursing bottles. This happens to about 20% of all babies. Pigeon’s nursing bottles have gained a favorable reputation among mothers because the nursing bottle, and especially the silicone nipple, function in a way that is so similar to the mother’s nipple that babies tend to experience less nipple confusion. This phenomenon can also happen when the mother goes back to work full time, since they usually pump their breast milk and feed them with the nursing bottle while they are at work and later on, the baby might refuse to be breast fed because they are used to being fed from the nursing bottle.

As an example of how our products have been accepted in the United States, when I was in America we organized a focus group with several mothers. I remember there was one of the husbands that was afraid his wife would have to return the silicon nipples and nursing bottles to us at the end of test, because it was the only one their baby could use. There are more than several companies in the market producing nursing bottles and nipples. We were told that the baby could not suck any of the nipples besides ours. They told us it was a lifesaver for them.

Probably other competitors don't have the means to perform an in-depth research as we do at Pigeon. Though nothing can exactly replicate the natural aspect of breastfeeding, we conducted extensive research to better understand breastfeeding. We closely observed and investigated the drinking action, and by combining it with scientific verification; we identified the three key factors of the sucking process. The baby’s sucking process can be broken down into the following key factors: 1) Attachment (the baby latching on to the nipple); 2) Peristaltic tongue movement (the baby’s tongue moving in a wave-like motion over the nipple to suck breast milk); and 3) Swallowing (the baby swallowing the breast milk down into the esophagus, breathing at the same time as the tongue moves). In addition, babies cannot control the amount of milk they are getting. Therefore, we pay extra attention to the cut on the top of the nipples and their design to facilitate sucking.

Could you please give us more details about Pigeon’s presence in the US with Lansinoh Laboratories and the strategies and R&D solutions you are focusing on to conquer the US market?

We started our overseas operations in 1966. For a long time, our market share was only 5-6% until 2000. In that year, we reached for the first time more than a 10% share. One of the reasons we couldn't achieve that overseas growth sooner is that we had a couple of businesses that didn’t go very well, for instance in Nigeria. The domestic market was our core market at that time, so we concentrated on expanding sales in the domestic market rather than expanding globally where we were having a hard time growing.

In Japan, the number of babies peaked in 1973 at around 2 million. However, ever since it has started declining. In the 1990s, we felt it was necessary to go overseas to make the company grow. So, we started building plants overseas. Our first plant was in Singapore and the second in Thailand. Some of the breakthroughs that contributed to our overseas demand, were when we launched our operations in China in 2002.

The business relationship with Lansinoh started in 2000. Lansinoh was one of the OEM suppliers for the Thai plant. They had a very high share of the market in nipple cream, as they utilized the world’s purest lanolin. Because of the quality and market share, Walmart selected Lansinoh as a brand category captain and asked Lansinoh to supply a wide range of good baby-feeding accessories and other products for Walmart. That’s when Lansinoh paid attention to the breast pad that Pigeon was making. Our business with Lansinoh grew rapidly and in 2004 we acquired it.  

Before we acquired Lansinoh, Pigeon didn’t have any subsidiary in the US or Europe. However, Lansinoh had a presence in Europe as well, so it was a good opportunity to expand in both continents at once. We would like to expand our business beyond breast-feeding related items. Our strategy is to utilize the two separate brands. In Japan and Asia, it is Pigeon; whereas in the US and Europe, it is Lansinoh.

Many companies today are taking advantage of the emerging trend of IoT. How can a company such as Pigeon also develop innovative products by leveraging this technology?

We have started utilizing information technology to develop our smart connected products. We analyze the customers and products’ data utilizing the technology to bridge the products with the customer. It is, indeed, a big change also for us. For instance, we have started selling our smart breast pump in the US. Traditionally when you use IT you would have it embedded within the device itself, but not other ones. But our smart breast pump can be connected to smartphones, for instance, in order to collect the data about the quantity of milk or the pressure used to suck the breast and it stores in the smartphone. For our company, it is of crucial importance to have those data for the development of future products. The smart pump is very popular since we launched it in the States.

It would be difficult to develop such smart connected products in Japan.  For the future product development, the Silicon Valley for instance is better placed with its cutting-edge technology and know-how. Therefore, we would like to take advantage and build synergies with companies in the Bay area and turn it into new products and introduce them to the rest of the world.  

Pigeon was awarded the “TSE Grand Prize for Enterprise Value Improvement” and “IR Excellent Company Special Award” and the “Porter’s Prize.” Could you please give us more details about the financial highlights that made Pigeon achieve these results?

First of all, last was the first year from the launch of new ROE-driven equity policy. Prime Minister Abe affirmed companies need to pay more attention to the capital productivity and we need to improve the communication with the capital market. We understood that by following this policy we would raise the value of our company.

Last fiscal year, our ROE was 21.3%. ROE is of course important. However, I think the real source of our corporate value is twofold: on one hand, we have societal values, namely our contribution to society as a whole; on the other, economic value. With regards to the former, I mean that Pigeon is indispensable for society. In order to be indispensable, Pigeon needs to continuously deliver solutions and new value. You can only achieve that with the motivation of the employees. Employees need to be highly motivated. Our company was number 1 in terms of employees’ remuneration increase for two years. This year we were number 4. But next year we want to be on top again as number 1!

When it comes to the economic value, you may think about the stock price. However, stock prices may not reflect the value of your company as it may be affected by political and exogenous economic factors. Therefore, I believe that the economic values stem from the present values of free cash flows for our future business. We aim to increase free cash flows down the road by making investment as effectively as possible.

The reason why we won the “TSE Grand Prize for Enterprise Value Improvement” is because of this key metric we use, the Pigeon Value Added (PVA).

President Yamashita, Pigeon has recently celebrated its 60^th anniversary. You set your vision in order to make Pigeon the “Global Number One” baby product manufacturer. How would you describe the strategic objectives you would like to achieve during your mandate and what is going to be the role of the US market in the long-term growth strategy?

My vision is to be the baby product manufacturer most trusted by the world’s babies and families, i.e. Global Number One. We aim at number one market share for nursing bottles, nipples, and breast pumps. There is still a long way to go. When you look at the American market, our nursing bottles market share is less than 1%; breast pumps we are number 2, but there is still considerable room for growth. So, my ultimate goal is to be number 1 in all these three categories in key markets.

At the same time, we need to strengthen our brand image. I want Pigeon to be globally recognized as the most trusted brand.