In the highly competitive world of cosmetics, Japanese beauty (J-Beauty) firms like Arie Milott are carving out a unique niche. The global cosmetics industry is increasingly influenced by consumer demand for natural ingredients and ethical sourcing. Arie Group, under the leadership of Naoko Ishibashi, is not only meeting these demands but also setting new standards in the industry.
J-Beauty brands have historically faced stiff competition from Western brands as well as the upcoming K-Beauty industry with their strong marketing capabilities, but something that not a lot of people know is that a lot of the active ingredients in these products are made in Japan by Japanese manufacturers. Also, there is a shift in consumer preferences towards the Japanese mindset of “less is more,” and ethically sourced ingredients. What do you believe are the advantages of J-Beauty brands over other competitors?
As a J-Beauty cosmetic brand, we firstly develop one-of-a-kind cosmetics, secondly we strive for Japanese quality that is made here in Japan, which we commonly refer to as the Japanese quality standard. We also want to be a company with a global presence in Europe, America and Asia
We are very particular in being a company that provides a one-and-only unique product, a common practice among Japanese companies. In our case, we have developed our own original Earth Plus antibacterial photocatalyst as well as our Refresh Aroma stress-relieving aroma agent. These are both our own original formulas that have become our signatures.
The cosmetics industry is expected to grow almost 5% annually over the next five years, from USD 580 billion to USD 716 billion. This represents a huge markup in growth, and the expected drivers will be Gen-Z purchases, especially via social media channels. Another key growth driver is expected to be new cosmetics that are focused on natural ingredients. Could you tell us from your perspective what you believe will drive growth in the cosmetics space for the upcoming years?
The growth drivers will be the usage of beauty brands outside of Japan. There will be more exports of J-Beauty brands and greater penetration in overseas markets. On the other hand, inbound purchases from tourists have been increasing now that COVID-19 lockdowns have been removed. With the growth of inbound tourism, the consumption of Japanese cosmetics goods will also increase.
Another aspect of growth could come from the aging population. In just 15 years, one in three people is expected to be over the age of 65, and with this, we are seeing famous brands such as POLA developing products for the elderly such as their Wrinkle Shot lineup. In terms of the aging population, what kind of market opportunities do you see for your firm?
This aging of the population is creating a reverse pyramid however I don’t see any issues as a result. The healthy lifespan of people is increasing and more senior people are going outside to be active with cosmetics on. There will continuously be more consumption of cosmetics, and as an ODM maker, it is important for us to cater to this elderly generation and develop products that are best suited to them.
Sustainability and ethical sourcing have become extremely important these days. Consumers are making choices based on what is in their products and as such they are becoming much more educated to the extent that microplastics have become something big in the news recently. We’ve met with companies like Shiseido, who are working with local farmers to ethically source ingredients such as yuzu. In the case of your company, you created eco-friendly packaging containers for your cosmetics. As an ODM, to what extent can you take the lead in terms of ethically sourcing and making sure your supply chain is more ethical and sustainable?
Our company has remained steadfast in our sustainable production mindset, something that came about much earlier than when sustainability became a mainstream topic of discussion. We received ISO 14001 certification in 2003 and since then we have been promoting ourselves as an environmentally sustainable company. As an ODM SME, there is a limit to the extent we can do, but we are trying our best to reduce CO₂ emissions. In addition, we have looked to carry out as much recycling as possible. This can be seen in our products such as Eco Press which is the eco-friendly packaging you mentioned in your question.
In terms of ethical and sustainable sourcing, we procure ingredients domestically and create formulas with minimalistic ingredients that do not require complicated supply chains.
On top of the ODM services that you offer, you also have your own development team. Arie became famous because of two developments, Earth Plus and Refresh Aroma. Could you give us some examples of how these two formulas have been utilized in products and how they augment the products they are manufactured into?
We did some research and development with a manufacturer on Earth Plus and we are now taking this Earth Plus ingredient and making hand soap and hand milk that are used in hospitals. Also, this Earth Plus ingredient is being used in masks, specifically, the part that needs to kill bacteria.
From our experiences, we have often heard that OEMs tend to focus on one or two types of product categories. Nihon Kolmar for example only does skincare, so when we came across your company we were very interested in the wide range of products you provide; skincare, haircare and body care. In addition to those, you have quasi-drugs, perfumes, and other toiletries. Why did you decide to have such a wide range instead of focusing on one particular product category?
Our group company, Milott, was established in 1935 from a makeup company. Since then, in response to customer needs, we have come to produce skin care, makeup, hair care, baby products, fragrances and quasi-drugs.
As an OEM maker, it is important for us to listen to the needs of customers and clients. We then take those needs and respond accordingly. Our continuous efforts to meet our client’s demands have led to the enlargement of our product portfolio. Since we are limited however in production capacity, collaborations and partnerships with academia and other companies are very important to us. Earth Plus is a good example of a product born of collaboration. We have an agreement in place with regards to the application of Earth Plus and we have managed to develop products with that manufacturer’s support.
In our research, we saw that you are responsible for the world’s first functional antioxidant oil, also known as EGC Oil. You’ve patented the manufacturing method where you are able to dissolve key ingredients directly into vegetable oil without the use of surfactants or emulsifiers. This poses a number of technical challenges such as precisely controlling the dissolution of vitamin C, chlorophyll, and others, and keeping it stable as you do so. Could you give us some insight into its uniqueness and what kind of products you are able to create from this EGC Oil?
The EGC Oil you mentioned essentially dissolves green tea essence into vegetable oil and was another example of a joint development with an ingredient manufacturer. The uniqueness is its high antioxidant power and have applied this EGC Oil to hand soaps and face cleansers. You could say that the downside is that since the oil contains so many antioxidants the color fades out easily. It is important to store it in dark bottles and avoid sunlight.
Your company has two main production bases, one in Japan and another in the Philippines. Obviously, the manufacturing levels in Japan and the Philippines are very different in terms of the technical skills of engineers and the overall environment around the factory. How do you ensure that the quality of the products you manufacture in the Philippines maintains the same quality standards as those produced in Japan?
Presenting and maintaining Japanese quality in both of our production bases is very important for us. We ensure regular audits where the Japanese quality assurance (QA) team visits Cebu, giving locals instructions and training the staff there. There is also an exchange program where Cebu workers come and work in our factory in Japan for a certain period of time. They acquire skills and know-how before going back to work in Cebu.
Arie is located near Mt. Fuji
The Cebu factory is highly productive, and the hallmark of the factory is the fast turnaround time. What kinds of new markets has this factory in Cebu allowed you to tap into? Has having a factory in the Philippines helped you expand your horizons and grow your business?
We have now increased our production capabilities to over 1 million units per month, with the factory operating 24 hours a day, 7 days a week. This has allowed our company to offer short turnarounds and short lead times to clients.
The reason we chose Cebu as our core location is because it basically lies right in the center of the ASEAN region. It is an easy-to-access location both for imports and exports. We are offering clients a location to export from almost anywhere in Asia.
From our understanding, European skin and Asian skin are very different. Asian skin is characterized by a thicker dermis meaning that it ages slower but scars easily. In terms of product development, to what extent do you take into consideration ethnicity and skin types? What products have you developed for those specific types of skin?
First and foremost, abiding by local regulations is critical, so we carefully choose the ingredients that are approved in local areas. We need to reach the needs of each region as well as provide proper usage. Depending on the region the demand can vary. An example might be a foundation we developed recently for black skin. We have a close relationship with our customers across the globe and cater to their needs specifically.
It seems like you are a smaller player in the value chain but you are also still able to leverage your bigger partner company as well as key partnerships with ingredient makers to develop new products. In terms of new partnerships within the value chain, are you currently seeking any new ones that could help you enhance your capabilities, whether that be domestically or overseas?
Yes, we are actively looking for partnerships. Overseas we have a partnership with a Taiwanese pharmaceutical university to develop ingredients before then applying those ingredients to cosmetics.
Besides the ASEAN region, where do you foresee overseas opportunities?
ASEAN, Europe, and other countries around the world are all within our scope. Wherever there is a need we are happy to supply our products.
Imagine that we come back in 2031 and have this interview all over again. What goals and dreams do you hope to achieve by the time we come back for that new interview?
This is the most interesting question so far! Our one-of-a-kind cosmetics, made in Japan and with Japanese quality, are used by many people all over the world. Arie cosmetics bring happiness to people all over the world.
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