In the face of Japan's aging population and declining birth rate, the cosmetics industry is shifting focus from domestic to global markets. Emphasizing simplicity and functionality, companies like Shinnihonseiyaku are catering to both older consumers and younger generations with eco-friendly, all-in-one products.
What is your take on the impact the current market landscape in Japan is having on your business, and what silver linings do you see?
I agree with your sentiment on Japan’s pressing issue of a declining and aging population, coupled with a low birth rate. Many firms within various industries share similar concerns stemming from these demographic challenges. Since 2014, the Japanese industry, especially the cosmetics sector, has shifted its focus from the domestic market to global markets. The shifting demographics, particularly the aging population in Japan, have significantly altered the demand for cosmetics. The domestic market now calls for simpler and more basic cosmetic products. Over the next two decades, we can expect a growing population in their 60s, 70s, and 80s, and with each generation, we anticipate the emergence of new beauty concepts.
The two key attributes of products catering to older consumers are simplicity and functionality. In view of the change in the current social situation, "Green Beauty" is poised to become the new trend for younger generations, while the demand for personalized cosmetics and healthcare continues to grow. Ninety percent of our sales are generated through e-commerce channels, both online and offline. Furthermore, 70% of our customer base falls within the over-60 age group, showing a substantial and growing market segment that we are well-positioned to serve. Understanding and readily catering to the needs of these senior generations would be an important business strategy for us.
We have designed a business model targeted at younger generations, emphasizing a simple and all-in-one cosmetic approach. While we already enjoy substantial support from middle-aged seniors, there is an opportunity for us to further penetrate the younger generation market. This approach will enable a smooth transition from younger consumers to middle-aged seniors through our all-in-one cosmetic products.
Many cosmetic products such as shampoos, creams, and lotions use a lot of petroleum derivatives as a preservative to extend their shelf life. We have interviewed some interesting firms that have created a petroleum-free alternative as a functional ingredient. What measures or steps are you taking to make your products as environmentally friendly as possible and achieve the Green Beauty standard?
We recognize the importance of reducing our environmental impact by transitioning from petroleum-based ingredients to plant-based alternatives. This shift is a crucial step toward achieving environmental sustainability. To advance this goal, we are actively engaged in collaborative research and development initiatives with partner companies and academic institutions to create petroleum-free ingredients.
In the past decade, Japanese cosmetics have increasingly shifted their focus to international markets. At least in the West, when we look at Asia, the focus for cosmetics is Korea, often associated with K-beauty and the global phenomenon of BTS. It's really a strong cultural export right now. What do you think are the key differences between the J-beauty and K-beauty concepts? What would make the J-beauty concept more appealing to prospective foreign clients?
I greatly admire and recognize the effectiveness of K-beauty's global strategy. It's a remarkable approach where they initially export their culture, and then the beauty industry follows suit. This can be seen as a national approach to global marketing. In contrast, the Japanese gaming industry, represented by iconic characters like Mario and Pokémon, enjoys global recognition. However, it's relevant to mention that international local marketers often take the lead in penetrating markets for these products. This suggests that Japanese individuals and companies could benefit from learning more about effective strategies for exporting their culture and products.
A fundamental distinction between J-beauty and K-beauty lies in their approaches to skincare. K-beauty typically involves numerous steps and multiple products, and it can be costly. On the other hand, Japanese beauty embraces a simpler approach with a focus on high-quality products. Consequently, the number of cosmetics required to achieve similar results can be notably different between the two.
With regard to the trend of globalization over the last 10 years, it is our contention through this report that this is a particularly exciting moment for this kind of cultural export. Japan has strong domestic processing technology and manufacturing capabilities, being an ODM serving famous Korean brands. With the very weak yen, they are in an ideal position to take advantage of this moment and make a big push to explore and establish themselves internationally. Do you agree with this sentiment?
I agree. There is indeed a significant export opportunity for Japanese companies, but the success of this endeavor heavily relies on effective marketing strategies. Currently, our marketing strategy is oriented toward the middle-senior age group, and we employ various offline outlets for promotion, including television and media, newspapers, and magazines. There is a growing population of middle-senior generations in regions such as North America, Europe, and East Asia. By maintaining our focus on these customer segments, we can tap into a high potential for overseas growth. Moreover, the yen depreciation can further facilitate our expansion efforts in international markets.
One of the big challenges Asian cosmetics and health brands often face is adapting their products to the local characteristics of a particular region, like Europe. Caucasians and Asians differ in skin tones, eye shapes, and facial bone structures, etc. It is often difficult for brands to tailor their products to the local demands. What are your thoughts on this issue? How is your company facing the complexity of exporting Asian-focused products into the Western or Southeast Asian market?
We are fully aware that the skincare needs in North America and Europe differ significantly from those in Asian markets due to variations in skin composition and climate conditions. Skin texture and local climate are critical factors to consider. For instance, Japan experiences high humidity during the rainy season, which impacts skincare requirements.
To meet these unique needs, we are committed to tailoring and localizing our products to each region while using the same crowned brand. Our strategy is not on a product-out basis but rather follows a market-in approach. This means that we prioritize understanding the specific skincare needs of each region and incorporate these insights into our product development. For instance, our product "Perfect One" will retain the brand name and continue to uphold the concept of providing simple skincare. Simultaneously, we will localize it to cater to the distinct requirements of each market and continue to make sincere efforts to improve it.
Can you tell us in more detail about the Murasaki plant derivative, one of the new active ingredients that you have been researching recently in collaboration with Hiroshima University? The shikon or the root extract from the Murasaki plant has a high potential to be used for skin care and other anti-aging products. Can you elaborate on some of its specific effects and benefits?
Our journey traces back to 2006 when the Murasaki plant was endangered, and finding farmers cultivating it became very difficult. Traditionally, this plant has been valued for its healing properties, often referred to as "shiunkushiunko," an ointment used to heal wounds. Recognizing the efficacy of the Murasaki plant in wound healing, our company has made it our mission to revive its cultivation and harness its active ingredient for various applications, including cosmetics, hair care, and other health benefits.
Over the years, through dedicated research and development efforts, we have successfully established a method for cultivating the Murasaki plant and extracting shikon essence from its roots. This achievement marked the beginning of our collaborations with academic institutions such as Hiroshima University and Osaka Pharmaceutical University to determine the efficacy of shiunkoshiunku or the wound-healing effect of the Murasaki plant. Through our collaborative research with Hiroshima University, we have achieved a significant breakthrough: the development of patented Murasaki fermented collagen. We are now preparing for the utilization of this newly developed essence.
Do you have a tentative date for when this will be commercialized or released?
We plan to incorporate this active ingredient into the product during its renewal in October.
Are you seeking the opportunity to partner with foreign universities or companies as part of your product development process?
We actively foster open innovation in our research and development efforts by collaborating with academic institutions and companies such as Nihon Kolmar and Cosmetics Japan. Our existing partners work in cooperation with overseas firms thus providing us with a huge network for research. Additionally, we are actively pursuing individual partnerships with foreign companies and academia.
Your company sets an interesting intersection between cosmetics and health care. As Japan continues to struggle with an overburdened healthcare system, we are seeing a shift from a treatment model to a prevention model. This offers a big opportunity for the proliferation of health supplements, vitamins, and quasi-drugs to prevent the onset of illness or sickness. You have also diversified in this way with wellness goods, other quasi-drugs, and similar wellness products. What opportunity do you believe exists for manufacturers like yourself due to this shift from a treatment to a prevention health care model?
The aging population poses a significant challenge due to the rising medical expenses in the national budget. In Japan, the availability of low-cost treatment through the national insurance system has led to limited awareness of self-medication and preventive measures among the population. However, recent developments have spurred greater awareness among middle-aged and senior individuals regarding the importance of prevention and self-medication, including the use of supplements and health foods. Consistent consumption of health foods and supplements can play a role in preventing and addressing age-related health issues that may not necessarily require pharmaceutical interventions. As a company, we aim to contribute to creating a cycle of prevention by offering healthy products and dietary supplements to support individuals in maintaining their well-being.
While more than 90% of the sales come from the cosmetics section, your healthcare products are quite marginal. Are you looking to build or grow that segment of your business?
Our midterm goal is to achieve a 20% market share in the health foods sector. In Japan, there is a significant demand for supplements that can address the lack of vegetable nutrients in daily diets. Green vegetable juice is a popular method for obtaining these nutrients, and the market is worth approximately JPY 80 billion, representing a substantial opportunity. Today, there is a growing emphasis on enhancing nutrition and incorporating additional functionalities like fat-burning and metabolism regulation. We are committed to fortifying our product range in the green vegetable juice category. Customers who already support our Perfect One brand purchase this vegetable juice, which is consumed by individuals of all genders and family members. Additionally, we aim to increase our market presence through our entry into the cosmetics industry.
Looking at the future, which regions or countries do you identify as having the highest growth potential for expansion?
At present, our primary areas of interest for expansion are the eastern and western regions of Japan. The eastern side, including East Asia and Southeast Asia, presents an attractive market due to the similarity in skin composition to that of the Japanese people, with a market of approximately two billion people. Since the largest market remains in the United States and North America, we aim to pursue a comprehensive strategy and approach multiple markets globally.
In contrast to the 10-step K-beauty regimen, Japanese beauty emphasizes simplicity, typically involving fewer than five or six products. This presents a significant opportunity for Japanese companies to promote the concept of simple skincare on a global scale.
In 2014, we rebranded our current product, Perfect One, from Daphne Raffine to convey the idea of simplicity and perfection combined into one, which forms a crucial aspect of our marketing strategy. Perfect One was recognized by Guinness World RecordsⓇ as the Largest facial moisturizing gel brand.
Imagine we come back to interview you again on the last day of your presidency. Is there a goal or an ambition that you would like to have achieved during your time as president before handing over the company to the next generation of executives?
My biggest dream is to attend the company's 100th-anniversary ceremony, even though I will be 121 years old by then. However, I don't plan to remain the President until that time. My goal is to lay the foundation for our expansion into overseas markets in the health and beauty sectors before I step down from the presidency.
There is a growing GDP in regions like Southeast Asia, the Middle East, and Africa, which creates new markets and increasing demand for health and beauty products. While I may not be the one to establish a strong presence in these overseas markets, my aim is to pave the way for the next generation to achieve this goal.
When I do attend the 100th-anniversary ceremony, I hope to see our products being used worldwide. That would signify the fulfillment of my life's purpose.
For more details, see: https://corporate.shinnihonseiyaku.co.jp/en
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