The latest regulatory trends, ingredients and products

Mixed results for the mail-order business
The growth of the health-food industry has made a big contribution to increasing sales in the mail-order business. However some health-food companies are suffering poor sales. Co-Q10 and alpha-lipoic acid were very popular products in 2005, but following the boom in those ingredients, health-food sales of companies such as Fancl, AFC and BST have fallen below the previous year's levels.

Fancl's revenues from its mail-order business, one of its most profitable, decreased by about 16.9 per cent. The sales decline of $800 million in co-Q10 and alpha-lipoic acid seems to have impacted its business. On the other hand, the company's beauty products with collagen, in addition to weight-loss products, increased sales by $600 million in total. This still wasn't enough to compensate for the sales decline of other, once-popular products.

Lackluster results in the health-food mail-order business were mostly caused by the end of the co-Q10 boom, but also the slowdown in new customer growth. Fancl used to get an average of 2,000 new customers per month, but that has slowed to 1,000 new customers per month.

There are indications that the health-food market is becoming more competitive as a result of major companies' entry into the market.

For example, Suntory Ltd and Kagome Co increased revenues to double-digit figures. According to Suntory, sales of the Sesamin product line increased 20 per cent in the first half of 2006. Kagome's original juice, only available though mail order, also boosted sales and midterm results. As of September 2006, they were up by 20 per cent. Kagome promoted its vegetable juice and seasonal fruit juice through newspaper advertising as well as TV commercials for the first time and "succeeded in increasing new customers to a large degree."

Manufacturers such as House Foods and Calpis Co have also joined the mail-order business, and the market shows not only competition among major mail-order companies but also competition from manufacturers who distribute through the mail-order channel.

Both companies have taken advantage of their strength in brand marketing and continue to promote their traditional products, which support their sales growth. Suntory's competitive strength is to achieve strong customer loyalty while focusing on developing new products. It also launched weight-management foods last season. Kagome launched a new product, Marugoto Daizu, made from whole soybeans, and sales are going well.

Suntory emphasizes FOSHU
Suntory announced a policy of focusing on health-related R&D beginning December 2007, and it will increase the R&D budget by 10 per cent from its current $145 million. The budget will be allocated particularly for developing FOSHU products. Suntory's Kuro Oolong Tea, which helps to suppress fat absorption, was a major project. However, Suntory also sells many other health-related products, such as Sesamin, with a component derived from sesame.

As society ages there is concern that the demand for alcoholic beverages will reach a peak in the future, but because health foods are more profitable and expected to have higher potential growth than general foods, Suntory has decided to focus investment on R&D for those health products.