No rash moves: Kao aims to bolster 'Made in Japan' cachet in China diaper market

Kao

02/08/2019 24:30

* Kao's new luxury Merries line made in Japan, but only for
China
    * Merries sales hit by China crackdown on cross-border
resales 
    * Kao says eventually wants to shift manufacturing to China

    By Ritsuko Ando and Pei Li
    TOKYO/BEIJING, Aug 2 (Reuters) - Like many urban Chinese
professionals with young children, Shenzhen-based fintech
executive Jacob Cao is a fan of Japanese diaper brands including
Kao Corp's  4452.T  Merries.
    While he knows some Merries are made in China, with little
difference in quality compared with higher-priced versions from
Japan, he prefers the latter.
    "I just get the feeling the Japan-made ones are better, to
be honest," said the father of 20-month old twin girls.
    The perception that Japanese baby products are superior owes
much to Chinese aversion to homegrown goods after a tainted milk
formula scandal in 2008. It has served Kao well, propelling it
to the No.2 spot in the world's biggest diaper market despite a
late entry in 2009.
    But Kao's sales have been hit after a clampdown by Beijing
last year on "daigou" merchants, who buy goods abroad for resale
online in China. More reliant than rivals on daigou sales, its 
baby diaper sales tumbled 14% in the first half compared to the
same period a year earlier, the company said this week. 
    To preserve and bolster the made-in-Japan cachet, Kao began
selling a premium line of "Tender Love" Merries in June,
produced in its home market but only for sale in China.
    Made of soft, silky fabric, they cost 4.9 yuan per diaper or
roughly 200 yuan ($29) for a medium-sized pack of 40, more than
double the price of standard Merries and considered too
expensive to market in Japan.
    "Our strategy in China is to go for the premium market. We
don't want to go for volume," said Tomoharu Matsuda, Kao
managing executive officer in charge of consumer products. 
    Promoting made-in-Japan products comes amid emerging
competition from Chinese brands in premium diapers and despite
Kao's longer-term goal of producing all diapers for the Chinese
market in China, which would help it manufacture and distribute
more economically.
    Baby diapers make up roughly half of Kao's sales in its
"human healthcare" division, which in turn accounted for 18% of
$14 billion in revenue last year.
    
    P&G SHARE LOSS  
    Estimated to be worth some $9 billion in annual sales,
China's baby diaper market is five times bigger than Japan's and
is expected to show a double-digit compound annual growth rate
through 2023, according to research firm Euromonitor.
    In the past five years, Kao has doubled its China market
share to 10%, mainly at the expense of Procter & Gamble Co
 PG.N , which has seen its share tumble to 19% from 33%. Huggies
maker Kimberly-Clark Corp  KMB.N  has 8.6% and Japan's Unicharm
Corp  8113.T  has taken 7% with its MamyPoko and Moony brands.
    P&G, which introduced China to disposable diapers in the
1990s when most babies there were wearing open-crotch pants, has
also sought to benefit from the made-in-Japan cachet.
    Two years ago it began production in western Japan for its
brand "Ichiban" - the Japanese word for "best". Sold mainly in
China, they are priced at around 2.0 yuan per diaper. 
    Unicharm opened a new factory in Japan's southern island of
Kyushu this year to bolster production of diapers for the
Chinese market.
    But it is taking a slightly different tack from Kao. In
recent months it began making a premium Moony diaper in China,
which are sold for 3.5-4 yuan each, in line with pricing for
existing imports from Japan.
    "Demand for 'Made in Japan' still exists, but needs are
diversifying," said Unicharm spokesman Hitoshi Watanabe.
"Consumers are no longer making decisions based solely on where
something's made."
    Kao's Matsuda agrees that change in consumer sentiment is
coming, but the company remains wary of making hasty moves. He
noted made-in-Japan Merries diapers, which cost 1.8 yuan each,
are still more popular than those made at its Anhui factory
which sell for 1.6 yuan each. 
    "We'll need to carefully consider how the market develops.
For now, there are people who still say it has to be made in
Japan," he said. 
($1 = 107.9300 yen)

 (Reporting by Ritsuko Ando in Tokyo and Pei Li in Beijing;
Additional reporting by Richa Naidu in Chicago; Editing by
Edwina Gibbs)
 ((Ritsuko.Ando@reuters.com; +81 3 6441 1743; Reuters Messaging:
ritsuko.ando.thomsonreuters.com@reuters.net))