As a leader in Japan's hygiene products industry, Kao Company insists on innovation and uses cost control as a means to deepen the development of brand power and channel construction. In terms of R&D and innovation, Kao focuses on customer needs, continuously improves product performance, and creates high-quality products. The company's product matrix is constantly enriched. In terms of cost control, the company continuously optimizes and upgrades the supply chain through digital transformation to achieve stable and efficient product supply. In terms of channel construction, the company has established a sales company in Japan to strengthen channel control and expansion. In the process of continuously exploring channel construction in China, the company has established a breadth of online e-commerce and a deep channel model for direct sales in first-tier cities. Taking Kao as an example, a brief analysis of Japan's diapers industries can be made.

Infants and adultsdiapers develop differently

Japan's tourism economy brings consumption prosperity, and Chinese demand promotes the development of Japan's diapers market. From 2010 to 2015, the size of the Japanese baby market has increased year by year, and the output has increased from 8.63 billion in 2010 to 14.768 billion in 2015. Since 2013, the development of e-commerce and sourcing in China has brought a strong improvement to the Japanese market. In 2016, production declined due to the appreciation of the yen. After 2018, the Chinese government restricted procurement. The purchasing industry was hit hard, and the Japanese market continued to decline. In 2019, production will drop to 14.254 billion pieces, 10.7% below the peak level in 2017.

The reduction in Japan's newborn population has become an important factor limiting the growth of infant diapers demand. Since 2010, the proportion of new population and new population in Japan has decreased year by year, with a ten-year CAGR of -2.13%, showing an expanding trend. In 2019, the new population in Japan was 864,000, accounting for 0.68% of the total population, a year-on-year decrease of 5.92% and a year-on-year decrease of 3pct. The decline in the new population has led to a slowdown in demand, and the size of the Japanese market is on a downward trend. We expect that the driving force for future market growth will come from product upgrades and innovative R&D.

An aging population and health insurance policies have contributed to the size of the adult market. The main consumer groups include elderly incontinence people and diseased people, most of which are elderly incontinence people and their children or guardians. In 2019, Japan's population aged 65 and over reached 35.35 million, a year-on-year increase of 1.33%, accounting for 27.87% of the total population. It is the country with the most aging population in the world, with an aging population of 2.26% in the past nine years.

Competitive landscape: local brands dominate the concentrated development of the diapers market

Japanese adult diaper products are highly similar, and the pricing advantage helps Unicharm to expand its market share. Japan's three major adult diapers manufacturers are the same as baby products, namely Unicharm, Kao and Daio. The corresponding adult diapers brands are Le Huyi, Kao and Attendo. According to the company's annual report, Unicharm's adult care products accounted for 60% of the Japanese market in 2019, ranking first in Japan and Asia for several consecutive years. Unicharm has the most complete range of adult care products, with moderate pricing in the high-end market and obvious price advantages.

The Japanese baby diapers market started early and the market is relatively concentrated. At present, the four major brands in Japan are Unicharm, Kao's Miaoershu, Dawang, and P&G's Pampers. The market concentration of baby products in Japan is high, and the brand concentration CR5 in 2019 was 89.2%. From a corporate perspective, Unicharm, Kao, King, and Procter & Gamble's market shares in Japan are 36%, 24.3%, 9.3%, and 16.4%, respectively.

It can be seen from the above that the entire Japanese market presents a characteristic: the product market is mature and the industry concentration is high. And due to a series of reasons such as aging, adult diapers will have a certain amount of growth in the near future.