Kao focuses on expanding online sales in China
Japanese consumer goods maker is rapidly building brand recognition
TOKYO -- Japanese consumer goods manufacturer Kao has been expanding its presence in China. This year, it began dealing directly with local wholesalers in order to reorganize distribution channels in the country. Kao has also increased online sales and shown that it can swiftly adjust to fickle consumer trends.
In addition to its mainstay paper diapers, Kao is eager to boost sales of detergent and skin care products. Minoru Nakanishi, chairman and president of Kao (China) Holding -- and also an executive officer at Kao in Japan -- talked about the company's Chinese operations in a recent interview with The Nikkei.
Q: Could you explain Kao's overall Chinese operations?
A: Paper diapers have been our core business in China. About 70-80% of diapers used in cities are paper diapers. Across the country, the rate is roughly 50%, according to one estimate. The end of the one-child policy, among other factors, has seen sales of paper diapers growing by over 5% a year, expanding the overall market. Foreign brands such as Procter & Gamble and Kimberly-Clark along with hundreds of local brands have been competing in recent years.
We introduced our Merries brand diapers to the Chinese market in 2009. They have been well received and are regarded as high quality, safe and soft. Despite being over 50% more expensive than regular brands, Merries has been the most -- or second-most -- popular brand in the local market.
Along with Merries, other products, including Laurier sanitary products, Attack detergent, Biore UV sunscreen and Curel skin care products, are also gaining popularity in the country. Chinese consumers seek value-added [products] and are increasingly recognizing Kao as a brand rather than associating it with individual products.
Q: What is Kao's strategy going forward?
A: In 2011, Kao entered into a strategic alliance with distributor Shanghai Jahwa United and mostly used their wholesale channels to expand sales in China. The partnership ended last year, after which we began dealing directly with about 50 Chinese wholesalers. Our goal is to become more flexible in changing product lineups and promotions in order to adjust to the needs of a dynamic market. It also makes it easier to adjust inventories.
Kao currently has consumer goods plants in Shanghai and [the city of] Hefei in Anhui Province. The Hefei plant, which opened in 2012, is a paper diaper plant. We also made an additional investment last year to increase production capacity there. In Shanghai, we expanded the existing plant for sanitary goods last year. We will make more investments depending on demand.
Q: Could you elaborate on Kao's growing e-commerce business in China?
A: In particular, young Chinese are buying online, and e-commerce companies are rushing to build distribution networks. Although figures vary across categories, about 10-15% of consumer goods are now purchased online. The ratio of online sales to overall sales at Kao is higher than the market average. People who buy goods online tend to be keen on quality rather than quantity and seek products with higher added value.
We plan to deepen our ties with major domestic e-commerce companies, including Alibaba Group Holding -- our partner in recent years -- in selling products to further increase our e-commerce share. We are already partnering with five to six [e-commerce] companies. Different companies have difference strengths in different areas, such as sanitary products or cosmetics. We will choose different platforms for different product categories.
Q: One of the major goals of Kao's medium-term business plan calls for expanding overseas. How are Kao's Asian operations, which make up about 20% of group sales, positioned at the company?
A: In the West, we are mostly focusing on beauty care products such as cosmetics. In Asia, however, we are offering a full range of products, from paper diapers to detergent. In Taiwan and Hong Kong, we are one of the top home-use consumer goods makers. We hope to lead the group's sales and profit growth.
Interviewed by Nikkei staff writer Motokazu Matsui