Market Overview

The health food OEM market for FY2022 and FY2023 is estimated at 167,470 million yen and 170,870 million yen, indicating 0.2% and 2.0% growth from the preceding fiscal year, respectively.

Despite the influence of COVID-19 crisis from FY2020, as seen in a drop in inbound tourism demand (spending by foreign tourists visiting Japan) and sluggish sales at stores in city areas (due to drop in commuting to work), the rise of health consciousness consumers has propelled the market growth of health foods, chiefly by mail order channels. In addition, steady increase of purchase order from overseas (mostly from China and Southeast Asia) and strong sales in cross-border ecommerce uplifted revenues at concerning health food OEMs significantly. Although the market shrank in FY2022, domestically as a reactionary decline of an uptick in e-commerce and mail order during the pandemic and internationally by the lockdown in China, it turned for the better in the latter half of the year, showing slight rise on year-on-year basis (0.2%). As the market is expected to continue its upward trend with acceleration of new product development and expansion in demand from overseas (including inbound tourism demand), the health food OEM market for FY2023 is forecasted to grow by 2.0%.

However, FY2022 saw many health food OEMs resulted in profit decline despite sales increase, as they were unable to pass through the marked rise in costs (raw material cost, utility expenses, and packaging material costs) to customer prices.

Noteworthy Topics

Attempts for Digital Transformation & Autonomous Manufacturing (Automation & Robotics) Proceeds

A wave of digital transformation is sweeping the health food OEMs industry as many of them position digital transformation as their key business challenge. There are enterprises that have deployed IT systems to deliver efficiencies in sales and back office, while others embark on introducing IT system in production department, not only by facilitating digitization/paperless operations as part of their DX initiatives but also by introducing or replacing production management systems.

In addition, although situations differ slightly between regions, attempts to adopt automated production (automation & robotics) are in progress to address labor shortage issues, which has materialized in the entire industry. Because of its high-mix low-volume production, health food OEMs have difficulty automating main manufacturing processes. Thus, they tend to automate/robotize packaging, a process they see less challenging. Still, as the high-mix low-volume production requires a wide variety of packages, attempts have been observed to standardize packages by collaboration of marketing and production teams.

Future Outlook

While marked growth is difficult to expect in the domestic demand, demand from overseas, i.e., an increase in purchase orders from customers overseas as well as in inbound tourism demand, is projected to boost the health food OEM market.

Moreover, the health food OEM market size is poised to grow with the reflection of soaring raw material costs to price and persevere negotiation with consignees to raise production fee. Rise of businesses between OEMs associated with labor shortage is also a factor that may augment the business growth, particularly for OEMs who serve largely as secondary subcontractor.

Nevertheless, in view of the health food market from a long-term perspective, the slowdown of Foods with Function Claims - which used to be a growth driver for the domestic health food market - may stunt the growth of the entire market hereafter. Besides difficulties involved around compliance to tightened regulation on research reviews, there is a reasonable chance of consumers losing interest as the market is already saturated with a plethora of 'health claim' (descriptions of product’s health effectiveness/functional benefits).  

For the health food market is expected to grow moderately, the health food OEM market is forecasted to edge up proportionately for years to come.  

Research Outline