Kirin / Blackmores deal – Exclusive analysis: Japan giant eyes immunity growth and functional food innovation

By Tingmin Koe, Hui Ling Dang

- Last updated on GMT

Kirin is well-known for its functional immune health brand, iMUSE.
Kirin is well-known for its functional immune health brand, iMUSE.

Related tags Kirin Blackmores

Kirin’s is expected to double down on Blackmores’ R&D capabilities and new product development in the wake of its $1.2bn deal, according to exclusive insights from the Japanese giant and industry experts.

Blackmores might also co-develop products with another Japanese firm FANCL, in which Kirin also holds a stake in.

The Australian complementary medicines leader can expect to gain from Kirin’s R&D capabilities, especially in terms of dosage formats and environmentally friendly packaging.

Last Thursday, the two firms announced their acquisition plan valued at AUD$1.88bn (US$1.24 billion). ​ 

The two companies had been in talks for the acquisition since last year, Kirin revealed to NutraIngredients-Asia​, adding that Blackmores’ management is expected to continue to lead the firm.

While the majority of Blackmores’ products are in the supplement format, Kirin pointed out that consumer research has shown the demand for gummies and functional drinks. Back in 2021, Blackmores’ largest shareholder and son of the company’s founder, Marcus Blackmore, previously criticised the board for a perceived lack of innovation.

As a key player in Japan’s Foods with Function Claims (FFC) sector, Kirin’s forte lies in food and beverages containing Lactococcus lactis strain Plasma, ​or LC-Plasma – its proprietary ingredient and also the first permitted by Japan Consumer Affairs Agency (CAA) to make immune health claims.

Kirin has launched finished products containing LC-Plasma branded iMUSE.

It has also teamed up with Coca-Cola and Morinaga, ​in launching LC-Plasma in beverages, powder, and gummy forms. Between January and May last year, beverages containing LC-plasma saw their sales volume went up by 40 per cent to 2.6 million boxes.

To date, it has launched 45 LC-Plasma products with its business partners in the form of beverages, green juice, candies, jellies, and powder.

Last year, the firm also said it was in talks with South East Asian firms in incorporating LC-Plasma into dairy products​.

Its long-term plan is to scale up its Health Science Business Division from JPY$103.6bn (US$760m) in 2022 to JPY$200bn (US$1.47bn) in 2027.

Piggyback on Blackmores’ distribution

In line with its growth ambitions, Kirin is hoping to piggyback on Blackmores’ distribution presence across APAC.

“The company’s [Blackmores] sales revenue is approximately JPY 60 billion, with Oceania accounting for just under half of the total, South East Asia accounting for approximately 30 per cent and China accounting for the remainder.  

“The sales composition is very well-balanced,” ​said Takeshi Minakata, director of the board, senior executive officer, president of Health Science Division in charge of Strategy of the Health Science Domain.

Citing data from PwC Consulting, Kirin added that immunity and resistance ranked among the top three purpose of taking supplements among consumers from China, Thailand, Malaysia, Indonesia, and Australia.

“Consumer surveys conducted in the areas in which Blackmores operates show that in all countries, improving immunity is the top-ranked purpose for taking supplements.

“Blackmores has established a sales method in which pharmacists and medical advisors recommend products based on factors such as the individual’s physical constitution.

“By introducing their knowledge, we believe we can strongly promote the development of LC-Plasma which is backed by the high evidence,” ​said Minakata.

Kirin’s other functional ingredients include citicoline and human milk oligosaccharides (HMOs)​ which it said could be incorporated into functional drinks, digestive supplements and milk powder.

It also hopes to tap on Blackmores’ insight in APAC’s nutraceutical regulatory and consumer demands.

“They [Blackmores] have established a method to collect consumer data from various countries from various sources in a timely manner, analyse it, and apply it to new product development.

“The fact that 10 per cent of its total sales are always generated from new products suggest that they have high product development capabilities,” ​said Minakata.

Despite the potential gains, Kirin’s shares fell by three per cent after making the announcement, Reuters ​reported.

“We aim to improve our corporate value over the long term, not to be swayed by the daily movements of stock prices,” ​Russell Roll, manager, Kirin Holdings Corporate Communications Department told us in response to market reaction.

Kirin’s move ‘logical and reasonable’ – Japan expert

Contrary to market response, Kirin’s acquisition of Blackmores is “logical and reasonable”​, a nutraceutical industry expert from Japan told us.

“Leading nutra firms are actively pursuing mergers and acquisitions (M&A) of struggling companies to expand their scale of operations and to survive in an increasingly competitive industry.

“Companies in the Oceania region, especially Australia, have been targeted [for M&A]. In 2019, Asahi threw in AUD$16bn (US$11.3bn) to acquire Australia’s Carlton & United Breweries.

“Kirin is spending one-tenth of the amount to buy Blackmores. Based on this trend, what Kirin is doing is not surprising,” ​Hisaaki Kato, president of consultancy firm Smooth Link Inc, told us.

Watch Kato’s analysis in the following video:

Although Kirin’s shares fell after announcing its intent to buy Blackmores, Kato opined that it was necessary for the firm to evolve beyond being a “beer company” in order to maintain long-term sustainability.

The negative market reaction, he explained, could have been due to Kirin’s past M&A endeavours in Brazil and Myanmar that failed to flourish due to financial losses and political instability respectively.

However, this would not stop Japanese firms from seeking fortune elsewhere, especially when the domestic market is shrinking, ageing, and young adults not preferring beer as much as the previous generations.

 “It is natural [for these companies] to go outside of Japan. The alcohol tax has also dropped because beer consumption in the country has been decreasing year by year. Even the younger generation don’t drink so much beer nowadays. I think it is a right move for Kirin to put more effort into its health food and nutra business.

“These [beer] companies are doing so many different things all over the country. That’s the benefit of being a big company — instead of starting from zero, it is much faster to acquire a smaller company that already has some kind of technology or presence. With the diversification of portfolios and M&A activities like Kirin’s latest move, it could eventually lead to a restructuring of the industry.

“This year could be the start of a new era for more of such M&A activities. Similar cases can be expected to happen,”​ he said.

Past Japanese acquisitions / investments of foreign nutra firms

 

Dec 2022: Suntory invested US$3.06m in UK personalised nutrition start-up Remedy Health

Jul 2018: Kirin and Mitsui bought 80 per cent stake of US firm Thorne Research  ​ 

Dec 2014: Otsuka Pharmaceutical-owned Pharmavite acquired US health care products firm FoodState

Dec 1988: Otsuka Pharmaceutical acquired US supplement firm Pharmavite

Only time will tell the results – Aussie industry veteran

While news of the pending acquisition has been viewed positively in Australia, only time will tell if the deal is going to bear fruits, a complementary medicine industry veteran told us.

“Most of the media in Australia are reporting it quite positively, saying that it’s a positive move and it’s not one that was unexpected, because I think some of the media had already sort of guessed that something like this might happen.

“Because the major shareholder Marcus is pretty vocal in the media, saying he wasn't really happy with the way the company was running anyway,” ​said George Tambassis, who has been running pharmacies in Australia over 35 years.

He believes the deal could be a positive outcome for Blackmores.

“I guess that Kirin has got all the capital behind them to actually bring new products into the market….and attract overseas markets better than the current company.

“Time will tell, really what happens, but this company [Kirin] is already in the vitamin market. They have immunity products in Japan, so it's not as if it's their first contact into the vitamin market.

“I think they'll have more potential to grow the business and the current owners, but [only] time will tell.”

Pharmacare to become the largest Australian-owned VMHS firm

PharmaCare Laboratories, the firm behind nutra brands Nature’s Way,Bioglan,​ and Sambucol, will now become the largest Australian-owned vitamins​, minerals​, herbal, and supplement (VMHS) firm if Blackmores’ shareholders voted in favour of the acquisition deal. 

“It’s been an interesting journey to watch. If the sale of Blackmores goes through, PharmaCare​ will become the largest Australian-owned VMHS company, because Swisse is owned by the Health and Happiness Group (H&H Group) headquartered in Hong Kong and Blackmores is going to Japanese ownership,” ​Glenn Cochrane, CEO of Pharmacare told us.  

“We are the three biggest players in Australia. The complementary medicines industry is growing and with this enormous change coming, PharmaCare will be the largest Australian owned company in the sector​.”

Asked the potential implications of Australia’s complementary medicines firms coming under overseas ownership, Cochrane highlighted the importance of Australian provenance, regulatory standards, and understanding of consumer demands.

“Being Australian-owned matters. Provenance combined with our robust regulatory framework has seen the Australian complementary medicine industry achieve a market size of AUD$5.5 billion [last year], an incredible statistic with a population of 25 million.

“For PharmaCare, a deep understanding of the consumer mindset, the ability to be agile and respond quickly to consumer needs, so that everything from marketing to sales to manufacturing of the product is critical for our 27 Australian owned brands. 

“Driving awareness of the quality and innovation that comes out of Australia through our global network is paramount,” ​he added.

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