The Economic Aspect of Deregulation
in Japanese Healthcare Market
Ippei Shimizu
Deputy Director, Healthcare Department
SANKYO Company Limited
Vice Chairperson, PAJ Planning Committee of
WSMI Tokyo 2002
To improve the economic situation, the government has been operating
several action programs of deregulation since 1993. Regarding the
opening up of distribution channels, the reclassification from drug to
quasi-drug was issued on March in 1999 and it brought a big impact for
OTC market.
Distribution Channels
The distribution of all medicines has been restricted within licensed
distribution channels. There are five kinds, Yakkyoku/pharmacy/DS1,
Ippan Hanbai-gyo/General Sales/DS2, Yakushusho/Druggist/DS3,
Tokurei
Hanbai-gyo/Preferential
Sale/DS4
and
Haichi
Hannbai-gyo/Placement Sale/DS5. (Fig.1)
DS1 and DS2 can handle with all medicines, while DS3 can not handle
with ethical drugs and the designated OTC drugs like switched OTC.
However, DS1, DS2 and DS3 are called “Pharmacy” or “Drug Store”
generally and it might be impossible for consumers to identify each other
from the appearance of the retailers. DS4 and DS5 can handle with only
the OTC drugs of positive list. DS4 was established for consumer’s
convenience so that they could get OTC drugs in the isolated area where
it is hard to access to pharmacy. DS5 is the very traditional and unique
sales method originated from Toyama prefecture in Japan. The sales
representatives of DS5 deliver the box filled with drugs to customer’s
home, and visit door to door for checking the consumption regularly. The
customer pays only for the consumption. DS3, DS4 and DS5 were defined
as historically as they were, so the number is decreasing but still alive,
especially DS3 and DS5 are active.
These regulations of the drug distribution have never been changed
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except some modifications.
Method of Deregulation
There might be two methods for opening up the distribution channels
under the Japanese Pharmaceutical Affairs Law. One is that government
gives a certain marketing license to ordinary retailers, or another is the
reclassification of drugs like P to GSL in UK.
The Japan Convenience Stores Association (JCSA) proposed the
application of DS4 to 24 hours-convenience store at the beginning stage
of the study group in The Ministry of Health and Welfare (MHW). Because
JCSA regarded the city at mid-night as isolated area. But Japan
Pharmaceutical Association (JPA) raised an objection to this idea. Finally
some drugs were reclassified to the newly designated quasi drugs.
Drugs and Quasi Drugs
The quasi drug is similar category to GSL in UK or non-pharmacy-bound
drug in Germany. The comparison between drug, quasi drug and the
newly designated quasi drug (NQD) is shown in Fig.2. The ordinary quasi
drug is close to cosmetics, while the newly designated one is close to drug.
Both are allowed to sell freely even by vending machines. Minister of Heal
and Welfare designated the criteria of 15 NQDs, and some drugs regarded
as safe without any professional advise were reclassified. Active
ingredients and the concentration define the borderline between drugs
and NQDs. Therefor the almost same or the similar criteria are defined in
drug category still and the both categories products live together in the
market. Honestly speaking, it is very hard for consumers to identify what
these are drugs or NQDs, no matter how the package labels showed it.
Because the most leading products have the same brand name for both
categories.
Among them, especially the liquid preparation of Health Drug
Containing Vitamins what we call “Drink” have brought the biggest
impact to OTC market. “Drink” in Japanese may be “Pick-me-up Drink”
or “Tonic Drink” in English. In other words, “Drink” does not mean
beverage or alcohol in Japan.
Market Characteristic of “Drink”
Generally speaking, Japanese people prefer liquid preparation to the
other preparation form. Figure 3 shows the sales ratio by the preparation
forms for all OTC products in 1985 to 1998. Capsule is not as popular as
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in other countries.
The first product of Drink was launched in 1950s, and this category has
been occupying 25% of all OTC market since1980s. It is divided to two
groups by package volume, 50ml and 100ml. The retailer price of 50ml is
relatively higher than one of 100ml. There are many brands over 20 and
each brand has large selection by price. The range of retailer price is very
wide from 120 JPY to 3000 JPY along the ingredients (Fig.4). The vertical
line shows the pricing range and the horizontal line shows the active
ingredients, while the depth line means the number of combined
ingredients or the concentration of each ingredients in Figure 4. Vitamins,
minerals and amino acids are not big factors not only for pricing but also
safety. While the agents for liver disorder, herbal medicine and organ
extracts are regarded as very important factors, and the costs are actually
expensive. The red dotted line shows the borderline between the NQDs
and the ordinary quasi-drugs. However the approved indications and
effects are the same for all products. There might be the myth for
consumers, “the more expensive, the more effective”, and also “the
smaller, the more effective”. Additionally they are apt to think “the more
ingredients, the more effective”. These concepts may originate in Oriental
traditional herbal medicine. For example, Ginseng panax is classified into
several ranks and the price is quite different for the ranking, and also the
formula of the Chinese traditional herbal medicines are composed of 7 to
8 ingredients. Saying gain, Figure 4 shows the relation between the
retailer price and the ingredient of Drink. The cheaper group, below the
dotted line, is classified to NQD, while the expensive one, upper the
dotted line, is still drug. It sounds very reasonable for us, Japanese, even
if it looked logical or non-logical for foreigners.
Usually consumers take it whenever they feel fatigue or they need more
energy to continue working. The over-time works increase on good
economic days and the high income stimulates the good consumption.
Therefore the sales is so sensitive to economic that they say, “Drink sales
is a barometer of economic”. The similar market situation may be
observed in Republic of Korea.
Market Change after Deregulation
The figure 5 shows the reclassification in 1998. The 15.6 % of 50ml- type
products in value were reclassified to NQD, and also 80.4% of 100ml-type
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were reclassified. The almost half of the market were opened up to
ordinary retailers. The detail of the market change is shown in Figure 6.
The FY sales of 50ml-type decreased to the 94% of the previous year,
while 100ml-type increased to 118%. Both NQDs have grown up rapidly
to 124~131% for the previous year’s, while the products placed in drug
category have lost the share. The total market of Drink has shown the
5 % increase in value after the deregulation of distribution channel (Fig.7).
Considering the characteristic of Drink, the rate of the increase is
estimated to be much higher than 10%. Figure 8 shows the relation
between the sales and the land cost. Closer relation between Drink sales
and the land cost are observed than one of cold remedy. Generally
speaking, The growth of GDP or Diffusion Index (DI) is available for the
trend of economic and it may be effective to forecast the economic trend.
But these parameters are very professional and complicated in this case
and the author concentrated to the consumption change happened
inevitably as the result of the economic change. Therefore it happens
usually two years later from the economic change. The consumption
changes are observed in 1992 after two years of 1990 Bubble Economy
Burst in Figure 8. The land cost is a good parameter for economic in
Japan. Because the area of Japan, 377,847 kilo square meters, is one
twentieth of Australia’s and additionally the 70% are mountainous,
otherwise the population of Japan, 125 million, is 7 times of Australia’s.
Therefore the land cost is incredible expensive and also changes up and
down easily along the economic in Japan. The dotted line is the estimated
value by the calculation from the land cost and the difference between
dotted line and actual line suggest that the opening up of distribution
channel has brought a good impact to the market.
Light and Shadow
The figure 9 shows the sales ratio on distribution channels. New market
is created out of pharmacy and drug store, mainly convenience stores.
Otherwise pharmacy and drug store lost 10% of the share in spite of the
deregulation. The figure 10 shows the POS data of Drink by time at a
leading convenience store. Consumers purchase in early morning and
late evening when most of pharmacies and drug stores are closed. So they
might not loose the share or get good sales if they had opened in early
morning and late evening. While, convenience store has got the more
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sales than the lost from pharmacies and drug stores. It is suggested that
there are new customers at the convenience stores, or that consumers
are expecting 24 hours access for self-medication. Figure 11 shows the
result of the consumer survey concerning Drink. The total rate of the user
have increased from 39% to 46% in the first year of deregulation, and also
it suggests 7% of them are new comers. The rate of drug user and NQD
user is half-and-half at the present time.
The Forecast of the Future
Consider the core market out of DS routes, the profile of convenience
store will bring many changes not only to Drink but also the healthcare
market. The number of shops is over 50,000 and the most f them are well
managed by the headquarter. The total sales is estimated over 80 billion
US dollars. The one shop size is relatively small that the average space
area is 100 square meters. The number of handling items is about 2700,
and the number of customers visiting around a clock is 1000 in spite of a
small shop. The 2000 of 2700 items will be changed in a year due to their
marketing policy that the change is very important customer service. The
main customer is younger generation, mainly male. Reflecting the profile,
the life cycle of products is shortening and the retailer price is decreasing
to beverage level. Many lower price products of Drink have been launched
in 2000. Some of them are trying to enlarge the marketing route into
vending machines which are excited over 2.7 million all over Japan. The
summing up of the new trends is shown in Figure12. Additionally the new
criteria of Dietary Supplement, which are based on the revised the
borderline between foods and drugs, will be issued on March in 2001.
Therefore you will be able to catch all the results brought by the recent
deregulation on WSMI Tokyo in 2002. Thank you!
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