Special report

A positive prognosis for Japan's OTC market?

By Brian Salsberg and Naomi Yamakawa

Japan is the world’s second largest market for self-medication, or over-the-counter (OTC) drugs, but manufacturers, retailers, and potential new entrants must recognize that the market’s future growth trajectory is anything but certain. 

Retail OTC sales for 2009 in Japan are estimated at an impressive JPY 628 billion (USD 7.6 billion), but the market has been essentially flat over the past four years, growing just 0.5 percent annually. For products that have been switched from prescription (Rx) to OTC, which comprise a quarter of all OTC drugs in Japan today, growth has been marginally better, at about three percent. [See Exhibit 1 in PDF.]

Viewed in its proper light, Japan’s stagnant—if large—OTC market is a confluence of challenges and conflicting interests. Consumers, for instance, have historically spurned many types of self-treatment in favor of professional medical advice. And in fact, as our survey suggests, many still do, even for ailments such as the common cold.

The government, in its zeal to stave off increasing healthcare costs has, to its credit, improved access to generic drugs and relaxed some rules for the safest class of OTC products, but has simultaneously added hurdles to the purchase of OTC products switched from Rx. Physician associations, typically strong backers of prescription medicines, are often at loggerheads with regulatory bodies about Rx-to-OTC approvals, and individual physicians tend to be skeptical of self-medication generally.

Non-drug retailers, for their part, have been proactive about hiring certified sales clerks to sell Rx-to-OTC switched products, but some have found the selling of these products too cost-prohibitive to continue with. Diversified OTC manufacturers are  largely taking a wait-and-see approach with respect to the impact of regulatory and retailer activities, while OTC pure plays are aiming to capture share in categories with less stringent regulatory compliance. Still others are focusing their attention abroad.

Despite the challenges and uncertainties of Japan’s OTC market, we are cautiously optimistic that opportunities exist for some OTC manufacturers and retailers to capture share and generate profits across a number of product categories. These opportunities stem from an increasing consumer appetite for additional information about health ailments and remedies, a push by Matsumoto Kiyoshi and other drugstores to focus on the sale of OTC-switched products, and a changing retail landscape that may begin to provide new entry opportunities for global brands.

This report delivers a brief overview of the Japan OTC market today, shares findings from recent research conducted by our  Consumer & Shopper Insights Center in Japan, and offers our perspective on potential OTC market opportunities for industry stakeholders.