Kao - Company History

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Financial history 1954–2025 — revenue, cost structure, balance sheet, cash flow and key ratios, year by year →

Founded 1887
Founder Nagase Tomiro
Founding location 東京都中央区日本橋
Core business at founding Retailing imported Western sundries
Listed 1949
President Hasebe Yoshihiro President since 2021 (age 66, as of 2026)
Current priority Earnings recovery · Capital efficiency Rebuilding the cosmetics business and holding ROIC at 11 per cent or more
Founding
In June 1887 the 24-year-old Nagase Tomiro founded Nagase Shoten, a dealer in imported Western sundries, at Bakurocho in the Nihonbashi ward of Tokyo. He came from a sake-brewing family in Nakatsugawa, Gifu prefecture, and began in trade as a retailer of Western paper and imported soap. The domestic market of the day was split between high-grade imports and crudely made domestic goods, leaving a gap between them in price and in quality. In October 1890 he manufactured his own high-grade domestic soap, Kao Soap, and put it on sale in a paulownia-wood box. At 12 sen a cake it was priced at three to four times an ordinary domestic soap, and on the day of launch he placed an agent in Osaka, treating the whole country as his territory from the start. After Nagase Tomiro died of illness in 1911 the firm was reorganised as a limited partnership, and in May 1925 Kao Soap Co., Nagase Shokai was established.
The Decision
Kao took hold of the raw material upstream and the shelf downstream first, and changed the products in between. In 1935 it separated its manufacturing arm as Dai-Nippon Yushi, established the raw-material company Nihon Yuki in 1940, and through mergers completed by 1954 brought the three companies back into a single legal entity. With that integrated production behind it, it launched the synthetic detergent Wonderful in 1951, and in 1964 cut the wholesalers out to sign resale contracts with some 270,000 retail shops nationwide. From the year to March 1978 it committed $597M (¥120bn) of capital spending over three years, fixing the route from refining coconut oil through to the finished product, and sent out the sanitary product Laurier, the cosmetics line Sofina and the disposable nappy Merries. Businesses where it could not hold both ends it did not keep: in 1998 it withdrew entirely from the information business it had grown to $611.2M (¥80bn).
Today
The cosmetics business acquired for about $3.5B (¥410bn) has not reached the margin of the core business even twenty years on. Consolidated revenue for the year to December 2025 was $11.3B (¥1.69tn) and operating profit $1.1B (¥164bn). Hygiene and Living Care earned $543.3M (¥81bn) on sales of $3.7B (¥549bn), a margin of 14.8 per cent; Health and Beauty Care $261.3M (¥39bn) on $2.9B (¥433bn), or 9.0 per cent; and Chemical $201.8M (¥30bn) on $3.0B (¥452bn), or 6.7 per cent — while cosmetics returned only $69.5M (¥10bn) on $1.7B (¥262bn), a margin of 4.0 per cent. In 1999 Kao was the first operating company in Japan to adopt EVA as a management yardstick; in 2024 it replaced EVA with ROIC and set a target of 11 per cent or more by 2027, and from that same year it has faced shareholder proposals from Oasis Management. Japan accounts for 56 per cent of revenue, and the remaining 44 per cent, $5.0B (¥744bn), comes from Asia, the Americas and Europe.
Competition
The contest turned not on the shop counter but on the route to it. In 1971, just after cutting the wholesalers out in 1964 to sign resale contracts with some 270,000 retail shops, Kao surrendered the top detergent share to Lion Fat & Oil. It did not stop rebuilding the route, and took the lead back over 1972 and 1973. Its detergent share fell from 40.1 per cent in the year to March 1973 to 37.4 per cent in the year to March 1975, then returned to 42.4 per cent in the year to March 1978. That it held first place over the same period in which P&G rose from 1.9 per cent to 11.6 per cent was because sales companies handling Kao products alone kept prices from collapsing. In cosmetics, by contrast, it could not get inside the face-to-face selling networks held by Shiseido, which laid down sales companies and a chain-store system in 1923, and by Kanebo, and in 2006 it bought Kanebo Cosmetics outright to move up to second place in Japan.

Timeline

1887–1925From a Nihonbashi shopkeeper to a maker of Japanese toilet soap

  1. 1887Nagase Tomiro, aged 24, opens Nagase Shoten at Bakurocho, Nihonbashi
  2. 1890Kao Soap goes on sale at 12 sen a cake, in a paulownia box
  3. 1890An agent is placed in Osaka; the product is sold nationwide from the start
  4. 1902Steam saponification adopted
  5. 1911Glycerine recovered from spent soap lye; Nagase Tomiro dies
  6. 1911The firm is reorganised as a limited partnership
  7. 1920An automatic stamping belt system raises production speed
  8. 1922A plant for volume soap production is built at Azuma-cho
  9. 1924Oil-pressing and hydrogenation equipment begins raw-material self-supply
  10. 1925Kao Soap Co., Nagase Shokai is incorporated

1926–1963Splitting off the raw-material arm, merging three companies, and turning to synthetic detergent

  1. 1935The Azuma works is separated to found Dai-Nippon Yushi
  2. 1940Nihon Yuki is established; the Sakata plant is completed
  3. 1944The Wakayama plant industrialises aviation lubricant from oils and fats
  4. 1946Kao Soap Co., Nagase Shokai is renamed Kao Co.
  5. 1949Nihon Yuki becomes Kao Soap and lists on the Tokyo Stock Exchange
  6. 1949Dai-Nippon Yushi and Kao Co. merge to form Kao Yushi
  7. 1951Wonderful, a powdered synthetic detergent, is launched
  8. 1954Kao Soap absorbs Kao Yushi, completing the three-way merger
  9. 1957A detergent-only plant is completed at Wakayama
  10. 1960Shares also listed on the Osaka Stock Exchange
  11. 1963The Kawasaki plant is completed, making four plants in all

1964–1998An advantage built on sales companies and integrated production — and the exit from information media

  1. 1964Resale contracts signed with some 270,000 retail shops
  2. 1966Kao-only sales companies begin to be established district by district
  3. 1971The top detergent share is surrendered to Lion Fat & Oil
  4. 197499 sales companies nationwide; resale price maintenance ends for detergent
  5. 1978A three-year capital-spending programme of ¥120bn begins
  6. 1980The Kashima plant is completed; Laurier goes on sale nationwide
  7. 1982Sofina is sold nationwide; Kao enters cosmetics
  8. 1983Merries disposable nappies are launched
  9. 1985Floppy disks go on sale in Japan; the name changes to Kao Corporation
  10. 1986Didak Manufacturing of Canada is acquired; Total Cost Reduction begins
  11. 1987Attack, a compact laundry detergent, is launched
  12. 1989Goldwell of West Germany is acquired after Andrew Jergens in 1988
  13. 1998Full withdrawal from the information business is decided

1999–2026The EVA yardstick, the Kanebo acquisition, and shareholder proposals

  1. 1999Eight regional sales companies merge to form Kao Hanbai
  2. 1999Kao is the first operating company in Japan to adopt EVA
  3. 2002John Frieda acquired for about ¥19bn; KMS Research bought via Goldwell
  4. 2005Molton Brown of the United Kingdom is acquired for ¥34bn
  5. 2006Kanebo Cosmetics acquired for about ¥410bn in enterprise value
  6. 2013Vitiligo cases from a Kanebo whitening cosmetic force a recall
  7. 2016The sales companies are integrated, ten years after the acquisition
  8. 2017Operating profit passes ¥200bn for the first time since the founding
  9. 2018Oribe Hair Care and Washing Systems acquired in the United States
  10. 2023Bondi Sands of Australia acquired; operating profit falls 45.5 per cent
  11. 2024Oasis Management discloses a stake of about 3 per cent
  12. 2025All four Oasis proposals are voted down at the March general meeting
  13. 2026An extraordinary meeting rejects the palm-oil investigation proposal

Founding Story

1887–1925From a Nihonbashi shopkeeper to a maker of Japanese toilet soap

Kao did not begin in a factory. Nagase Tomiro entered the trade as a retailer of imported goods in Nihonbashi, read the gap the market had left between costly foreign toilet soap and cheap domestic bars, and only then built a product to fill it — an order of operations, demand first and manufacturing second, that carried the shop through three decades of pulling one process after another in-house until it had the plant, the raw materials and the corporate form to decide its own investment.

A founding that set the price of Japanese toilet soap from the buying side

In June 1887 the 24-year-old Nagase Tomiro (長瀬富郎) opened Nagase Shoten (長瀬商店), a dealer in imported Western sundries, at Bakurocho in the Nihonbashi ward of Tokyo[1]. He came from a sake-brewing family in Nakatsugawa, Gifu prefecture[2], and was in a position to find the capital to start. Soap-making technique in Japan was still immature at the time and the quality poor; every good toilet soap came from abroad[3]. The market was split in two — high-grade imports at one end, crudely made domestic bars from small workshops at the other — and a wide gap in price and quality lay between them[4]. Selling Western paper and imported soap at retail, Nagase came to grasp that gap from both sides of the counter, buying and selling. He entered the market from distribution rather than manufacturing[5], taking the order of confirming demand and how quality was judged before stepping into production.

In October 1890 Nagase manufactured and put on sale his own high-grade domestic soap, Kao Soap (花王石鹸), in a paulownia-wood box[6]. The trademark was conceived from a moon-and-star device he had seen on a foreign pencil, the moon standing as a symbol of beauty and cleanliness[7]. The price was 12 sen a cake, against the three or four sen of an ordinary domestic soap of the day[8] — the price of an import. On the day of launch he placed an agent in Osaka to open the Kansai market and used newspaper advertising, treating the whole country as his territory from the very start[9]. In an age when Tokyo manufacturers took eastern Japan and Osaka manufacturers the west as their respective markets[10], this way of selling had no precedent. By reading demand first and stepping into manufacturing second, an unknown shopkeeper turned into a soap manufacturer[11].

Three decades of taking each process in-house

After Kao Soap went on sale, Nagase Shoten took the manufacturing processes into the firm one at a time. Steam saponification was adopted in 1902[12], and in 1911 a process for recovering glycerine from spent soap lye was added[13]. In 1920 an automatic stamping belt system raised the speed of volume production[14], and in 1924 oil-pressing and hydrogenation equipment gave the firm its first hold on its own raw materials[15]. By 1928 it was making pure soap from fish oil and hardened oil, and edible fats for confectionery from coconut oil[16]. Each of these was a pioneering process in the history of the oils, fats and soap industry, and Nagase Shoten moved from being merely a soap manufacturer to a company leading Japan's oleochemical industry[17].

In 1911 Nagase Tomiro died of illness, and 24 years after its founding Nagase Shoten lost its founder[18]. In the same year the firm was reorganised as a limited partnership[19], moving a personal trade into an organised business. In November 1922 it built a plant dedicated to volume soap production at Azuma-cho on the Sumida river, later the Tokyo works. Production changed in form, from a workshop close to handwork to a factory equipped for volume[20]. In May 1925 Kao Soap Co., Nagase Shokai (花王石鹸株式会社長瀬商会) was established, moving the business from a sole proprietorship into a joint-stock company[21]. Thirty-eight years after its founding it had raw-material processes, a volume plant and a corporate form in place[22], and stood where it could decide its future capital spending as a company.

1926–1963Splitting off the raw-material arm, merging three companies, and turning to synthetic detergent

The middle decades were spent taking the business apart and putting it back together. Soap selling, soap manufacture and oleochemical raw materials were placed in three separate companies through the 1930s and 1940s, then merged back into one across 1946 to 1954 — and the surfactant knowledge accumulated on the raw-material side turned out to be exactly what the post-war switch from soap to synthetic detergent required.

Self-sufficiency in oleochemicals, secured by spinning the raw-material arm into a separate company

In March 1935 Kao Soap Co., Nagase Shokai separated its Azuma manufacturing works and founded Dai-Nippon Yushi (大日本油脂)[23]. Selling and making soap were divided between different legal entities[24], so that raw materials and production could be run as an independent company. In May 1940 it established Nihon Yuki (日本有機) at Bakurocho, Nihonbashi[25] with capital of ¥2.5 million[26], completing the Sakata plant in September of the same year[27]. Nihon Yuki was a raw-material company processing oils and fats into surfactants and industrial chemicals[28] — the upstream of soap, gathered into a new company. In December 1944 the Wakayama plant of Dai-Nippon Yushi was completed[29], taking on, at the government's request, the industrialisation of a technique for synthesising aviation lubricant from animal and vegetable oils[30].

The higher-alcohol and oleochemical technique accumulated at the wartime Wakayama plant[31] became the raw-material footing for synthetic detergent after the war. The plant was extended several times thereafter, and by 1968 it counted as one of the four largest higher-alcohol plants in the world[32]. Dividing the business into three legal entities — a sales company, a manufacturing company and a raw-material company[33] — was also a posture for keeping production going under wartime controls and the rationing of materials. But having three companies each holding their own capital and plant[34] left the task of unifying the business as one for the post-war reconstruction years. Running raw materials through to finished product inside a single company became the chain of mergers that ran from 1946 to 1954[35].

Unifying the business by a three-way merger, and the 1949 listing

In October 1946 Kao Soap Co., Nagase Shokai changed its trade name to Kao Co.[36] In May 1949 Nihon Yuki renamed itself Kao Soap Co., Ltd. and at the same time listed its shares on the First Section of the Tokyo Stock Exchange[37]. The Kao Soap name thus passed to what had been the raw-material company[38], while the company selling soap traded as Kao Co. In December of that same year, 1949, Dai-Nippon Yushi and Kao Co. merged to become Kao Yushi (花王油脂)[39], bringing manufacturing and selling together in one legal entity. One step remained, the union with the raw-material company: in August 1954 Kao Soap Co., Ltd. absorbed Kao Yushi[40].

With the three-way merger complete, Kao Soap was a unified company with capital of $538,889 (¥194m) and three plants[41]. Fukushima Masao (福島正雄), who came from Keidanren, the federation of economic organisations, became president and led the company for fourteen years, until May 1968[42]. Its output of toilet soap ranked second in the industry in 1955[43], and its products ran well beyond soap to detergents, processed oils and fats, chemicals for the textile industry, surfactants and plasticisers[44]. It followed a policy of retaining profit inside the company and turning it into investment, sustaining capital spending of more than $13.9M (¥5bn) over several years with no outside borrowing[45]. Holding raw materials through to finished product inside one company[46] gave the switch to synthetic detergent that followed its footing in plant and equipment.

Wonderful, and the Wakayama line that settled what Kao made

In 1951 Kao Soap launched Wonderful (ワンダフル), a powdered synthetic detergent. It was among the first companies in post-war Japan to bring a synthetic detergent to market[47], a product timed to the years when household laundry was moving from hand-washing to machines. Demand for synthetic detergent then grew at a pace of around 50 per cent a year[48] and became the mainstream household cleaning agent in place of soap. The surfactant technique built up since Nihon Yuki transferred across directly[49], and both product development and raw-material supply were completed inside the company. Because this came immediately after raw materials, manufacturing and selling had been gathered into one company[50], detergent grew from trial production into a mainstay within a few years. Making its own raw materials also left it more room to move prices in step with its competitors[51].

In December 1957 a plant dedicated to synthetic detergent was completed within the grounds of the Wakayama works[52]. The investment in the dedicated plant came to about $2.1M (¥750m)[53]; instead of making detergent on equipment shared with soap, a new volume line was laid to run detergent alone[54]. The Wakayama works had equipment for synthesising higher alcohols from animal and vegetable oils[55], so raw material and finished detergent could be run through the same site. In March 1960 the shares were also listed on the First Section of the Osaka Stock Exchange[56], widening the window for raising capital-spending funds. The Kawasaki plant was completed in March 1963[57], giving four plants — Tokyo, Sakata, Wakayama and Kawasaki — making detergent and oleochemical products[58]. In products and in plant alike, the mainstay had changed from soap to detergent[59].

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Notes

  1. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  2. Kao Corporation company history (花王 社史)↩
  3. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  4. Kao Corporation company history (花王 社史)↩
  5. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  6. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  7. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  8. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  9. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  10. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  11. Kao Corporation company history (花王 社史)↩
  12. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  13. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  14. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  15. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  16. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  17. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  18. Kao Corporation company history (花王 社史)↩
  19. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  20. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  21. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  22. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  23. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  24. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  25. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  26. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  27. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  28. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  29. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  30. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  31. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  32. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  33. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  34. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  35. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  36. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  37. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  38. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  39. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  40. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  41. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  42. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  43. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  44. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  45. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  46. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  47. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  48. Nikkei Business, 16 September 1974: "Kao Soap secures the top detergent share by establishing sales companies" (Nikkei McGraw-Hill)↩
  49. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  50. 会社銀行八十年史 (Eighty Years of Companies and Banks, Toyo Keizai Shinposha, 1955), the Kao Soap entry↩
  51. Nikkei Business, 8 March 1982: "Integrated production and technical strength take it to world markets, with rapid diversification into cosmetics" (Nikkei McGraw-Hill)↩
  52. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  53. Nikkei Business, 13 August 1979: "Editor-in-chief interview — mutual understanding and leadership in research are the keys to a successful joint venture, with Maruta Yoshiro, president of Kao Soap" (Nikkei McGraw-Hill)↩
  54. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  55. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  56. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  57. Kao Corporation, annual securities report (有価証券報告書), corporate-history section↩
  58. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩
  59. 企業の歴史 : 明治百年 (Corporate Histories: A Century of Meiji, Keizai Shunju-sha, 1968)↩

References & sources

  1. Corporate Histories: A Century of Meiji, Keizai Shunju-sha (1968), the Kao Soap entry — on the founding, the trademark, the early oleochemical processes, the three-way merger, the Fukushima–Ito succession and the plan to consolidate 600 wholesalers into 150 sales companies.
  2. Kao Corporation (annual securities reports), including the corporate-history section, for capital, listings, plants, subsidiaries and consolidated results.

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