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A Brief Assessment of Opportunities and Challenges for Vitamins and Dietary Supplements

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By: Monica Feldman

In recent weeks some corporate news have developed in relation to mergers and acquisitions of vitamins and dietary supplement (VDS) firms by companies not related to such products at all. In the United States, Martha Stewart, the diva of a housewares empire, announced the introduction of a new line of VDS targeted at women wishing to maintain their health. Alternatively, cereal company Post Holdings invested in the acquisition of VDS maker Premier Nutrition Corp, which sells popular protein supplements and joint health drinks. This is an example of another packaged foods company (after Nestlé SA and Groupe Danone) placing a direct bet in the booming industry of VDS.

Why are so many companies investing in VDS?

It is no surprise that the VDS industry has exploded in sales as consumers continue to embrace holistic, natural and wellbeing lifestyles based on good nutrition and increased awareness on health status. High profit margins, fewer regulatory restrictions and effective marketing persuasion of health benefits lures hundreds, if not thousands, of producers and marketers to invest in the development or acquisition of VDS. This trend is actually observed in most countries.

The issue, though, is how the newer array of VDS may lead to a potential saturation of brands and options in the marketplace. From a strategic point of view, the VDS industry sold an estimated US$81.7 billion (current terms, fixed exchange rates) in 2012, up 17% from 2007. Dietary supplements such as minerals, fish oils and probiotics contributed 58% of retail value, followed by vitamins at 29%.

VDS Sales by Region –Retail Value Share by Type of Product in 2012
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Source: Euromonitor International

Understanding the participants sharing the VDS pie

VDS are being offered by a broader array of firms to include pharmaceuticals, nutritionals, direct selling, retailing, consumer goods, soft drinks, packaged foods, housewares, and beauty and personal care. The number of VDS brands available to consumers has soared in the past five years as trends of wellbeing and good health captivates the attention, interest and expenditures of millions of consumers.

In the fight for a slice of the pie producers and marketers are being forced to look into innovative ways to fend off their position and sales against current competitors and newcomers. The VDS industry is highly fragmented and where competition has become cutthroat. The three top companies (Amway Corp, Pfizer Inc and NBTY Inc) only made-up 10% of global retail value in 2012.

Is the industry promoting consumer fatigue in VDS?

VDS shelf for opinion - MF Resized.jpgPerhaps in certain markets consumer fatigue is more of a threat than in other markets depending on the local development of the VDS industry. Yet as highlighted in the book of The Paradox of Choice (Barry Schwartz), people may spend more time and find eventually difficult to make a choice about VDS when presented with many options. In markets where VDS fragmentation is very high such as in the United States, Australia, China, Japan, Germany and the United Kingdom, selecting a VDS option can become challenging, thus leading to consumer’s frustration or poor purchase decision. For example, if a consumer is presented with 25 different brands of calcium supplements, how does she select a brand to buy, especially if this is her first purchase? Why would she purchase Centrum (Pfizer Inc) over Citracal (Bayer AG) or Nature Made (NBTY Inc)?

The rationale of purchase is influenced by factors apart from what consumers see or find at the point of sales or the internet. Recommendations are usually one of the strongest drivers of brand selection and this is one of the reasons why some brands do extremely well regardless of their price point. For example, VDS brands or options suggested by general practitioners, naturopaths and pharmacists tend to fair better in sales as people are more inclined to listen to health professionals. Equally, direct sellers greatly benefit from recommendations as representatives talk through the health benefits of VDS to potential customers. This is a key issue in Asia Pacific and Latin America where powerful direct sellers Amway Corp, Herbalife Ltd and Tiens Biotech Group Inc have built strong sales networks in VDS.
Family and friends represent another excellent venue of recommendation that has become increasingly important as people endorse or make comments about VDS options in social networks. For example, Centrum (Pfizer Inc) offers a Facebook page in Brazil that reports more than 400,000 likes as of today. Alternatively, Blackmores in Australia offers six online community forums based on specific health need alongside a Facebook presence.

Niche brands such as Solgar (NBTY Inc) and New Chapter (The Procter & Gamble Co) play a different ballgame as their strategy focuses on generating revenue from the rising popularity of healthfood shops and organic/biological shelf-spaces being created at standard grocery retailers and wellness apothecaries. Consumers who purchase VDS at these channels tend to be highly aware of health issues and typically follow a holistic natural approach to life. Hence, they seek natural, organic and/or fair trade options that will meet their expectations. Niche brands sold in these channels usually sponsor wellness fairs, healthy cooking classes, and engage in other grassroots activities to instill the interest of consumers.

Smaller brands such as BioGaia AB which lack a big budget for advertising in mass media or maintaining a strong retailing presence are finding sources of revenue from non-store channels like internet retailing and homeshopping (catalogues and mail-orders) to beat competition.

Last, but not least, innovation, marketing and price also influence purchases. As an example of innovation trends, parents are finding gummies, chewable tablets, and concentrate powders an easy, flavourful and convenient manner of enticing children to take VDS. In contrast, brands offering ready-to-drink (RTD), oral shots and daily packs are luring adults. As these innovation trends continue, VDS keep moving away from traditional tablets and big pills to fun and tasty confectionery and drink formats that appeal more to consumers. Brands with large advertising and promotional budgets want to convince consumers to try new VDS or, in any case, reinforce brand loyalty. The use of testimonials by celebrities or regular consumers can build confidence in
the brand. Yet big advertising campaigns do not always translate to strong sources of revenue, especially in highly competitive markets. In terms of price, it may be perceived by consumers in two relevant ways. On one side, consumers seek to purchase affordable VDS that fit their budgets, especially knowing that VDS is a good investment in health to prevent getting sick. On the other, consumers purchase premium brands that promise exclusivity, high quality, a unique formulation, and a true expectation of health benefits.

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A display of VDS private label located at the entrance of a Costco store in the US

Retaining consumer loyalty is imperative in an increasingly fierce environment where consumers will find even more difficult to make a decision purchase on VDS, particularly as more firms are anticipated to join the VDS boon in the next few years. No matter the country, players who effectively build consumer trust in their VDS lines and adopt their formulations to local nutritional needs and expectations are set to win in the cutthroat race to capture the benefits of health.

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