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The Consumer Health medicine industry is worth $233 billion dollars around the globe. It grew by 4% last year, indicating further evolution in the years to come. To better breakdown and understand this industry, Euromonitor divides it into four main categories seen in the chart below.
Source: Euromonitor International
Globally the consumer health industry is largely dominated by OTC and VDS. VDS represented 41% of total consumer health sales in 2017 and OTC represented 46%.
Over the past five years the industry grew by 1%. The majority of this growth was driven by VDS and sports nutrition gains, strong adoption of online sales for both categories and also an interest from consumers on prevention and boosting their overall wellbeing. The fastest growing categories have been sports nutrition and VDS, with VDS gaining market share from OTC. Sports Nutrition has experienced strong growth but this is coming from a very small base of consumers.
Although OTC remains the largest category globally, sales of OTC have declined through physical stores and unlike categories such as VDS and sports nutrition, the adoption rates of online sales have not compensated this trend. Consumers tend to buy OTC products for immediate use and are not willing to wait for delivery.
Australia is also dominated by OTC and VDS, although VDS surpassed OTC back in 2015. VDS grew by 9% during this period and is now the largest category of consumer health, accounting for 41% of total sales in 2017. Looking at regions globally we find that Australasia is the second largest region in terms of per capita expenditure in VDS, after North America. In Australia, the government does not specifically recommend taking vitamins, but does recommended daily intake of essential nutrients.
There are three major trends driving sales of VDS in Australia:
This has become a way of life for many consumers. It involves a broader approach towards health including mental, physical, emotional and environmental factors. Consumers are also becoming more engaged in their own nutrition and disease prevention. This trend has driven growth of consumer health categories such as VDS and sports nutrition that support a more active and healthy lifestyle. Through this movement, consumers are also recognising that health and ageing are not mutually exclusive and these two states can happen simultaneously if the right approach is taken.
Australian consumers are more connected than ever before with 81% of the Australian population accessing the internet daily as of 2017. With more connectivity, a new type of connected consumer is rising: the digital health consumer. The common path for a digital health consumer starts with increasing interest and access to health education and advice via digital devices. From this, some consumers begin to track health and fitness through mobile apps and might use apps to buy VDS or sports nutrition. Some might also look for more personalised products based on the information they have provided.
This digital health consumer is increasingly shopping online, with the majority of online consumer health sales coming in the form of VDS as we can see in the chart in dark blue.
Between 2012 and 2017 sales of VDS through e-commerce in Australia grew by 29%, and in 2017 online sales of VDS accounted for 49% of online sales of consumer health.
From a regulatory and usage perspective, the OTC category is further behind. When consumers need an OTC drug the need for it to alleviate a symptom right away and there is no real reason to wait for the product to be delivered.
The third trend driving sales of VDS in Australia is related to the emergence of daigou, which means buying on behalf of. This practice became apparent in 2015, where Chinese consumers would purchase high quantities of products including VDS. In many cases they would empty shelves of supermarkets and other retailers.
The channel has evolved significantly and become more sophisticated. Currently, most orders are done through online platforms and apps such as Tmall, Kaola, JD, Wechat and Weibo. Purchasers no longer require to empty shelves from retailers, as there is usually a daigou store close by to get the stock. Some daigo stores also offer additional services such as shipping. We can also find mega daigou or export wholesalers, which work directly with manufacturers.
Consumers in China use the daigou channel for different reasons:
The first is trust. Consumers in China tend to associate Australian products with quality, reliability and authenticity. This is largely derived from Chinese anxiety over counterfeit goods and product safety at home.
The second reason is price. In many cases Australian brands not only offer quality and authenticity, but also a better price when compared to some of the brands available in China. For example, protein supplements in China in 2017 were about $92 USD per kilo, whilst in Australia the same product was on average $40 USD per kilo.
The third reason is convenience. Consumers in China, particularly those living in main cities, have limited time for shopping. They have friends or relatives here in Australia they trust and they can just place an order online and get the items delivered to their doors without having to get out of their way.