The Amazon Effect: Will Supplement Retailing Ever Be the Same?

Published on: December 7, 2017

The biggest challenges and opportunities supplement retailers face today.

It’s Amazon’s world; the rest of us just live in it.

That may sound dramatic, but why else would drugstore giant CVS make a $69 billion bid for the insurance company Aetna? Stick with me here: Consider that the 10th TABS Analytics “Vitamins, Minerals and Supplements Study” found VMS sales growth of only 3% at brick-and-mortar outlets from 2016 to 2017 while online sales shot up 20% over the same period, from $2 billion to $2.4 billion.

And though the TABS report attributes much of that online growth to the ecommerce arms of real-world retailers like CVS, the researchers at Euromonitor note in their own 2017 “Vitamins and Dietary Supplements (VDS): Trends and Prospects” report that despite considerable investment in their online presence, CVS as well as Walgreens have yet to see web sales account for more than 1% of the total in any year since 2012.

Even as CVS bends backwards to make itself more relevant to contemporary shoppers-improving store layout, expanding product lines, and downplaying its “drugstore” identity in favor of being seen as a “healthcare company” complete with community clinics, lab testing and nurse practitioners beside the shampoo and holiday candy-there’s no guarantee that this strategy will better position the store to compete against the likes of Amazon. So why not merge with a major health insurer and see what kind of edge you can gain, right?

Whether the gambit will pay off remains an open question. But there’s no doubt that “an edge” is just what CVS, Walgreens, and even nutrition specialists like the Vitamin Shoppe and GNC will need as Amazon-and the brave new world of Internet purchasing in general-threaten to transform how consumers buy dietary supplements the same way they did how we buy books, music, food and just about everything else. Or, as Daniel Lohman, CPSA, a strategic advisor to the CPG and organic industries and founder of Category Management Solutions (CMS4CPG LLC; Littleton, CO), says, “There’s a seismic shift coming to retail.

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Beware Amazon
You can’t blame traditional retailers for feeling a little jittery in light of it all. For just as eye-popping as CVS’s bid for Aetna was Amazon’s June 2017 announcement that it would acquire Whole Foods Market for the tidy sum of $13.7 billion-a move that would further boost online natural-product sales while also giving Amazon yet more consumer purchasing data to play with.

And once Amazon’s private-label Elements line went live in Spring 2017-starting with four organic, clean-label, transparently sourced supplements-turmeric root extract, calcium complex, vitamin D2, and vitamin K2-the notion that it might colonize the supplement space took on even more weight. After all, Amazon already offers rush delivery for a number of supplements and over-the-counter products through its Prime Now service, which is gaining traction in almost 30 metropolitan areas, Euromonitor notes in its report.

Frictionless Shopping
And when you think about it, shopping for supplements online makes sense. Depending on a consumer’s product choices, the relative privacy of purchasing them from the comfort of home may present a notable advantage over hunting down a clerk in the store and sheepishly asking him where to find them.

In fact, Euromonitor calculated that global Internet sales of vitamins and dietary supplements reached 14% in 2016 compared to 9% for consumer health products generally and a mere 2% for food-categories where the consumer may not be quite as interested about privacy.

Of course, it’s worth noting that while the online shopping experience itself may be private, very little about consumers’ purchasing data actually is. A signal asset that Amazon and other online outlets possess is the scads of data about what we buy, in what quantities, how frequently, and at what price point. So as these players get more entrenched in the industry, you can bet on them putting that data to use.

Filling the Void
In any case, while Lohman concedes that Amazon and now Whole Foods “are a force to be reckoned with, and are going to sell a lot of products by carving out a niche that will compete very effectively against the Krogers and Walmarts of the world,” the combined entity “does leave a huge void. And that void is an opportunity” for retailers and the brands they sell.

Which is a refreshingly optimistic spin on what can be a worrisome topic. And if optimism is the persistence of hope in the face of uncertainty, Lohman has some tips for brick-and-mortar supplement retailers that might help keep that hope strong, no matter what’s ahead…

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Make Shopping Easy

“I walk into a CVS with a cold and I go to the cold-and-flu section-piece of cake, right?” That’s how Daniel Lohman, CPSA, a strategic advisor to the CPG and organic industries and founder of Category Management Solutions (CMS4CPG LLC; Littleton, CO), sets up a scenario that might seem familiar to shoppers looking for supplements at traditional retail. But, he continues, “When I ask for vitamin B they send to 16 different locations, all within the supplement section.” And who has time for that? “So, this all gets back to the need to be more strategic,” Lohman counsels. “Retailers need to make it easier for consumers to get the solutions they need in their stores.” That means streamlining layout and also educating personnel on the basics of how to help consumers find what they’re looking for.

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Let Brands Support your Retail Effort

Speaking of educating personnel, one consequence of Amazon’s Whole Foods purchase is that the organization may phase out the practice of letting brand representatives visit the stores to train floor staff on their products. Lohman calls this “the most striking” change that could emerge from the union, “because no retailer-not a Walmart, not a natural grocer-can possibly be an expert on the 10,000 or 30,000 items that they carry, no matter how many people they employ,” he says.

This lends an advantage to smaller retailers willing to take advantage of the education that brand reps give. Consumers go to natural retailers for a lot of reasons, Lohman points out-the products, the ambience, the mission-but they also go because they want to learn about the supplements on offer and which are right for them. If a retailer can’t answer those questions, the consumer might just as soon do a Google search instead.

The Future Looks Small

“I firmly believe that the future of CPG lies in small brands, not the big ones,” Lohman says. And here again, the opportunity for similarly small retailers is to “embrace small brands and make it easier for those supplements to get on the shelves-to reduce the number of barriers in front of them and go out of the way to sing their praises and tout them, to become champions of those small brands.”

Because as Amazon takes over more of the supplement-shopping landscape, it might not see much justification for doing so itself. Indeed, Amazon and Whole Foods both “cater more to Wall Street than to Main Street” in adopting traditional category-management standards, Lohman says. “And that tends to commoditize the consumer and the products on the shelves.” By making your store’s selection less commodified, you make it stand out.

Getting Personal?

Much ink has been spilled over the role that personalization will play in supplement retailing. The idea is that by tailoring supplement formulas to everything from a consumer’s age and gender to her weight and health history, brands and retailers alike can “speak” to those consumers’ desire to “own” their wellness.

Amazon’s vast stores of consumer data, combined with web and mobile apps, self-monitoring devices and even medical consultations via Skype or FaceTime are proffered as handmaidens of this health revolution, but as far as Lohman is concerned, the talk of personalization is, to some degree, “a gimmick as a way to get more products on the shelf.”

Jay Jacobowitz, president and founder of Retail Insights (Brattleboro, VT), a consulting service to the natural products industry, agrees, stating that though he’s not an expert on supplement personalization, “I have to believe it will remain a niche for the foreseeable future,” with privacy concerns as well as liability issues slowing adoption.

In the end, says Lohman, “When you return to the brands that really understand their consumers, you realize you need more than just demographic window dressing.” True supplement personalization means truly meeting the consumer’s needs, “and that’s different from just slapping a personalized label on it.”