Breaking Boundaries: The International Market for Dietary Supplements

October 6, 2014
Kimberly J. Decker

Nutritional Outlook, Nutritional Outlook Vol. 17 No. 7, Volume 17, Issue 7

A look at opportunity areas and drivers

Under most circumstances, a confluence of sedentary lifestyles, unhealthy diets, growing elderly populations, and rising healthcare costs wouldn’t be cause to celebrate. But for supplement makers operating on the global stage, those factors present a perfect storm of conditions that, backed by some vigorous marketing, have sustained growth in the international vitamin and dietary supplement (VDS) industry these past 10 years.

At least that’s the conclusion that Priyanka Bagde, a Bangalore-based survey analyst for Euromonitor International, drew from the Global Consumer Trends Survey her research firm released in 2013. Consumers around the globe, she says, regard dietary supplements as a “low-effort way to meet their bodies’ nutritional requirements.”

And while the survey reaffirms the continued dominance of a few mature markets-the United States and Japan tops among them-Bagde believes that as penetration nears saturation in developed countries, “emerging markets offer companies in this industry higher growth potential in nascent markets with large populations.” To transform that potential into profit, marketers will have to suss out where the real opportunities lie, and how to navigate within these new terrains.

 

A Global Phenomenon

The Euromonitor survey leaves little doubt that interest in dietary supplements is a global phenomenon. The results show that more than half of those surveyed in the United States as well as in India, China, and Brazil all consider supplements important for maintaining health.

But Bagde points out that while the retail value of VDS sales grew more than 50% in Russia, India, and Brazil between 2009 and 2013, “sales were stagnant, or even fell, in developed markets such as France, Germany, and Japan.”

That split underscores the critical role that untapped audiences will play in sustaining future growth, yet also stands as a firm reminder that supplement companies “must understand current VDS consumption patterns and factors that influence consumption habits” to make the most of markets both established and developed, Bagde says.

 

The Fundamentals

Mark LeDoux, president and CEO, Natural Alternatives International Inc. (San Marcos, CA), has long kept an eye on just such factors, and he’s decided that robust international demand for dietary supplements rests on three fundamentals: “perceived need, regulatory acceptance, and disposable income.”

For example, markets with younger consumers are “primed for explosive growth,” LeDoux says. “The demographics of the ASEAN region”-the Association of Southeast Asian Nations, which comprises Indonesia, Malaysia, Singapore, the Philippines, Thailand, Brunei, Cambodia, Laos, Burma, and Thailand-“are very favorable. The consumers are well educated, largely unfettered by debt, and interested in making health choices early in their lives.” Similarly, he anticipates Western Europe “showing significant growth” in specialized categories like sports nutrition and weight management. Plus, “the younger generation there is also more educated about natural alternatives to pharmaceutical approaches, as the cultural acceptance favors that approach.”

On the regulatory front, countries that exercise tight government control over supplements-think Russia, India, and South Korea, among others-“may be seeing growth,” LeDoux continues, “but it’s probably somewhat muted relative to what’s transpiring in China, Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, etc.” A similarly restrictive scenario prevails in parts of South America, where what LeDoux calls “probably some of the toughest tariff and domestic production preferences on the planet” make it “difficult to know what’s really happening from a U.S. perspective.” Nevertheless, he’s familiar with several multinationals who maintain a strong presence in Brazil, and though all produce their products in country, he says, “they still see significant growth despite this phenomenon.”

As for the role of disposable income, LeDoux believes that with Western Europe climbing out of the morass that engulfed it during the financial crisis, “real growth is showing up in regions like Spain, Italy, the UK, Switzerland, and the Benelux countries [Belgium, the Netherlands, and Luxembourg].” He attributes growth in Holland to the “fairly accommodative” regulatory environment there. And while he praises Australia and New Zealand for their dynamism, their small populations will likely keep them in the league of minor, but still valuable, players.

 

Eastward Ho

Indeed, “The real area we see growing dynamically,” LeDoux goes on, “is the ASEAN community, as well as in mainland China, which has a burgeoning and well-educated middle class” that he thinks is ready for supplements.

Indeed, with a population of some 1.3 billion, China shines like an El Dorado to manufacturers of any consumer good: a land of untapped consumers and pent-up demand. Yet out of those billion-plus citizens, Jeff Crowther, executive director, U.S.–China Health Products Association (USCHPA), estimates the actual number of potential Chinese supplement consumers to be more modest-closer to 250 million–300 million people, he surmises. And he should know; with offices in Tianjin, China, and Lewes, DE, his organization enjoys an uncommon perspective on China’s merits and drawbacks as a place for supplement makers to do business.

Among the challenges are a “fractured” market, lack of surveillance, and issues surrounding transparency-all of which Crowther says make accurate data on the actual size of the Chinese market elusive. Further fuzzing the numbers is imprecision in defining just what a “supplement” in China is. “China refers to them as ‘health-food products,’” he explains, “which includes not only dietary supplements but also products that would be considered Chinese medicine, beverages, yogurt, and a variety of food items.”

Regardless of the “official” definition, the market for supplementing in China is, and will continue to be, substantial. And the reasons go well beyond the country’s growing middle class and increasing access to information and purchasing opportunities. In fact, Crowther believes that Chinese consumers’ openness to supplements lies deep within their culture.

“Chinese are probably the most health-conscious people in the world,” he says. “It’s a food culture, and the Chinese people pay great attention to eating nutritious foods whenever possible.” Add to that the millennia-old practices of traditional Chinese medicine (TCM) with its armamentarium of herbal remedies and it’s hard to deny: “Being health-conscious is part of Chinese culture,” Crowther declares.

Also important is the cultural tradition of caring for one’s parents-“what Confucianism calls ‘filial piety,’” Crowther says. “Because of this, people look to buy healthful and nutritious products for their parents and grandparents”-a practice that’s bound to ramp up as the proportion of Chinese people older than 60 increases dramatically in the coming three decades, potentially making up half the population.

This hasn’t slipped past the notice of the Chinese government, which is encouraging its citizens to live healthier lives. “Of course, dietary supplements and functional foods could play very important roles in this endeavor,” Crowther says. “However, the current regulations aren’t conducive to allowing China’s dietary supplement industry to reach its full potential.”

 

Breaking Down Barriers

Ah, regulations. Crowther calls them “the biggest stumbling block” to China’s growth. But things may be changing, as China is in the process of reforming its food-safety law, “which contains provisions for the dietary supplement industry,” he says.

As things now stand, the Chinese government requires that dietary supplements be registered with the nation’s Food and Drug Administration. “The process takes between two and three years to complete and costs in excess of US$100,000 per product,” Crowther says. “Seeing as how most dietary supplement companies have at least 30-and sometimes more than a thousand-SKUs, this would be a very large investment and is the reason most foreign companies have not fully penetrated the market yet, with the exception of direct-sale companies that are doing very well.”

Should the changes proposed in the draft regulations-which Crowther and USCHPA were instrumental in crafting-go into effect, some supplements would fall under a notification system. “What this means is that for certain products, such as single-ingredient letter vitamins and perhaps some minerals, approval will be on a notification basis and not registration-based,” Crowther explains. “This should significantly lower the investment for companies to enter the market.” However, he cautions, “We have to wait and see what this list of approved ingredients looks like.”

 

Regulatory Harmony

Whatever the final ruling, it’s a sign of progress, and an echo of efforts across the globe to harmonize supplement regulations. Brazil, for example, has followed China’s lead and switched to simplified notification procedures “versus burdensome premarket registration for simpler vitamin and mineral products,” says John Venardos, senior vice president, worldwide regulatory government and industry affairs, Herbalife (Los Angeles).

And, he adds, “we’ve seen senior government officials in the 10-nation ASEAN block seeking to harmonize health-supplement and TCM regulations to stimulate economic growth and development.” Multilateral trade pacts such as the Pacific Alliance trading bloc in Latin America and the Eurasian Customs union of the Russian Federation, Belarus, and Kazakhstan also “encourage free trade of supplements,” Venardos says.

Japan is looking to modernize its health-claim laws “in keeping with international standards,” he continues, lifting its ban against functional claims on “health foods” to make the products’ benefits easier for consumers to understand and thereby empower them to protect their own health. And it’s worth noting that in shaping its reforms, Japan has chosen the U.S. health-claims scheme as a model, which is a credit to our system and a sign of its global influence.

 

Safety First

Indeed, U.S. labeling and regulatory practices often serve as the benchmark for others. Though implementation of the much-anticipated GMP requirements “took a long time to get through the process at FDA and its Office of Dietary Supplements,” LeDoux says, “now that they are the law of the land, companies that comply with these dynamic and stringent regulations can often state unequivocally that they meet or exceed most all international standards in the arena.”

The only tougher standards he’s aware of are those established and enforced by Australia’s Therapeutic Goods Administration, as well as rules in some markets that place supplements under the same regulatory purview as pharmaceuticals and thus require that they “be made in a suitable licensed facility,” LeDoux says.

U.S. discipline in safety procedures has also inspired others to step up their games, Venardos adds. “Across the globe, regulators have advanced policies to enhance consumer safety by promulgating measures affecting ingredient and product traceability, analytical testing-in some cases finished-product toxicity testing-and post-marketing surveillance to detect and assess adverse-event reports, restricting the use of certain ingredients of concern, and monitoring the marketplace for unacceptable ‘miracle-product’ claims,” he says. In many cases, they took their cues from us.

 

Looking Outward

But we don’t have all the answers, especially not when wading into uncharted market waters. Which is why advice from industry veterans who’ve been around the block-or the globe-is so valuable. From his vantage, Crowther tells U.S. supplement makers that “if you’re not already in the market, now is the time to begin looking at China, because the regulations are changing and it’s well known that this will become the largest market in the world for dietary supplements once the changes move forward.”

Still, he cautions companies to register their trademarks and protect “any and all intellectual property” prior to entering the scene. And once there, he recommends focusing on products for the elderly, children, and women’s beauty. Additionally, “Many of the players in the market are now consolidating into the Internet sales channel because it gives companies access to the entire country and, in terms of business, is just an easier model to work with.”

Looking more broadly, LeDoux offers as his “first rule of thumb” that old chestnut, “Know your audience.” Once you’ve done that, he says, “Hire the best regulatory consultants you can find and follow their advice. And the third is to be patient. After that, it’s about innovation, marketing clear and non-misleading products that deliver on their premise. Too many American companies approach international markets with an American mindset, and this is a very poor choice, often leading to significant losses and major disappointments.”

Although having a “Made in America” label on your products can’t hurt. Jim Griffiths, vice president of scientific and international affairs, The Council for Responsible Nutrition (CRN; Washington, DC), says his fellow members “report that there’s a high level of respect for the quality of the products developed and marketed by American-based companies.” And why wouldn’t there be?

“It’s the belief of CRN members that if you deliver a high-quality product at a reasonable price, the market will continue to grow and flourish,” he says. “People around the globe are the same: they want to feel good, look good, and stay healthy. There is a worldwide demand for nutritional products” to help them do just that.

 

Read more:

Euromonitor predicts that emerging markets-particularly Asia Pacific-is where growth opportunites are ripest.

 

Photo © iStockphoto.com/Auris and Photo © iStockphoto.com/FotografiaBasica. Edited by Quinn Williams.

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