From The December 2001 Issue of Natural Foods Merchandiser
Sifting Through The Numbers
The end of 2001 offers an opportune time to reflect on the industry's recent performance and its growth potential. The nutrition industry's projected 6.5 percent growth in 2001 looks fairly similar to what we saw in 2000. Growth in natural and organic foods was weighed down by nominal growth in supplements. Functional foods and natural personal care products are growing in the 6 percent to 8 percent range.
By sales channel, natural products retailers are holding their market share against the long-predicted onslaught of the mass market, and still represent the largest portion of sales when functional foods are excluded. Savvy, less economically sensitive consumers continue to shop the natural channel, and though they are still only 5 percent to 10 percent of the population, they provide some scope for continued growth.
While the overall growth rate of 6.5 percent seems disappointing compared to past years, sales growth that is more than twice that of the economy's is nothing to cry about. Plus, industry indicators point to a promising but challenging future. The potential for natural and healthier products to penetrate mainstream categories is still largely untapped. The $17 billion being spent on dietary supplements is less than 10 percent of what is spent on over-the-counter medicine and prescription drugs. Natural and organic food sales, which ring in at $11.8 billion, represent barely 2 percent of the $500 billion U.S. food industry. Functional foods sales reached $17.2 billion, but even when broadly defined as manufactured foods with any ingredient added specifically for health purposes, still account for only 3.5 percent of U.S. food industry sales. Natural personal care products, even more loosely and broadly defined than natural food, had sales of $3.8 billion in 2000 and are just 10 percent of total health and beauty care spending.
In sum, the $50 billion natural products and nutrition industry accounted for just 7 percent of the $680 billion food, medicine, health and personal care products market in the United States in 2000. There is certainly still room for industry growth.
In fact, all signs point to increased market share for the industry at the expense of mainstream competitors. Each incremental percentage point, however, is harder to attain. Whereas business arguably played the most pivotal role in growing the nutrition industry to $50 billion through product development and distribution, we believe that consumers now hold the key if the industry wants to see sales reach $100 billion. Unlocking this potential will be up to industry participants to educate and convert the still vast majority of Americans into committed natural product consumers.
There are several factors affecting industry growth in the next five years, including:
- The Economy: growth vs. recession and the amount of discretionary spending available to consumers
- Consumer Education: marketing by industry participants, and preventive and health maintenance education by government, universities and health care providers
- New products discovery and introduction
- Positive media coverage—or at least fewer negative media messages
- Scientific and clinical data accumulated on specific products tied to specific diseases or health conditions, on healthier lifestyles, and on diet and supplementation in general
- Regulatory Balance: a measure of regulatory leniency allowing new products and formulations, balanced with some regulatory (or industry-initiated) requirements, instilling more consumer confidence in safety and quality
- Food safety or quality issues driving customers to natural and organic
- Price fluctuations in supplements vs. pharmaceuticals, or organic vs. conventional, making the natural products and nutrition industry products more cost-favorable.
NBJ estimates that in 2000 fewer than 5 percent of U.S. adults, or 10 million people, were committed or "heavy" users of supplements, and spent $40 per month on average; 35 percent, or 75 million people were "regular" users (mostly vitamins and minerals) but spent only $10 per month; and another 30 percent or so were "occasional" or "rare" users. All these consumers are worth targeting, but the regular and occasional consumers seem to provide the largest potential for growth. If the industry can persuade them to convert to more frequent use—with the help of government, academia and the health care community—we can secure growth well into the future.
Organic foods show even greater disparity between the committed faithful and the nonbelievers. NBJ estimates that 0.3 percent of U.S. adults, or 600,000 people, are "heavy" purchasers of organic foods, spending an average of $200 per month. Another 1.5 percent, or 3.3 million people, spend $50 per month. Together, these represent almost two-thirds of the $5.8 billion organic foods market. While almost 90 percent of Americans buy no organic products at all, and 80 percent of the rest buy them occasionally, the larger long-term potential is with these consumers, although they may not offer the best short-term target for sales growth.
Grant Ferrier is the editor of Nutrition Business Journal.