Survival of the fittest

Growing government regulations are making product differentiation in the food supplements industry increasingly difficult, says Nigel Plummer. If contract manufacturers are to survive, the services they offer their customers need to evolve with the changing marketplace

Changes in the regulatory landscape represent the biggest challenge confronting the dietary supplements industry, especially in Europe. The new regulatory framework in Europe, particularly with the advent of the Food Supplements Directive, will produce a level playing field with regard to the products that can be offered by the supplements brands, but will also have the effect of homogenising product profiles.

Differentiation will become much more challenging, especially for niche companies and practitioner brands, as there will be restrictions on higher-dosage products and further restrictions on those products containing unconventional forms of vitamins and minerals.

This situation is compounded by novel foods legislation in both Europe and the US, which makes it incredibly difficult to introduce new herbs and other ingredients. For example, if methylsulfonylmethane or alpha lipoic acid was discovered today, it probably could not be introduced. This makes differentiation even more difficult, as, in addition to vitamins and mineral products being homogenised, it will be very challenging to launch products with new ingredients.

In order to adapt to these changing times, contract manufacturing companies have to play a distinct and important role — one that has evolved from the traditional concept of a contract manufacturing operation. The customer of a contract manufacturing company is, as with any industry, the lifeblood of that company. The majority of these customers are marketing and distribution companies with little or no manufacturing or packaging facilities. The investment necessary in establishing a manufacturing operation is not really viable in the majority of cases, so many brands have quite rightly focused on their strengths — promotion, marketing, sales and distribution of the brand. These marketing companies rely on one, or usually more than one, contract manufacturer to provide their products in a finished, packaged and labelled form.

Beyond manufacturing
The contract manufacturers have performed this service well, but, more often than not, they have only provided a strict manufacturing service together with some limited technical support, enabling them simply to provide products that meet national and legal standards. Product development, innovation and excellent technical backup have not really been featured in their service elements.

However, in order to compete successfully in the new regulatory framework, the contract manufacturer not only has to continue to operate an efficient manufacturing service but must also evolve the type of services it offers. This is a necessary development if a contract manufacturer wants to retain and develop its customer base, enable its customers to retain their sense of identity and differentiation, and to play a role in the overall advancement of the industry as a whole.

Although supplements brands may have great marketing and product ideas, most of these companies do not usually have in-house personnel dedicated to product development, innovation, regulatory issues, and comprehensive scientific and technical support. For a forward-thinking contract manufacturer to compete successfully, it needs to develop and install these services in-house as an add-on to the manufacturing services it currently offers. This will provide the contract manufacturer with a competitive advantage over those companies that do not offer these services.

Because of homogenisation of the industry and its product offerings, the contract manufacturer now needs to ?get on the horse and take the reins? in order to be successful
The main focus has to be new product development (NPD) and innovation as the supplements branding companies, regardless of which marketplace they operate in, always repeat the same mantra when dealing with their contract manufacturers: ?What?s new?? ?What?s different?? Because of the homogenisation of the industry and its product offerings, the contract manufacturer now needs to ?get on the horse and take the reins? in order to be successful.

This involves the establishment of an NPD team in-house with the facility to formulate and produce pilot-scale samples. It will also probably require a legal/regulatory expert, a formulation/process technologist, and possibly even a nutritionist or some other type of scientifically trained healthcare professional. The focus of the team will be on NPD and innovation within the new regulatory framework, producing product samples that can then be presented to potential clients.

Importantly, the team must also have the expertise and the resources within the company to be able to successfully scale-up development projects into full-blown consistent commercial production.

Strive to improve
Innovation needs to be flexible. Successful innovation can sometimes be relatively minor, and we know that it can be difficult to second-guess consumer habits. But we must always strive to improve the product formulations and delivery formats on offer. Examples of this are spray vitamins or stable liquid glucosamine, which are simply variations on a theme, but sufficiently innovative to spark interest in the consumer and enable the brand to retain differentiation.

Successful and sustainable NPD and innovation is not easy. Stability of colour, flavour and especially actives, such as glucosamine in liquid form, all need to be scientifically backed up and validated.

However, once that work has been carried out, the contract manufacturer has a real competitive advantage over its competitors. These new and innovative product ideas can then be offered to its customer base, helping to reinforce the trading relationship, and to prospective new customers to increase market share. These innovations can also be differentiated for different customers according to their needs, their focus and their particular market niche. For example, on a very basic level, different flavours could be offered to different customers or one particular customer may have a proprietary ingredient that they may want to add.

As products become more uniform, we need this kind of innovation. We need it to survive as contract manufacturers, and we need it to survive as supplements brands. This is particularly relevant in Europe right now, but we should also expect a tightening of the legal framework in the US over the next 10-15 years, and we must therefore start to prepare ourselves now.

One-stop shop
A secondary element in the evolving role of a contract manufacturer (in addition to developing an in-house NPD and innovation team) is the need to assess the manufacturing services that are offered. If a contract manufacturer has tablet-manufacturing facilities, then it should examine the possibilities of developing hard-shell capsule manufacturing, sachet filling, and also maybe a packaging and labelling operation. While it is necessary to preserve the core business, diversification will continue to become more important.

Diversification, together with the offer of different product types and delivery systems, including tablets, capsules, powders, liquids and emulsions, will result in the contract manufacturer becoming more of a ?one-stop shop,? thereby further cementing the relationship with the customer. This surely must be a much more attractive proposition than having tablets produced by one manufacturer, capsules produced by a second manufacturer and packed by third company.

It will come as no surprise that a rationalisation of the supplier base will result in a much improved sales position for the contract manufacturer that can most comprehensively satisfy the full needs of the brand. In return, the branding company will reap the benefit that the consolidation of their purchasing power will provide.

The basic idea is that the contract manufacturer evolves into a comprehensive sourcing, research, development, manufacturing and packaging company with the necessary scientific, technical and quality credentials to provide a suitable support structure for the supplements branding company. Even the term ?contract manufacturer? should then disappear to be replaced by a more suitable phrase such as ?nutraceutical product developer and manufacturer.?

In fact, some contract manufacturers are also developing their own raw materials. If the contract manufacturer has the ability and technical resource to be able to successfully develop new added-value raw materials, then this should be commended by the industry as a whole. It seems that innovation can take various forms.

In summary, the more manufacturing services a contract manufacturer can provide in a consistent and efficient way, tied into the provision of an innovative NPD programme with the necessary technological know-how and support, the more prepared the contract manufacturer is going to be to deal effectively with the challenges that are currently facing the industry.

Nigel Plummer is the managing director of UK-based supplements contract manufacturer Cultech.
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