India?s nutrition industry is generating $6.8 billion in annual revenue, and that number will nearly double in the next five years. Adam Ismail explores this rapidly evolving market, and what it means for Western manufacturers
India, much like China, has for centuries embraced such natural medicines as Ayurvedic remedies and herbal teas. The country is changing rapidly and today is a beacon of opportunity for the nutraceuticals industry. The government is working hard and fast at shoring up its intellectual property laws, productivity is growing and investment in R&D infrastructure continues to increase year-over-year.
In developed Western countries, there is a significant correlation between the growth of nutritional ingredients and demographic issues like ageing populations, wealth distributions and incidences of health problems. These are largely predictable factors and are the reason why there is so much confidence in the growth of nutraceuticals products over the next 20 years. Almost no one believes that the baby boomers are going to begin consuming fewer nutraceuticals, because they will increasingly need them as they age.
In developing countries, however, there are other issues that complicate any prediction of how something like nutraceuticals will grow. For instance, a certain base level of income may be required.
In the US or Europe, you might not give a second thought to buying a tube of toothpaste for $1-2, because even if you are below the poverty line in these countries, this is affordable. However, the average Indian has just under $1.18 per day in disposable income1, and there are 286 million people who live on under $1 per day in total income.2
In these poverty-stricken classes, disposable income is around 5-8 cents per day. Given how long it would take to save up for a tube of toothpaste at that rate, it?s easy to see that toothpaste would simply be out of reach.
The US economy was sustained in the 1990s by impressive productivity gains, which have now slowed. Everyone remembers how these gains helped support the nutraceuticals industry when it was growing at high double-digit rates before the end of the 1990s. India, on the other hand, is roaring ahead now. India?s current gross domestic product per head is somewhere around $620 today,3 which pales in comparison to the US? $40,050 per head GDP, but India?s future growth is what is particularly interesting.
By 2010, in just five years, Indian productivity will grow nearly 68 per cent, more than double the rate of productivity growth in the US! The implications for the industry are staggering. The Indian nutrition industry is around $6.8 billion in revenue today. Solely based on productivity growth, the size of that industry will nearly double in the next five years. Compare that to the relatively small gains the US nutrition industry has made in recent years.
THE POPULATION PYRAMID
We hear a lot today about how ageing populations are going to drive the US and Japanese nutrition industries. People live longer today, and will need nutritional
solutions to support their lifestyle, but in addition, there are going to be more elderly people in these countries than young people very soon.
India does not have that problem; they have a more unique population challenge. Today?s population pyramid in India looks like that of any other developing country, a wide base at the bottom from uncontrolled birth rates, and a small point at the top from lower-than-average life expectancies.4
However, because India is developing rapidly, life expectancies will increase. The ageing population will increase, and demand for supplements and functional foods related to age-related conditions will certainly grow at double-digit rates.
However, demand for products that address middle-aged life needs, like family-oriented multivitamins, infant formulas and healthy foods, will grow even faster than that. There are 516 million people between the ages of 20-55 today; that number will grow to 800 million in the next 40 years. The growth alone is larger than the entire US population!
So again, what does this mean for the nutraceuticals industry? Based solely on the increase in this middle-aged portion of the population, the industry will grow an extra 1.4 per cent per year; by 2045, this will amount to an additional $5.3 billion in nutraceuticals sales in India.
Supplements, by definition, are generally consumed in addition to your diet and as such are not part of the core spending on lifestyle essentials. There have been a number of studies that have shown that the spending distributions of disposable income in developing countries does not change until countries hit a per capita GDP threshold of around $5,000.
In other words, when per capita GDP is around $600, consumers generally spend the same percentage of their disposable income on supplements as they would if the per capita GDP had grown to $4,000. This is the statistic I believe demonstrates the opportunities in India better than any other.
Current disposable income per head in India, in $PPP terms, is $2,303, but is expected to grow to $3,033 by 2008.5 That means we could see a potential $3.5 billion increase in the size of the nutraceuticals market in India in just three years.
(Purchasing power parity is an economic concept that measures the differences in purchasing power between multiple countries. For instance, in India, GDP per head is $620 today, but in India you could buy the equivalent of $3,330 in goods that you would be able to purchase in the US. This means the PPP factor of goods in India vs the US is 5.3 times [$3,330/$620].)
STRATEGIES FOR SUCCESS
Economists have written hundreds of books on the ?bottom of the pyramid,? with the belief that you can target the millions of poverty-stricken consumers and make money while contributing to the betterment of their lives. Nowhere is this truer than in nutraceuticals.
To go back to the toothpaste parable, there is a famous case of a large multinational that decided it needed a unique strategy to fit the health needs of the Indian population. After a lot of brainstorming and analysis, they came up with single-serve toothpaste packages they could sell for less than a penny. Suddenly the entire toothpaste category became accessible to a group of consumers that never had more than 5-6 cents to spend.
There is a valuable lesson in this strategy for the nutraceuticals space. There are a number of supplements sold in the form of single-serve herbal tonics in India, but they are priced between 15-25 cents per serving, and are generally still out of the reach of the poorer consumers for use on a daily basis.
For instance, Rasbihari has begun selling a single-serve, powdered Ayurvedic medicine formula under its Yogi brand name that is aimed at treating urinary and digestive disorders.6 Consumers will seek out such remedies in cases of grave illness, which is indicative of their strong trust and faith in these medicines. However, there is no single-serve daily multivitamin that addresses their needs. Nutrients like vitamin A are critical to their health and survival, but again are out of their reach.
Another strategy companies are beginning to adopt is to sell fewer processed products. Some studies on bottom-ofthe-pyramid concepts have found that aesthetic principles to these products are less important to a population that is proactively seeking a solution for a principal necessity like health. So, we are starting to see a series of supplements sold in powder forms that would not normally be sold that way.
For instance, Gurukal Pharmacy has started selling an herbal tea supplement in whey protein-sized plastic tubs for only 80 cents.7 There is still opportunity in reducing the portion of costs related to packaging, which allows companies to sell the same product at an even lower price to consumers. In countries like India, a small reduction in price does not necessarily mean reduced profits; instead it means significantly more volume from targeting a much larger base.
Another function of the mega trends occurring in India is the sophistication for raw material companies. There are more engineers and scientists per capita in India than any other country, by some estimates. (This analysis includes software engineers, but the general trend holds true for life science disciplines as well.) Some nutraceuticals companies have discovered India as an incredible research and development resource, particularly stemming from the large and mature generic pharmaceuticals industry that exists there.
Indian research technology in areas like fermentation processes, plant extraction and even chemical synthesis are in most cases much more developed than their Chinese counterparts and still have the labour cost savings that make outsourcing so attractive.
The converging economic and demographic trends in India have laid the groundwork for opportunity in nutraceuticals. However, India is far from being a fully developed country, by Western standards, and as such making significant profits there requires unique tactics and strategies.
The important thing is to recognize that companies need to begin investing in India to take advantage of these trends in the future. The nutraceuticals industry has the potential to grow by multiples in the next few years, but the industry has to step up to offer real value to the very unique consumers there. It also does not pay to ignore the rapid development pace in India, because it will affect our industry in every country of the world as well.
1 Economist Intelligence Unit
2 World Bank
3 Economist Intelligence Unit
4 US Census Bureau International Database
5 Economist Intelligence Unit
6 Mintel International?s GNPD Database
7 Mintel International?s GNPD Database
Adam Ismail is business development manager, Health & Food Technologies, for Cargill Inc.
Respond: [email protected] All correspondence will be forwarded to the author.