December 15, 2013
Consumer transitions to natural products often represent more of an educational evolution than a revolution. That rings particularly true for whole-food supplements, sometimes called food-based supplements. When NBJ last reported on them, they showed 9.3% growth and rising—enough to clearly outpace sales growth for the supplement industry overall.
Kyle Garner, CEO of New Chapter, whose Brattleboro, Vt.-based company makes solely food-based supplements, attributes his company’s double-digit growth to increased consumer awareness. “Anecdotally, I think it’s just the education that these products exist. We’re in this little bubble of the natural food industry, and we think all this stuff is well-known. But 90% of people will never walk into a health food store, and the vast majority of people have no idea that there are whole-food supplements,” he says. “These products sell themselves once people realize they exist.”
“I think what’s evident is there’s a lot more attention on the whole-food category, given what some of the large vitamin suppliers are doing to get into the space,” says Robert Craven, CEO of Derry, N.H.-based FoodState, which makes MegaFood dietary supplements. Centrum, as one example, launched its Pro Nutrients Fruit & Veggie product about two years ago. Now, says Craven, the whole-foods supplements sector is growing at two to three times the rate of other sectors.
That level of growth has many wondering if the sector may be ripe for international expansion.
“I think it’s about to tip in Canada,” Garner says. “It feels like the U.S. was four or five years ago. It’s starting to bubble up. The Canadian health food market has been a little more traditional—USP vitamins and products like that. We’re starting to see some of the big U.S. players in whole-food supplements entering that market and doing well as manufacturers build awareness."
“Outside of Canada,” Garner continues, “I don’t know a lot of specifics because our business is so limited. When we have pursued it, we have seen pretty decent results. The markets are different in consumers’ willingness to use botanical products. I think in a lot of European Union markets, consumers are more open to them—they’ve been using them a long time. If you go to Asia or India, it’s what those models are built off. My guess is it would be widely acceptable globally.”
Craven agrees the whole-food message will resonate internationally when consumers understand what whole-food supplements are, and how they’re manufactured. “Things like food quality, water quality, organic, non-GMO, transparency in the food chain, farmer connections, understanding where your food comes from—I think these are issues that are broader than just the U.S.” Some of them, in fact, are even more critical to consumers outside the U.S. “The non-GMO trend is one where the U.S. is really behind the rest of the globe,” says Craven. “It affects whole-food supplements because our products are primarily food.”
That’s still a topic of early discussion domestically: Is it purely food? Food with isolates added? Isolates with food added? What processes are and aren’t acceptable here? “The shared concern is that no one wants this to become the next 'organic' or 'natural' that ends up losing meaning,” says Garner.
Craven and Garner agree that the focus should stay on what consumers want. The basics are clear. These are products that are largely made from a food instead of synthetic ingredients. We're not talking about a synthetic product with a little apple powder sprinkled on top and a label that then claims itself food-based.
Identifying what appeals to international consumers can be even more difficult.
John Blair, senior vice president at NSA, the Tennessee-based maker of Juice Plus+, a line of fruit and vegetable juice powder concentrates marketed via direct sales, says that about a third of the company’s business is in Europe, appealing primarily to lifestyle consumers who like the convenience of the product.
“It’s been a great market. In the UK this year, we’ve doubled our business.” He attributes the growth to a social media campaign, and to the company’s published clinical research for health care practitioners who might not otherwise carry the products. He’s hoping the viral marketing success carries over to other European countries. “We’re watching it very closely. There are probably some aspects we can duplicate elsewhere, and some we can’t,” he says, noting that the company’s top markets are Germany, Austria and Switzerland.
“We’re in virtually all of the Western European countries,” he says. But, he acknowledges, NSA had something of an advantage going into the EU: It was already in those markets when it sold an entirely different product mix—water and air filters. “So when we converted our product line and business model, it made sense.”
Blair's plans include India and Russia. He’s also considering China. “We have completed product qualification for China, and the initial research tells us this type of product would be well received over there,” he says. “International expansion is definitely on our radar, and generally speaking, the global retail customer likes whole food products for the same reasons that people in America have.”
He’s not naïve, though. “The regulatory and labeling requirements are different in every single country. You have to have a very sophisticated and comprehensive regulatory department. The product approval process can be complicated and expensive.” What’s more, he notes, “You need to understand the cultural aspects of these countries, and they’re different. Our whole business model might require some modification in other markets. It’s not just a plug and play situation.”
Blair notes that to market a product in India and China, “you almost have to make it there,” which requires relationships and partnerships in those countries. “It takes a while to find people who we are comfortable with so the supply chain is rock solid. It’s an investment, and the market’s got to justify it.”
In China, the market doesn’t justify it—yet.
“There’s no traction here,” says Jeff Crowther, CEO and executive director at the U.S – China Health Products Association. There are no domestic companies producing such supplements, he says, and foreign companies haven’t entered that market, apart from what can be found on a Chinese eBay-like website.
“New regulations are making entry more difficult,” Crowther says. "China’s Food and Drug Administration has made it clear that health food products in the form of tablets, capsules, softgels, etc., are not allowed entry into China unless they have successfully registered the products with the CFDA.” Crowther says that process takes two to three years, and costs more than $50,000 USD per SKU. “Most foreign companies are not interested in investing that much in a market that is still developing and is difficult to navigate.”
Crowther says the CFDA has indicated it will begin modifying the system in 2014, at least for letter vitamins and some minerals, creating a notification system similar to DSHEA. “This would streamline the approval process and allow the industry to develop much faster.”
Crowther says the Chinese culture would embrace whole-food supplements once regulations allow them. “Since China is a food-based culture, it will be easier to spread education as the manufacturing process is clearly linked to whole foods.”
Smart companies, Crowther says, would prepare now “so that when the time comes, they could move to market quickly.” The Chinese market could “become the largest in the world for dietary supplements,” he says.
He does, however, have some advice for manufacturers eager to enter that market. “Imported dietary supplements are typically sold at two to three times the retail prices found in the U.S. As food-based supplements rest at the higher end of the pricing spectrum, their China prices will place them out of reach for the common consumer. With that in mind, companies will haveto consider making smaller count sizes or decreasing dosage, as well as offering their distributors better wholesale pricing.”
Japan, too, may present some challenges at first, says Sachiko Kakisaka, research analyst at Global Nutrition Group in Tokyo. The term “whole-food supplement” doesn’t exist there yet but the concept is not foreign. “The Japanese dietary supplement market has grown with products such as royal jelly, prune paste and brown vinegar,” Kakisaka says. She notes these products could be categorized as whole-food supplements in the U.S., and they enjoy an almost 40% share of Japan’s total dietary supplement market. “These products and ingredients are known traditionally in Japan, and the concept is similar to Chinese medicine,” she says, hinting at future opportunity.
Diving in down under
Australia is seeing the emergence of products known as “superfoods,” marketed by several companies, says Gabriel Perera, director of business development at Blackmores, “but to date none are selling what the U.S. would call whole-food supplements.”
One of those companies is Swisse, which produces a six SKU line of superfoods—powders made from all-natural premium ingredients—such as Digestion, which includes barley grass, wheat grass, spirulina and apple; or Beauty, with sea buckthorn, camu camu and goji berries. Launched 12 months ago, the line is performing ahead of expectations. Superfoods appeal to consumers already committed to living healthfully, says Ulrich Irgen, international business director for the company. “You can have a not very healthy lifestyle and take a vitamin and feel better about it. If you are taking a superfood, you already are leading a pretty healthy lifestyle. It’s easy to sprinkle powders onto yogurt or a healthy cereal instead of taking a tablet that may feel more synthetic. You may already be juicing, and this fits. It seems like a more natural application for the consumer that has that healthy lifestyle.”
Swisse entered the U.S. market in February with traditional supplement tablets and no immediate plans to debut the superfoods, Irgens says, citing a desire to get the line right in his home market before venturing into others, and noting that his products probably wouldn’t meet U.S. definitions of whole-food supplements. “Our immunity product contains a milk protein. You probably wouldn’t consider that a whole-food ingredient,” says Irgens. “We also have probiotics in some of the products. You probably wouldn’t classify that as a whole-food ingredient either.”
Perera notes regulatory hurdles for whole- food supplements in Australia as well. “Given food-based or whole-food supplements often include synthetic vitamin substrates alongside or in combination with food ingredients,” there is no clear direction on how to develop and substantiate claims for each ingredient, or how to categorize specific ingredients transformed in processing, he says.
Focus on the home front
Given the labyrinthine environment that exists domestically, let alone internationally, most U.S.-based whole-foods supplement manufacturers are still focused on North America. “We’re smaller, so we have to focus on what we’re doing in a deep way and just keep our head down,” says Garner. “We don’t have the resources to do every market. We’ve chosen to focus on the U.S. and Canada. International expansion is something we still want to pursue, but the regulatory environment is complex, and it would be a pretty big resource drain.’
It’s a sentiment echoed at MegaFood. “We have some partners overseas, and some great partners in Canada that we can grow with, but actively looking to expand is not a focal point for us at this time,” says Dan Pearce, vice president at MegaFoods, noting the U.S. comprises about half the global market and the regulations here are very straightforward. “If you’re growing significantly in the U.S., the focal point is probably not going to be going overseas because it’s adding another layer of work. Growing 26 % this year on top of 20% last year—it takes resources away to go look at that in detail.”
Craven agrees. “It comes down to resources. If you ask a billion-dollar company in our space, and a company our size, they’re going to have very different perspectives,” he says. “As we grow and have more resources, the global opportunity looks better. Where small companies get into trouble is when they wade into the water without understanding the risk.s”
Building the future
Just as manufacturers need to investigate the regulatory and cultural aspects of international markets, the importance of educating consumers there can’t be overstated.
“If someone in the U.S. had walked into a GNC or a Costco or Walgreen’s years ago, they wouldn’t have had an appreciation of the difference” between whole-food supplements and traditional supplements, Blair says. “Internationally, it’s going to take a similar amount of time as it took here for consumers to understand the value and differentiate whole-food products from traditional vitamins and minerals.”
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