The ingredients-supply industry is holding its collective breath to see how consumers are going to respond to this challenging economy. Will they continue to pony up for pricey supplements, and fork out for fortified foods? Most seem convinced that double-digit growth is not likely for the interim. As New Hope Natural Media president Fred Linder recently quipped about 2009, "Flat is the new up."
But whether the industry is recession proof is anyone's guess at this point. Here is a snapshot of the factors that could make or break a lot of companies.
- Fuel prices are plummeting, stabilising the transportation costs that were forcing suppliers to raise prices.
- Several surveys have indicated that consumers are willing in tougher times to continue to buy products that promise to promote health.
- Outlets are responding creatively: Whole Foods is offering coupons for the first time in its history. Price compression is happening across all sectors.
- Many experts think that, as in past downturns, established, quality suppliers will survive, while the 'me, too' companies will go away.
- Compared with rising health costs, preventive products such as weight-loss and anti-ageing ingredients are looking better to consumers.
- The science on natural ingredients is becoming more compelling.
- Access to capital is going to be limited, slowing innovation and new entrants to the market.
- A survey conducted by the Council for Responsible Nutrition found that 30 per cent of respondents said that in light of the economy, price will become more important in their buying habits, and an additional 13 per cent said that they likely will purchase less in the future.
- GMPs are forcing companies to spend more in order to comply.
- Climate change is playing rough with food supplies.
- Growing regulatory pressures in China are likely to force prices higher worldwide.
- New-product introductions, a lifeline for the industry, may be limited.
- Some companies may be tempted to take short cuts to GMP compliance, or hold off, which could hurt them and the entire industry.