After a turbulent 2010 for the Canadian Natural Health Products (NHP) market, things settled somewhat in 2011, and it’s more of the same in 2012. A great deal of the attention continues to focus on the regulatory environment. Regulations dictate what products can (and cannot) be launched and what health claims can (and cannot) be made. So it’s only natural that regulations take center stage.
Health Canada’s Natural Health Products Directorate (NHPD) has been policing the natural products market since the directorate was established in 2004. Within six years of its inception, the under-resourced NHPD had received in excess of 50,000 product license applications (PLAs), resulting in a large and chronic backlog of unprocessed applications. This caused frustration for many applicants as they could not receive licenses in a timely fashion and could not properly plan for market introductions. The NHPD’s response to this problem was a repeated delay in enforcement activities, thereby allowing companies to go to market with their formulas while their PLAs sat in the regulatory queue. There were also a high percentage of license refusals (approximately 45%), restricting consumer access to what many considered to be safe and effective products.
This approach—one that allowed NHP suppliers to side-step pre-market approval—worked reasonably well until early 2010, when the (Canadian) National Association of Pharmacy Regulatory Authorities (NAPRA) issued a surprise directive to pharmacies urging them not to accept delivery of products that were “unlicensed.” Some NHP suppliers were forced immediately to revert to old (licensed) formulas in order to remain on pharmacy shelves; others halted product launch plans while others braced for the possibility of costly recalls.
Fast-forward to 2012 and things have calmed, thanks to earlier interjection by the NHPD following the NAPRA mess. In fact, the directorate’s effectiveness in the past several quarters has improved dramatically. Not only are an increasing number of products being licensed, but license refusal rates are at a historic low. This can only mean the NHPD is working with applications in a more cooperative manner and is employing new strategies to license products (including the use of more than 700 internal “monographs” used to license products).
The Regulatory Crystal Ball
Looking ahead, the situation is not easy to predict. The NHPD will be losing 40% of its staff over the next several months, making it difficult to keep up its recent assessment pace. Furthermore, all temporary licenses (Exemption Numbers, or ENS) will become invalid as of February 4, 2013; retailers may begin demanding full licenses (Natural Product Numbers or NPNs) at that time.
Then there is the nagging issue of enforcement. The current proposal is for enforcement to begin in the fall of 2013, and the NHPD will begin consultations on that issue over the next several months. It is expected that retailers will be required to stop selling non-NPN stock after February 4, 2014 (16 months from now) and NHP suppliers will not be permitted to sell non-NPN stock after August 4, 2013 (a mere 10 months from now). The take-home message, then, is that NHP suppliers intending to launch new products are well-served to submit PLAs sooner rather than later; otherwise they face great uncertainty moving forward.
With all this said, the industry will not simply wither away and die. I have met countless Canadian NHP suppliers who are as committed as ever to the natural products market. And as an ingredient supplier to these companies, it’s clear to me that NHP suppliers are demanding a high level of scientific evidence to ensure their formulas are licensed and health claims optimized. This is highly encouraging to see.
Canadians Want Their NHPs
Understandably, the Canadian NHP market is generally not a top priority in the eyes of our neighbors stateside, or our friends in Europe, Asia and South America; we are only a population of no more than 34 million—no match for the U.S. and many other international markets. Add to this the (accurate) perception that Canadian NHP regulations are some of the toughest around the globe, and it becomes evident that relatively few non-Canadian raw material suppliers and NHP suppliers really take the time necessary to create great business outcomes in Canada.
Taking a closer look at Canada, however, reveals an NHP market that can be quite lucrative. Supplement use in Canada is among the highest anywhere, with 71% of Canadian adults recently reporting they have used a natural health product, and 38% claiming to use no less than one dietary supplement on a daily basis. With slow to no growth in the U.S. market and elsewhere, Canada (with NHP sales approaching $3 billion) represents an opportunity for exporters of both raw materials and NHPs to boost their top and bottom line.
In order to garner true success in Canada, raw material suppliers and finished product marketers would be well served to take time to learn about the Canadian NHP market. There’s an old adage “you get out what you put in” and it certainly applies here. Really taking the time to understand consumer behavior, develop relationships with NHP suppliers and retailers and become fluent in regulatory matters are all key factors for success. An alternative approach is to partner with a well established Canadian company that will manage some or all necessary functions, including sales, marketing, warehousing, distribution, billing, collections and regulatory affairs. This strategy can be highly successful; the right local partner can optimize financial outcomes for exporters to Canada with minimal resource allocation on the part of the exporter.
On the domestic front, the NHP supply market is comprised of small, medium and large finished product marketers. The 80/20 rule, or a relatively close variation of it, certainly applies to Canada, where a handful of large players are responsible for a majority share of sales. Although these larger suppliers tend to maintain a dominant presence in retail food, drug and mass channels, many niche brands can be found at specialty health food stores, in many cases leaving the consumer dazed and confused at the prospect of choosing a brand.
Retail still dominates in terms of consumer sales, with the food/drug/mass channel commanding a majority share of overall sales. The remaining retail market is comprised of independent health food stores, small health food chains and specialty retailers that include GNC, Nutrition House and Popeye’s Supplements. Online retail and multi-level marketing (MLM) round out the direct-to-consumer channel, with the latter representing a substantially smaller portion of the overall market relative to the U.S. market, where MLMs and network marketers drive significant revenue.
At the raw material level, opportunities abound for well-positioned ingredient suppliers. Because Canada has produced only a small number of ingredient developers (they include now DSM-owned fish oil supplier Ocean Nutrition and krill supplier Neptune Technologies and Bioressources), it relies heavily on raw materials from U.S. and international sources. Furthermore, because Canadian regulations require human clinical studies to support ingredients, this presents an excellent opportunity for suppliers that have invested in well-designed human trials. Add to this the fact that many health categories have become commoditized in terms of finished products, and the supplier of innovative science-based ingredients with experiential health benefits stands to prosper in the Canadian market.
Although regulatory issues continue to remain at the forefront and there is plenty of uncertainty going forward, it appears we are headed in the right direction. It is difficult to dispute that the Canadian market is a lucrative one for NHP finished product and raw material suppliers alike, and those with differentiated products that blend quality with science are likely to enjoy long-term success.