Peter Zambetti 11.01.10
Although the worldwide demand for vitamins and dietary supplements continues to climb, the rise is slow of late, like hiking up a mountain on a razorback trail rather than a straight-up climb.
Global sales grew to $68 billion in 2009, up only 2.5% or $1.7 billion more than in 2008, according to Euromonitor.* This is markedly down from a 10.6% increase between 2007 and 2008, and from the 8.6% increase between 2006 and 2007.
The recent deceleration is a result of the long-lasting recession, persistent regulatory issues and product saturation within dominant, mature markets.
Within this international landscape, however, some supplement categories have not only broken through with strong sales in most countries, a few have actually exploded with double-digit percentage sales increases in some markets. Fish oil for heart health is the fastest growing supplement category. Others that performed well in most markets included lutein and zeaxanthin for eye health, glucosamine for joint health and probiotic supplements for digestive and now skin health. The common denominator for the excellent performance of all of these supplement categories is consumer knowledge of the wealth of scientific evidence backing the effectiveness of the ingredients. In addition, sales show that consumers are beginning to enthusiastically embrace combination supplements, which bundle two or more ingredients in one for a more targeted, therapeutic result. One example is fish oil combined with CoQ10 for heart health.
Finally, there are growth opportunities to be found in each market. Fertile patches exist in more established markets, while most emerging markets continue to prove to be lands of plenty for a wide range of supplement prospects.
Steady, Healthy Growth: U.S. & China
The U.S. remains the leading market with slightly more than a 29.5% share of the global market at $20 billion for 2009. This is up well over 7% from the $18.6 billion in 2008—in keeping with the average annual growth of more than 7% since 2005.
Although the recession hasn’t halted sales growth, it has affected actual buying habits—which in turn have kept sales growth percentages at bay. Looking to maintain their health to be able to report to work and keep their jobs, as well as control healthcare and insurance costs, consumers are buying more supplements—considering it an insurance policy against illness. Interestingly, pharmaceutical chains report that people are asking more about supplements and less about pharmaceuticals. But as part of their general belt tightening, consumers have also traded down from premium brands to private labels to save money.
Regarding specific categories, vitamins account for close to $8.4 billion in sales, with multivitamins commanding slightly more than half of those sales, though for only a 2% increase. Sales for single vitamins, however, jumped nearly 13%, with B vitamins holding the top position, generating $1.36 billion in sales—a 14.5% increase. The recent deadly flu scares likely bolstered sales of this vitamin, which supports energy and the immune system.
Still, the rising star since 2007 has been vitamin D, logging a 20% increase in 2007, a 35% leap in 2008 and a breathtaking 48.5% jump in 2009, for total sales of $368 million. This astronomical growth is undoubtedly due to the widespread media coverage from daytime television figures popular with women who have touted vitamin D’s benefits for breast health and bone health by promoting calcium absorption.
Although non-herbal supplements trail slightly behind vitamins with more than $7 billion in sales, they far eclipse herbal/traditional supplements at $3 billion. The reason: science. Buyers have been influenced by the various studies reported by the mass media. Such coverage has not borne out the common notion of benefits for herbal/traditional supplements, including echinacea (posting an annual average decline of 6% since 2006) and garlic (posting an average annual decline of 7.5% since 2006). On the other hand, reported studies have told of positive benefits for a host of non-herbal dietary supplements. The standout supplements here include heart health supplements (fish oils and CoQ10) eye health supplements and probiotic supplements. These particular supplements are also performing well because they are being purchased mostly by aging Baby Boomers, who want to maintain a high quality of life. This market is huge and their disposable income is on the rise.
China is the third largest market with 12% of the global share at $8.2 billion in sales for 2009. This is up only 4% from the $8 billion in sales the country generated in 2008, though the average annual growth has been 7.6% since 2005—surpassing that of the U.S. This steady development is expected to carry on, turning China into the second largest market over Japan within two or three years.
So how did China become such a formidable global contender? As the already humongous population keeps on expanding, so does the middle class—along with its disposable income used to buy supplements. The multilevel marketing (MLM) groups that sell supplements also continue to enjoy tremendous success. Approximately 50% of the revenue generated for supplements is through direct sales, 25% through conference sales and 25% through traditional retail channels according to Natural Products Association China. A case in point: China is Amway’s No. 1 market in the world now. And there are huge growth opportunities for Herbalife and Avon as well. In particular, local MLMs—including such companies as New Era and Tiens—know the local regulatory authorities and how to work with them and their rules for the benefit of business.
Regarding specific categories, non-herbal dietary supplements lead in sales, posting $3.6 billion in 2009, for a tepid 2.8% increase (though the average annual increase has been 7.6% since 2005). Calcium continues to be No. 1 here ($1.4 billion), with protein powder, probiotics and fish oils following in sales and increasing in popularity. Herbal/traditional supplements are second in sales, pulling in $1.9 billion in 2009 for a 4.7% increase. This is no surprise, as it reflects the 5000-year-old practice of Traditional Chinese Medicine (TCM). Ginseng is the top-seller here, however, garlic, ginkgo biloba and lingzhi are becoming more desirable. Although third, vitamins are gaining ground, logging $1.3 billion in 2009 for a 4% increase over 2008 (6.8% average annual increase since 2005), with multivitamins making up 74% of sales.
Cooling Down: Japan & Western Europe
After a long history of growth that shaped it into a leading market, Japan remains in the No. 2 slot, barely behind the U.S., posting $15.3 billion in 2009 for 22% of global share. Nevertheless, 2009 was the fourth straight year of relatively flat sales, rising only a half percent from $15.19 billion in 2008. The average annual sales increase was also only slightly more than a half percent since 2006.
Sales are flat due to tough government regulations on product claims. Because regulators felt products sold via advertisements and infomercials had not been meeting stated claims, they only allowed marketers to describe nutrient content (i.e., 200 mg of vitamin C) and forbade mention of potential benefits. These standards continue to hold true today. However, in 2009 another level of scrutiny was added with the creation of a Consumer Affairs Agency (CAA). This agency not only polices false statements on benefits, but it also screens for the safety of products and their ingredients.
Vitamin sales continue to lead at more than $6 billion. Multivitamins account for almost half of sales, with vitamin B residing as the top-selling single vitamin, at $1.5 billion. Within the second place non-herbal supplement category ($4 billion), probiotic supplements are the top sellers, with royal jelly following behind, along with calcium and amino acids. The fastest growing categories include fish oils and glucosamine. Among herbal/traditional supplements ($2.46 billion), prune extract leads, with rising stars since 2005 being evening primrose oil, ukon, ginkgo biloba, ginseng and garlic.
Sales in Western Europe as a whole are up, but the growth rate has been steadily dropping since 2005, from a 5% increase between 2004 and 2005 to a 2% increase between 2008 and 2009. Total sales reached $9.4 billion for about 14% of global market share. Vitamins were flat ($2.6 million), with multivitamins actually dipping, while single vitamins, such as B and D, rose slightly (2.7% and 2.8%, respectively). Dietary supplements themselves logged a modest 3% increase ($6 billion), buoyed by a 2.7% increase in combination supplements ($915 million). Mineral supplements, in particular calcium, remain the top-sellers, but the supplements with substantial sales figures and highest growth rates once again include fish oils, probiotics and glucosamine.
Growth continues at tortoise-like speed due to a combination of product saturation and price competition. In addition, there has been a lack of innovation because the regulatory commission, European Food Safety Authority (EFSA), has denied most attempted product claims. The nutricosmetic category also has reached a plateau after an initial hot phase of early stage adoption.
These conditions are reflected in the bleak reports of more developed supplement markets. France’s sales rose a miniscule .3% in 2009 after the country saw an average annual growth rate of 8.25% between 2005 and 2008. Spain’s sales dropped .4% in 2009, while Portugal’s sales dipped 3.7% in 2008 and another 5% in 2009.
Nevertheless, positive sales increases are popping up in other markets where there is obviously room to grow: Ireland (4.4%), Greece (3.7%), Austria (3.3%), Netherlands (5.8%), Norway (4.7%) and Sweden (3.4%). Italy appears to be the strongest market as of 2009, logging a 4.6% increase, and an average annual increase of 6.8% since 2005. Some of these countries have unique supplement favorites—spirulina in Greece, red wine leaves in Austria, and child-specific vitamins and dietary supplements in Italy. Yet again, the popular supplements common in all of these countries are fish oils, probiotics and glucosamine.
Still Warming: Eastern Europe, Brazil & India
After enjoying double-digit sales growth rates for an average annual increase of almost 17% between 2005 and 2008, Eastern Europe experienced 7% growth, going from $2.26 billion in 2008 to $2.43 billion in 2009, for 3.6% of the total global market share. Although these figures reflect a slowdown, the sales increases are nevertheless very healthy and a consequence of the ongoing embrace of capitalism and the sustained expansion of the middle class. Probiotic supplements lead in sales, followed by minerals, calcium, lutein, fish oils and glucosamine.
Russia remains the No. 1 market, with total 2009 sales of $1.17 billion, representing nearly 12% growth over 2008 sales. This increase is not quite half of the average annual growth of 26% between 2005 and 2008, but it is still a hefty double-digit number in part because of the efforts of a new trade association, Council of Dietary Supplement Producers or CDSP, which was created in 2008.
Under the leadership of two former Institute of Nutrition members and several local and multinational dietary supplement manufacturers, distributors and marketers, the CDSP has become the main vehicle for lobbying Russian authorities about regulations, making them more transparent and easy to meet with the extensive research that has long been conducted to substantiate product claims. In addition, most of the business still stems from Moscow and St. Petersburg because of large populations, concentration of advertising and superior distribution networks.
Vitamins, largely multivitamins, lead in sales ($371 million), but combination dietary supplements are second and growing quickly ($224 million for a 13.5% increase), with probiotic supplements third ($130 million for a 13.3% increase).
Posting $337 million in 2009 sales, Poland is the No. 2 market, with the biggest growth seen in sales for probiotic supplements at 12% and eye health supplements at 6.5%. Poland is followed by Hungary ($145 million) and the Czech Republic ($103 million)—though each of their total sales increases have settled into the 4% range or less. Not so with Romania, the 5th largest market. Its sales skyrocketed almost 13%, from $87.5 million in 2008 to almost $99 million in 2009. This is an extension of explosive growth that averaged 16.4% annually between 2005 and 2008. The largest growing categories included CoQ10, glucosamine, eye health, fish oils and combination supplements.
Brazil logged a bit over $1 billion in sales for the first time in 2009, an 8% jump over 2008—slightly lower than 10% average annual increase between 2005 and 2008, but still encouraging. Vitamin sales comprise the lion’s share at $626 million and will undoubtedly continue to enjoy a healthy climb, which has averaged 10.4% annually between 2005 and 2009. That’s because as of spring 2010 manufacturers only had to notify authorities about taking a vitamin product to market within 30 days rather than spending several months and thousands of dollars for product review under a registration process.
Despite these unceasing regulatory roadblocks for supplements, some categories are selling and growing quite well, including calcium, ginseng, probiotic supplements, minerals, fish oils and eye health.
And, of course, nutricosmetics should get a boost from the never-ending demand from Brazil’s notoriously beauty-conscious consumers. The market is so fruitful that Avon is looking to establish a second distribution center in Sao Paulo, noting that Brazilian sales surpassed U.S. sales for the first time in 3rd Quarter 2009, according to a report in GCI Magazine’s July 2010 issue. L’Oreal has also announced plans to increase market share of its Brazilian product sales from 20% to 35% through a new Serie Nature line of silicone-free formulas and natural fragrances. Other beauty companies entering the market include Revlon, Biotera (Shiseido) and TIGI (Unilever). And all of these companies would likely offer oral cosmetics to complement their topical products.
The remainder of Latin America shows promise as well. Serious efforts to change the regulatory environment are the best evidence. A 2009 conference in Brazil was well attended by representatives from several countries. Subsequently, to continue conversations, IADSA (International Alliance of Dietary/Food Supplement Associations) sponsored a conference in October 2010 in Santiago, Chile to bring leaders of regulatory policy from all over Latin America together.
As the world’s second largest populated country, India continues to offer huge potential. Total 2009 sales were $628 million, an 11% increase over 2008, and well above the average annual sales increase of 9.85% between 2005 and 2008. Mineral supplements are No. 1 here, followed by vitamins and protein powder, with combination supplements starting to catch on. To promote further growth, regulatory chaos must be addressed. This process has been started; the Indian government’s Central Food Technological Research Institute is currently one of several organizations drafting revisions of food and supplement regulations.
Future Global Trends
Combining known ingredients with unknown (i.e., fish oil with tocotrienols, for example) for condition-specific benefits will continue and be the source of growth in otherwise mature markets. Areas of focus will continue to be heart, bone and eye health along with energy and sleep for mature markets, while emerging markets will continue to focus on more well-known multivitamins and minerals.
In the U.S., growth will be somewhere between 3-5% for two to three years as there will be fewer new products launched. Further, with the new GMPs now firmly in place for all manufacturers and marketers ,consolidation will ramp up among the smaller, more entrepreneurial players in the market. Lastly, the impending NDI (New Dietary Ingredient) guidance should be expected soon from the FDA and could further reduce the amount of new products coming to market.
Europe will see less growth than the U.S. as it continues to struggle with EFSA on claims for dietary supplement products in the EU. Recently, there has been hope that EFSA is beginning to recognize the burden to industry and may be revising the batch approval process of claims in place today.
Ingredients such as krill oil will see growth, especially in mature markets looking for something new. However, the growing pains associated with krill oil suppliers continue to unfold as they battle for market share.
As was true of this year, the next couple of years will hold great promise for some markets and ingredients and a bust for others. Just because there is huge growth in a region does not mean your company should participate. Careful analysis needs to be done up front to increase your chances of success. Even then, the risk is always there!
About the author: Pete Zambetti is the senior manager, Global Business Development for Dietary Supplements, at Capsugel, Peapack, NJ. He can be reached at peter.zambetti@pfizer.com.
* All figures are sourced from Euromonitor unless otherwise stated.
By Grant Washington-Smith Business & Brand Development Canzus Partners & Paul Altaffer Product & Business Development RFI Ingredients
The global financial crisis has had an impact on both the Australian and New Zealand natural products industries over the past couple of years. While there were no developed economies that actually escaped this impact, some countries have faired better than others.
Leading the way with the best-performing developed economy was Australia, which technically never entered into an economic recession. New Zealand also managed well, and while it did dip into recession for six months, it emerged again in March 2009. Nevertheless, the natural products industry came under pressure during this period, with a high proportion of consumers, who view natural products as a discretionary expense, choosing not to purchase. This effect appeared to be larger in mass food and drug, retail pharmacy and practitioner channels, while health food retailers saw a smaller decline in sales.
Within Australia, which is often referred to by locals as the “Lucky Country,” it has been widely reported in the media recently that its complementary medicines (dietary supplements) industry has now exceeded AUD $2 billion (USD $1.94 billion), although some government groups still put this figure closer to AUD $1 billion. In contrast, the U.S. dietary supplement industry is worth nearly $24 billion (NBJ 2010). But in general, Australians still spend around the same on their dietary supplements, per head of population, as their U.S. counterparts.
The size of the New Zealand dietary supplement market remains considerably smaller than that of Australia, at around NZD $110 (USD $80 million). Over the last couple of years the New Zealand market has lost ground to Australia on a relative market size basis and these figures represent around half of what the U.S. and Australia spend (per person) on dietary supplements.
Regulations & Consolidation
Since the last time the Australian and New Zealand market was reviewed (Nutraceuticals World, November 2008), there have been a couple of key changes. Several years ago it was rumored that there were plans to harmonize the regulatory framework for dietary supplements between Australia and New Zealand, using Health Canada and Australia’s TGA system as models. As recent as March 2010, a New Zealand government consultation paper was sent out to the industry requesting guidance and submissions. At the present time, however, there appears to be no indication of when this process will be completed.
So while the mainstream media in Australia is calling for the new Australian socialist coalition government to overhaul the TGA with tighter regulations and tougher controls for their complementary medicines (dietary supplements) industry, New Zealand remains as unregulated as ever.
A significant development on the commercial landscape has been the consolidation of business activity within the industry. In late 2008, Sanofi-Aventis Consumer Healthcare reported that it had acquired several retail brands from another Australian company, Symbion CP Holdings Pty Limited, for $542 million (representing a multiple of approximately three times sales). In New Zealand, around the same time, two of the country’s largest manufacturers, Healtheries and Nutralife, combined to form a new company called Vitaco Health, with combined sales of around $130 million.
These consolidations mean that there are now three major brand manufacturers, which dominate the commercial landscape in Australia and New Zealand. The two largest Australian companies include Sanofi-Aventis Consumer Healthcare and Blackmore’s Ltd, both of which have annual sales in dietary supplements of around $210 million. Blackmore’s, however, is the leading brand manufacturer in the Australian and New Zealand market, while Sanofi-Aventis Consumer Healthcare has sales amalgamated across a number of brand franchises. Following behind these two companies is New Zealand’s Vitaco Health.
Due to the limited size of the Australian and New Zealand markets and the relative proximity of several major Asian markets, brand manufacturers and ingredient suppliers have generally adopted an export-focused strategy to increase sales revenue. During the past couple of years, however, the global financial crisis has impacted this strategy in two ways. First and foremost, it has dampened demand, which has clearly impacted sales. Second, the relative strength of the Australian and New Zealand economies throughout the financial crisis has resulted in the strengthening of both their respective currencies relative to their trading partners. This has further suppressed demand due to the higher cost of landed goods in trading markets and reduction of profits due to currency losses for exporters.
Product Performance
In 2009, the global health scare from the H1N1 pandemic did result in a spike in demand for many Australian and New Zealand brand manufacturers and exporters to Asia, as well as dramatic improvements in domestic demand for dietary supplements and complementary medicines. In 2010 there has been no such stimulus for the industry but some retail distributors have reported a gradual pick-up in sales in both countries, in the health retail and pharmacy channels. The professional channel and mass food and drug appear to be responding more slowly, but both are expected to improve in 2011.
The categories that dominate dietary supplements and complementary medicines sales, for both countries, in the health retail and pharmacy channel include weight management, children, sports supplements, joint health and mobility, digestive health and women’s health. Within these functional groups, omega 3 crosses many categories. In addition, digestive health and weight management are generally targeted to women.
Within the supply side of the Australian market, there has not been a great deal of new ingredient development, although Australia has been a leader in olive leaf extract. Many of the major global ingredient suppliers have either established a presence in Australia or are represented through an ingredient distributor.
New Zealand also has several smaller ingredient distributors. But unlike Australia, New Zealand is continuing to develop a robust bio-discovery and process development industry for novel ingredients of New Zealand origin. Examples include the characterization of the health benefits on native Manuka and Rewa honey, which are now being sold in the U.S. The New Zealand green kiwi is also the basis of a development program in digestive health. The oil and glycogen extraction from the New Zealand green shell mussel has been the target of research into joint health and mobility. Additionally, the global dairy giant Fonterra has an active research program around novel bioactives from dairy.
A major reason for the advancement of New Zealand’s bio-discovery and development has, in large part, been due to the availability and accessibility of advanced extraction technologies and industrial process engineers, who support the country’s primary industries and are funded centrally through the New Zealand government. Another important reason for the relative success is that over the past few years there has been the recognition of New Zealand-grown raw materials as being among the most bioactive in the world. This has been attributed to the high level of UV-B sunlight, which New Zealand is exposed to resulting from a seasonal hole in the ozone layer. This causes the plants, fruits and vegetables to elevate secondary metabolites, such as anthocyanins and polyphenols, to protect themselves from UV damage.
About the authors: Grant Washington-Smith has 20 years of experience across a variety of businesses in the natural products industry. He can be reached at gwashin@me.com. Paul Altaffer is on the product and business development team at RFI Ingredients, Blauvelt, NY, a manufacturer of innovative natural ingredients and custom formulations for the functional food and dietary supplement industries. He can be reached at paulo@rfiingredients.com.
By Michael Chernyak Managing Director CK Nutritional Ingredients
To say that 2010 has been an eventful year for the Canadian Natural Health Products (NHP) sector is an understatement. Beginning in February with a surprise directive from Canada’s pharmacy regulatory association urging pharmacies to no longer offer for sale “unlicensed” NHPs, the Canadian NHP sector has been forced to contend with one regulatory challenge after another.
On the bright side, challenges and obstacles like those stemming from Canada’s complex regulatory situation have forced NHP suppliers to step it up—to improve their operations, to boost product quality, safety and efficacy, and to fine-tune marketing and consumer education efforts.
Further, judging by the strong attendance and upbeat activity at recent trade events, and in speaking with numerous executives that represent Canada’s NHP suppliers of various size and scope, business is good and new product development (the lifeblood of the industry) is hopping.
We’re Small, But Not That Small!
Understandably, the Canadian NHP market is not a top priority in the eyes of our neighbors stateside, or our friends in Europe, Asia and South America. After all, we’re only a population of about 34 million, which is no match for the U.S. and many international markets. Add to this the (accurate) perception that Canadian NHP regulations are some of the toughest in the world, and it is no surprise that few non-Canadian raw material suppliers and NHP suppliers have the necessary time and resources to create great business outcomes in Canada.
Taking a closer look at Canada, however, reveals an NHP market that can be quite lucrative! Regulatory consultants here report that their client base has shifted to an increasing number of U.S. and international companies. Furthermore, supplement use in Canada is among the highest anywhere, with a full 71% of Canadian adults reporting that 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 expected to approach $3 billion by 2011) 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 the time to learn about the Canadian NHP market. 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 retailers and MLMs 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—Ocean Nutrition, Neptune Technologies and Bioressources, Forbes Medi-Tech, InnoVactiv—it relies heavily on raw materials from U.S. and international sources. Furthermore, because the regulations require human clinical studies to support ingredients, this presents an excellent opportunity for suppliers who 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 this market.
Will the Backlog Ever End?
Over the past year, the regulatory situation in Canada as it relates to NHPs has been chaotic to say the least. Health Canada’s Natural Health Products Directorate (NHPD) has been unable to efficiently process product license applications since the division was erected in 2004 and this has resulted in a perpetual backlog of applications. As of July 29, 2010, the NHPD had received a total of 52,363 applications for product licenses. Of those, 45% have failed to obtain a product license (35% refused by the NHPD and 10% withdrawn by the license applicant) and 21% are still backlogged. In other words, 10,952 applications are presently held up in the NHPD queue and, lately, the backlog appears to be on the rise again.
Developments over the past year have definitely made things more interesting. Until recently, NHP suppliers were permitted to bring their products to market with a submission number, thereby allowing consumer access to NHPs while regulators work through the backlog. However, a surprise directive by the National Association of Pharmacy Regulatory Authorities early in 2010 forced the NHPD to enact amendments to the regulations in order to address the backlog. Although the amendments are well intentioned, they are a far-from-ideal solution to the issue.
The recent changes to the Canadian NHP regulations offer improved visibility and allow NHP suppliers to better plan their sales and marketing efforts. However, they have also slowed time-to-market for new product innovations, which is very frustrating for the industry as a whole.
Although NHP suppliers can no longer go to market solely with submission numbers, the creation of Exemption Numbers (ENs) allows them to ship products to retailers while their product license applications sit in the queue for evaluation. An EN is in essence a temporary license that allows a product to reach consumers while the license application awaits regulatory review. One issue is that an EN will only be granted if an application has not been reviewed within 180 days. Because a cursory safety review is required at the front-end of the process, and other delays at the back-end, in reality an NHP supplier is looking at 240 or 250 days before they have their EN. That’s an awfully long time to wait to get a product to market! Furthermore, if, after a product has been launched with an EN, the NHPD (upon eventual review of the license application) concludes that the product is not backed by sufficient scientific evidence to support efficacy, the NHP supplier may be forced to remove the product from the market.
In Summary…
These are just some of the regulatory changes and challenges connected to the Canadian NHP market—a complete explanation of all regulatory updates is well beyond the scope of this article. At the same time, Canada still offers a highly lucrative market for NHP finished product and raw material suppliers alike, and those with innovative products that blend quality with science are likely to enjoy long-term success.
About the author: Michael Chernyak is managing director of Canada-based CK Nutritional Ingredients. He can be reached at mchernyak@ckfoods.com.
By Jeff Crowther Founder U.S.–China Health Products Association
During the first quarter of 2010 (April-June), China’s economy was worth $1.3 trillion, which was enough to surpass Japan as the world’s second largest economy behind the U.S. Although this made international news and generated many scholarly discussions on China’s position as a growing economic powerhouse, it was not a big surprise among global economists. Japan has held this position since 1968, but with its decade-plus stagnant economy, it was only a matter of time before China surged into second place. This news is, of course, promising to dietary supplement and health product companies who are interested in China as a potential new market. Together with economic development, China’s regulatory environment and product demand must be considered as key indicators of a truly viable market.
Developing the Supplement Category in China
With an economy of this size and lots of momentum behind it, one would expect a well-developed dietary supplement industry. Unfortunately, this is not the case. Although China has been posting record gains to its GDP, it is far behind its top-tier global colleagues in terms of a thriving supplement industry. With that said, having an established supplement industry is not the measure by which countries are judged in terms of economic prowess. Nevertheless, having one does reflect an established consumer base with expendable income seeking a higher quality of life, which China is in the process of building one brick at a time.
To offer a little more perspective on China’s second place medal on the podium of the great GDP race, China’s GDP and per capita GDP couldn’t be farther apart. In 2009, the World Bank and International Monetary Fund ranked China’s per capita GDP as 92nd and 96th in the world, respectively, averaging in at $6621. In contrast, the U.S. is first in terms of GDP and sixth in terms of per capita GDP ($46,400). For the dietary supplement industry to gain more mass appeal and acceptance, China will need to continue closing the gap between GDP and per capita GDP. This will elevate more of the population to middle-class or true consumer status, possessing the money needed to spend on personal health and well being. One positive sign of consumer growth was the recently released consumer spending indicators for July 2010 from China’s National Bureau of Statistics. Year on year comparison of spending on retail consumer goods, which includes dietary supplements, grew almost 18%.
It wasn’t until recently that China realized a genuine consumer base with a level of financial freedom to become consumers of international brands and, more importantly, for our discussion, dietary supplements. Keep in mind, this “consumer base” is not spread evenly across China and makes up only a small portion of the population—mostly found in China’s well-to-do first-tier cities like Shanghai, Beijing, Guangzhou and Shenzhen.
Although there is a need for dietary supplements in the market, the demand at the moment is underdeveloped. One reason is many Chinese consumers are not used to taking pills, tablets or other dosage forms common to dietary supplements on a daily basis. In fact, these dosage forms are generally synonymous with medicine. Combine this with one of the world’s most stringent regulatory systems and you have an industry with huge potential, but moving at a snail’s pace.
In order for consumer spending to increase, regulations must be adjusted to a more reasonable level to encourage both domestic and foreign investment, as well as the spread of product education. If consumers don’t understand the products, they will not buy them.
Current regulations require large investments of both time and capital to achieve market approval from China’s State Food and Drug Administration (SFDA). The product registration process takes up to two years and costs around $50,000 per individual product (SKU). As a result, companies often need to hire a registration consultant in order to successfully navigate the registration process. The bulk of the estimated $50,000 will actually be paid to one of these consultants with a smaller portion going toward government fees. At this point, consultants are necessary due to the complexities and lack of transparencies involved in the registration process.
The process is rigorous and requires tests such as human and animal testing at state-approved laboratories. Because SFDA’s current regulations pose unreasonable financial burdens as well as expenditures of precious time, many dietary supplement companies choose to market their products simply as food by getting label approval and hygiene certificates from local level Inspection and Quarantine Bureaus. Doing this is certainly less intensive in terms of costs and time, but no product claims or advertisements are allowed. It seems most companies are willing to give these up in order to make it to the shelf in a timely, less costly fashion.
The Main Attraction
The dietary supplement industry, or “the healthy food products industry” as it is known in China, has been the center of attention over the last couple of years among industry organizations and government. Due to a variety of factors, including incremental consumer demand, consumer safety and protection, increased foreign investment as well as industry pressure, China’s State Council has been working on amending current regulations in order to further develop the industry. However, this is turning out to be a difficult task.
There are a variety of players involved in sculpting the new industry legislation, including the SFDA, an assortment of nutritional scientists, leaders from different segments of industry such as direct sellers (MLM), manufacturers/suppliers, retailers, Traditional Chinese Medicine (TCM) companies as well as industry associations. Like all other regulatory shifts in the world, those leading the charge for change are not always on the same page.
The draft implementation regulations for dietary supplements have been under review, advisement and revision for more than a year. It was expected that by the spring of 2010 the new regulations would have been released. However, the industry is still waiting for a final draft that will hopefully include some of the suggestions made, such as moving toward a more open system of notification, approving ingredients not product formulas, increasing the upper limits of some nutrients and establishing a structure-function claim system similar to that used in the U.S., which would replace SFDA’s current 27 approved health claims.
Although there remains much to be accomplished with regard to regulations and consumer education, the industry is beginning to show signs of progress. At this point, it is obvious that the State Council, SFDA and China Health Care Association are committed to change; it is just a matter of time, which in the world of regulatory advocacy can equate to years. Nevertheless, industry and consumers are not willing to wait for legislators to finalize the forthcoming new laws. China’s dietary supplement industry is moving forward with anticipation that new legislation is on the way and will be moving in a direction of openness and transparency.
Retail Developments
During the last couple of years, China has witnessed the opening and expansion of retail health food stores, mall and hypermarket kiosks and websites, all selling domestically made as well as imported dietary supplements, sports nutrition products, natural cosmetics, eco-friendly cleaners, organic foods and a variety of other health products. Many of these companies are foreign owned or invested and in some cases bring decades of experience in retail health food management to the market. These health product pioneers are taking advantage of being first in the market and laying the foundation for what’s to come.
It’s not just retailers blazing the trail for industry development; some of the industry’s global heavyweights have been and continue to invest in China’s future health product industry. For example, Amway, Herbalife and Nuskin, to name a few, have been operating successfully in the market for several years and are in it for the long haul, content with growing and developing as the market dictates.
And investors are certainly not standing by waiting for regulations to change. In fact, U.S.-based USANA just sealed its entry into China by acquiring BabyCare, a direct seller that has been operating in China for more than a decade. This move will allow USANA to enter the market with preexisting direct sales licenses and an established in-country management team.
On the raw material side, large ingredient companies are pushing for ingredient approvals. This past year has seen the approval of fish oil, conjugated linoleic acid (CLA), DHA and plant sterols by the Ministry of Health as new resource foods.
Although the regulatory system has not made significant movement since last year, it is hoped that by the end of this year there will be some positive developments. Regardless of what happens, those on the ground in China envision healthy futures and are optimistic about China’s dietary supplement and health product industry.
About the author: Jeff Crowther is a consultant based in Beijing, who has more than 17 years of experience in the natural products industry, having worked in retail sales and management, international business development and regulatory advocacy. He also manages the U.S.–China Health Products Association. In this capacity, he is responsible for working on industry matters affecting U.S.-based companies, as well as acting as a liaison for both American and Chinese companies. He can be reached at jeffcrowther@gmail.com.
By Monica Feldman & Ewa Hudson Euromonitor International
Struggling economies, the fear of pandemics and emerging holistic approaches to health are all contributing to a positive performance in the sales of vitamins and dietary supplements in Europe. In the European Union (EU), the vitamins and dietary supplements category grew 2% to nearly €7 billion in 2009 (see Table 1). Growth came from strong performances in Romania (13%), the Netherlands (6%), Italy (5%) and Greece (4%) as consumers increased their purchases of dietary supplements as a preventative to falling ill.
In Romania, a rising number of consumers interested in improving their wellbeing have become more accepting of dietary supplements to support general health and the immune system. Value growth is most evident in large urban areas, such as Bucharest and other big cities. Consumers in rural areas and small cities perceive dietary supplements as non-essential products, which are mostly purchased on the recommendation of a physician.
Dutch consumers are gradually becoming more interested in health issues and prevention, which contributed to a positive increase in demand for dietary supplements in 2009. With the exception of calcium supplements and glucosamine, dietary supplements are still niche products. Glucosamine experienced remarkable growth due to a widened consumer base of aging citizens and its intensified promotion as a dietary supplement to manage joint health.
Italian consumer demand for dietary supplements is mature and guided by increasing knowledge of their benefits. Companies have boosted demand through ambitious promotional and educational campaigns, portraying dietary supplements as an effective means to improve general health. Probiotic supplements accounted for a 32% value share of dietary supplement sales in 2009, although fiber supplements achieved the strongest growth due to positive claims on bowel health.
Greece witnessed comprehensive health and wellness campaigns aimed to protect its citizens from the H1N1 influenza epidemic in 2009. Health experts and wellness publications promoted vitamins and dietary supplements as boosting the immune system and preventing illness. Echinacea, an herbal dietary supplement to strengthen the immune system, saw the strongest growth—18% in current value terms. (See Table 2 for a breakdown of specific ingredient categories.)
Euromonitor International’s 2009 research revealed that supplements taken to address digestive health, the immune system, joint health, beauty and heart health were the most popular products in Western Europe, accounting for more than 55% of value sales of all dietary supplements. A similar finding also applies to Eastern Europe. (See Table 3 on page 44 for the performance of health benefit categories.)
Navigating Rough Regulatory Waters
In spite of positive performance, contamination in dietary supplements has been one of the most pressing issues affecting the industry. A rising number of recalls, warnings and consumer complaints were evident in 2009 and early 2010 as a result of local and regional regulatory bodies paying more attention to compliance and checks on the quality, safety and efficacy of dietary supplements. Europe, the U.S. and Japan are currently working on the development of new quality guidance following the International Conference on Harmonization (ICH Q3D), which addresses the risks of potentially harmful heavy metals on human health. The guidance will also be applicable to dietary supplements.
Also troubling is that health claims used to promote dietary supplements are being questioned by regulatory bodies. The authorities believe that science should back health claims so as to protect consumers from potentially deceiving health results. In 2008, the European Food Safety Authority (EFSA) commenced the revision of health claim dossiers of food supplements based on scientific evidence. EFSA regulates dietary supplements under the 2002/46/EC and 2004/27/EC directives on food supplements and traditional herbal medicinal products, respectively. The health claims in question are contained in Articles 13.1 for general functional claims, 13.5 for new functional claims and 14 for reduction of disease risk or to children’s development or health. As of early May 2010, EFSA had published only 125 opinions from 4637 applications regarding Article 13.1, 22 opinions from 36 under Article 13.5 and 63 opinions from 167 for Article 14. The industry complains that a lack of clear guidance in the application process and bureaucratic red tape will threaten future sales and hinder consumer awareness of various food supplement options. Several companies do not want to incur costly clinical research studies to prove health claims.
Producers of ingredients and dietary supplements are scrambling to file their health claim dossiers and have them approved by EFSA. However, it has been disappointing for many of them to find out that their ingredients or products do not comply with the required scientific guidelines, leading to an unfavorable opinion. For example, in October 2009, EFSA’s panel concluded that “a cause and effect relationship has not been established between the consumption of glucosamine hydrochloride and a reduced rate of cartilage degeneration in individuals without osteoarthritis” (Question number: EFSA-Q-2009-00412). Consequently, popular glucosamine supplements cannot make that claim on their packaging and in their promotion and advertising.
In general, the industry believes EFSA should not be deciding what is good for people. Instead, consumers should be given the opportunity to choose what is best for them based on all available information.
Functional Food Performance Across the EU
Functional foods in the EU, and health claims pertaining to them, are just as much affected as dietary supplements by EFSA’s ongoing review. Unlike for food supplements, however, maximum levels regarding the addition of vitamins and minerals to foodstuffs have not yet been set, and derogations are permitted until January 2014 for the substances currently under EFSA review, subject to terms of the regulation. As for the regulation of other substances in foods, such as herbs and botanicals, the Commission appears to have no plans at present.
The growth performance of fortified/functional foods and beverages is somewhat less dynamic than it was prior to the onset of the global recession. Despite enthusiastic food industry efforts to develop new and exciting value-added offerings, consumers suddenly—but understandably—became more cautious in terms of their spending on premium-priced products during 2009.
Having said that, the market for fortified/functional products did not actually contract in 2009, but managed to deliver 2% global value growth. Only in North America did the category register a decline of nearly 4%. In Western Europe, on the other hand, 4% growth was achieved. A fair bit of dynamism was injected by the emerging regions of the Middle East and Africa, Latin America and Eastern Europe, but from fairly small base sales.
The highest growth rates were achieved (albeit from very small bases) by functional coffee products: fortified/functional RTD coffee value sales shot up 249%, amounting to $14 million in 2009, and those of fortified/functional instant coffee by 34% to $68 million. As anyone familiar with this industry would expect, many of the top brands are Japanese—Blendy (Ajinomoto Co) leads fortified/functional RTD coffee with a 68% global value share, followed by UCC (by UCC Ueshima Coffee Co) with 15%.
The relative popularity of functional ingredients is often driven by what’s fashionable at the moment. In Japan, for example, sales of foods and beverages containing beauty-enhancing collagen and polyphenols are rising, while heart-healthy CoQ10-enhanced products are falling. Although manufacturers have been trying very hard, they are still waiting for the beauty-from-within trend—which is so buoyant in many Asian-Pacific countries—to fully conquer North America and Western Europe.
Besides the vitamins that have a long history as food fortificants (such as vitamin C), probiotics are probably the most successful functional ingredients of all time. Euromonitor International’s ingredients data show that global volume consumption rose from 26,539 tons in 2004 to 44,661 tons in 2009. And although volume growth didn’t hit double-digit figures in 2008 and 2009, there is no reason to presume that the probiotic boom has come to an end. On the contrary, their strain-specific effects make probiotics some of the most versatile functional ingredients ever.
At present, probiotic product marketing is still pretty much fixated on digestive health and immune enhancement, but there are plenty of opportunities for other very promising directions. For instance, there is a body of scientific evidence accumulating, which suggests that some strains of probiotic bacteria may be useful for weight management.
The potential functional food categories for probiotic weight management ingredients are yogurt and meal replacement slimming products, but they are certainly not restricted to these. The emergence of heat-resistant probiotic strains, for instance, means that they could also be very successful in weight management-positioned bakery products.
Omega 3 ingredients have also experienced massive growth, with global volume consumption rocketing from 458 tons in 2004 to more than 13,000 tons in 2009.
One might wonder where the bulk of these omega 3 fatty acid ingredients end up. Euromonitor International’s ingredients data show that 45% (by volume) go into packaged bread, 32% into functional spreadable oils and fats and 20% into drinking milk products.
This is the global picture, and, as expected, there are notable regional (as well as country level) variations. For instance, in Western Europe, 49% of omega 3 ingredients are used in bread production, but in North America that percentage is much lower at 23%. In North America, just 14% of omega 3s go into functional spreads, compared to 43% in Western Europe.
Another key functional ingredient group in the face of rising global heart disease incidence is that of stanol/sterol esters. Global volume consumption rose by 61% over the 2004-2009 review period to nearly 21,000 tons. The bulk of this, 81%, ended up in functional spreadable oils and fats, and much of the rest in yogurt. Growth potential for these ingredients remains high, propelled by an aging population for one, but also because some markets, like Canada, are only just opening up to stanol/sterol ester food fortification.
The tricky issue with plant stanol/sterol ester ingredients, from a regulatory point of view, is that their cholesterol-lowering functionality makes them similar to drugs in the eyes of many regulatory bodies. However, due to the strong scientific evidence showing they work well in foods and also because many key countries and regions, such as the U.S. and the EU, have not found them to be a safety risk and have accepted them into their food supply, bolstered by accompanying health claims, these hurdles are rapidly disappearing.
About the authors: Monica Feldman is a Consumer Health Analyst, and Ewa Hudson is Head of Global Health & Wellness Research at Euromonitor International. For more information, www.euromonitor.com.
By Shaheen Majeed Marketing Director Sabinsa Corporation & Dr. Ria Biswas Senior Manager—Technical Marketing Sami Labs Limited
The Indian economy, estimated at roughly $1 trillion, is growing in tandem with the population. In fact, it is estimated to expand by at least 5% annually for the next 45 years, and be the only emerging economy to maintain such a robust pace of growth. This prevailing mood of economic confidence is likely to be reflected in the Indian healthcare industry, which seems to be relatively insulated and untouched by the recent crisis of recession.
The Indian healthcare industry is the third largest growing sector in India, and it is projected to reach nearly $40 billion by 2012, at a compounded annual growth rate (CAGR) of 15-17% for the next seven to 10 years. At the same time, India’s $14.7 billion pharmaceutical market is in a state of transition—the country’s economy is growing, foreign firms are increasing their presence, the government is spending more on healthcare, and local firms are looking abroad for new growth opportunities.
A Problematic Infrastructure
Traditionally, India has been a rural, agrarian economy. But with the recent rapid expansion of the economy enormous pressure has been placed on the country’s healthcare infrastructure, which has been struggling to keep pace. Despite the impressive performance of the healthcare industry, the physical infrastructure is woefully inadequate to meet the various healthcare demands. So while India maintains several centers of excellence in healthcare delivery, these facilities are limited in their ability to drive healthcare standards because of the poor infrastructural conditions.
As a result, only 25% of the Indian population has access to Western (allopathic) medicine, which is practiced mainly in urban areas—home to 72% of specialist practicing doctors, and two-thirds of India’s hospitals and health centers. The remaining 25% of doctors reside in semi-urban areas and a mere 3% in rural areas. As a result of this lopsided distribution, 80% of the medical facilities are concentrated in urban areas, with 20% existing in rural areas. This means most poor rural people continue to go without proper healthcare facilities, leaving them to rely mostly on traditional forms of treatment their ancestors used, such as Ayurveda, Unani and acupuncture.
Merging Tradition with Science
India has a long heritage of traditional medicine, which includes a conglomerate of Ayurveda, Siddha and Unani. It is one of the greatest living traditions and maintains a highly respectable place in the officially recognized healthcare system of the country. This comprehensive, natural healthcare system has been utilized for more than 5000 years for prevention, health promotion and treatment of disease. After undergoing a period of suppression during colonial rule, Ayurveda has experienced a revival in the last several decades and interest is growing worldwide. Simultaneously, a technological revolution is being utilized to investigate and validate Ayurveda in a new light through the scientific techniques of modern medicine. So as the “alternative goes mainstream,” the onus is on healthcare professionals to educate themselves and merge it with their existing medical knowledge.
Is India Ready for MLM? Yes!
In recent times, the Indian healthcare market has emerged as a new and profitable growth avenue for both existing players and new entrants. The Indian healthcare industry has been seen to offer investors a cheap entry into the relatively stable consumer and retail segment, which is benefiting from rising consumer sentiments and affluence. Here, investors not only get a piece of an international or nationwide whole-seller of innovative healthcare products, but also a lucrative stake in a rapidly expanding multi-level-marketing (MLM) business.
India offers a positive environment conducive to the development of network marketing. The MLM companies that hold exclusive distribution rights for their products are able to generate a steady stream of earnings for the group. These companies often remunerate their active and growing sales force using attractive commission packages.
Today, MLM or direct marketing is recognized throughout the world as a legitimate way of moving products into the marketplace, in turn rewarding individuals making the referrals and distributing the products. Network marketing is also an effective way to expand customer bases. The Indian healthcare arena is virgin turf for MLM companies with scalable, untapped market potential, as the FMCG category includes mostly personal care products, cosmetics and toiletries but few options for healthcare products. Imbibed from the richness of Ayurveda, traditional healthcare products in India also gain easy access into people’s homes owing to their already recognized, well-known efficacies. Easy business opportunities abound when it comes to selling “tried and tested” botanicals for health benefits.
Yet another advantage in India is its wildly growing population and the strength of its masses. It is beyond doubt that in MLM there are always good products to sell and great compensation schemes to flaunt, but the actual currency of network marketing industry is its “people.” Indians surely score high on building a congenial and affable seller-buyer relationship. Another significant advantage is the evolution of India from a savings economy to a consumption economy. With the purchasing power of the working class steadily rising, the Indian MLM industry has great growth potential, particularly in nutritional products where offerings are still somewhat limited.
Again, the social impact cannot be overlooked. More than 80% of people involved in MLM claim that their incomes have increased due to their involvement in network marketing, which has had a direct impact on their lifestyle. It also offers the opportunity to work part time with the potential to make full-time wages. This undoubtedly creates a strengthened and job-happy sales force, which in turn fuels and drives this industry ahead.
For the Future
India’s technology and business services industry has flourished in the last decade, with the potential to quadruple revenues over the next decade. Several macro-economic and social trends will support the rise of the MLM business in the future, in core and emerging healthcare sectors. However, it is imperative for industry stakeholders to break out of the traditional mold and make concerted efforts to maximize their returns through fresher avenues. This can be achieved through new business models, reinvented service offerings and an enabling environment supported by adequate levels of infrastructure. The government also needs to nurture this industry with consumer-friendly incentives and a simplified tax structure that will siphon investments from both national and international MLM ventures.
About the authors: Shaheen Majeed is marketing director for Sabinsa Corporation and Dr. Ria Biswas is senior manager, Technical Marketing for Sami Labs Limited. Mr. Majeed can be reached at shaheen@sabinsa.com.
By Ron Bailey California Functional Foods
In a year-end update two years ago (Nutraceuticals World, November 2008), not surprisingly, it was reported that the macroeconomic climate in Japan was deteriorating. Unfortunately, this still appears to be the case for many regions in Japan. Major urban areas—Tokyo and Nagoya, for example—have unemployment rates below the national average of around 5%, but the same is not true for many of the other prefectures.
Tokyo’s population continues to increase as young people move away from rural Japan, but that migration is creating serious problems in the rural areas that already rely heavily on government funds flowing from Tokyo to provide essential jobs and services. Complicating matters further, another new Prime Minister has been selected (the fifth in a four-year period), and he has committed to cutting public works projects across the country to try to help ease the growing national debt. It is not a pretty picture.
Demographics Update
For the 25th year in a row, Japanese women have been recognized as having the longest life expectancy—86.4 years in 2009—in the world. Japanese men are fifth in the world, with a life expectancy of just under 80 years. Supporting the health needs of this aging population, even if they are able to remain healthy, is already a major challenge for the Japanese government. Nearly a quarter of the population is now over 65 years of age, one of the highest levels in the world, and it is expected that 40% of the population will be 65 or older by the year 2050.
The aging problem is compounded by the very low birth rate in Japan, also one of the lowest in the world. The fertility rate is only 1.34 children per woman, well below the 2.10 children needed just to maintain the population. As a result, the population in Japan is projected to continue to decline. Attempts by the national and regional governments to encourage more babies have not been successful, and it is generally agreed that until the financial instability of the country has been resolved, the birthrate is not likely to increase.
This “perfect storm” of a rapidly aging population and a declining birthrate, combined with a very low level of immigration, has serious long-term social and economic implications for Japan.
Regulatory Overview
Last year at this time it was anticipated that the food and nutraceutical industry regulations would soon be modified, based on announced formal reviews of priorities by the newly installed Japanese government leaders at that time. The only obvious change, however, has been the reassignment of the FOSHU (Foods for Specified Health Use) approval process from the Ministry of Health, Labor, and Welfare to the Consumer Affairs Agency. The benefits of this change, if any, have not yet been reflected in the marketplace.
FOSHU Update: The Japan Health Food and Nutrition Food Association (JHNFA) issued in May of this year its annual overview of the regulatory framework and a brief profile of the market. This summary document is very helpful in understanding both the history and the current status of the products and regulations relevant to the FOSHU and some of the non-FOSHU markets in Japan. While the FOSHU market is the main focus of the report, JHNFA also explains the regulatory framework concerning health claims in Japan for several of the non-FOSHU categories of foods as well. Some of the important FOSHU highlights include:
• FOSHU approvals as of late April included 936 individual products (up from 755 the end of 2007, the time of the last official report on the FOSHU market).
• Health claims for “helps maintain good gastrointestinal condition” using oligosaccharides, probiotics and prebiotic dietary fibers represented 343 products, 37% of the total. Claims including “good for those who have high serum cholesterol/are concerned about serum triglycerides” was the second largest category, with 208 products (22% share) using soy protein, peptides, dietary fiber, plant sterols/stanols or diacylglycerol as the active ingredients.
• Total FOSHU product retail sales in 2009 were ¥550 billion ($6.5 billion at current exchange rates, down from ¥680 billion in 2007). This was the first year-to-year sales decline since the FOSHU market was established in the early 1990s.
• A gum health claim was permitted in 2009, the first new claim category allowed since 2000. Dental health (“helps maintain dental health”) has been an active FOSHU category for several years.
Overall, there seems to be much less enthusiasm regarding new FOSHU developments for the first time since the FOSHU category emerged in 1993. The eagerly anticipated expansion of the FOSHU categories to allow fatigue, stress and weight management health claims did not materialize, even after the expensive development of significant supporting safety and efficacy data by major Japanese companies. That costly rejection, combined with the severe global economic conditions and other factors, has resulted in a loss of interest in developing the extensive scientific support targeting potential new FOSHU opportunities. It was a major disappointment for the Japanese food and nutraceuticals industry.
What are the Future Prospects?
Even though formal FOSHU-related activities have slowed significantly, Japanese companies are still actively pursuing new opportunities in the food and nutraceuticals market, both for Japan and overseas. The recently held Health Ingredients Japan 2010 show, for example, included a wide range of exhibitor presentations in several current areas of interest. Reviewing some of the titles of the presentations provides a good snapshot of the trends and where companies are headed. There are the more obvious topics already covered by current FOSHU health claims, but there is also considerable interest in non-FOSHU categories—joint health/joint pain, weight loss/anti-obesity, anti-aging, fatigue, immune function—to name just a few. Most included concepts regarding the health claims they wish the Japanese government would allow, even though the near-term market opportunities may prove to be foreign, not domestic. To that end, it seems overseas companies will be active participants with new technologies that have applications in the U.S. as well as Japan.
Some of the food and nutraceuticals industry research and marketing attention in Japan has turned to the categories related to beauty and skin health (beauty from within) using nutraceutical ingredients. Health Ingredients Japan 2010 offered conferences related to beauty and anti-aging, for example. Japanese consumers are very much interested in products with demonstrated efficacy in these areas. Major Japanese companies have considerable experience in developing serious personal care product and ingredient science focused on these opportunities, so consumer credibility is already well-established in Japan. Actual on-label health claims will not be allowed for these non-FOSHU products, of course, but expected availability of published clinical information is legitimate and will be important to consumers.
Even though there is less attention from overseas companies being focused on developments in Japan these days, the Japanese food and nutraceuticals industry remains an excellent source of new product and new ingredient concepts with potential value to overseas partners. These concepts should be studied carefully, always keeping in mind that many of the dire demographics projections in Japan are in fact a preview of what may well happen in other developed countries during the next several years.
About the author: Ron Bailey is president of California Functional Foods and has been an independent consultant for more than 20 years, focusing primarily on the transfer of food technology between the U.S. and Japan. He can be reached at bailey@mind.net.
Editor’s Note: Important sources of information for this article are the annual English-language FOSHU and non-FOSHU market status report from the Japanese Health and Nutrition Food Association and the Health Ingredients Japan website.
By Grant Washington-Smith Business & Brand Development Canzus Partners & Paul Altaffer Product & Business Development RFI Ingredients
At the bottom of the global recession in 2008, it was expected that Latin America would land softly compared to other regions of the world and recover relatively quickly. This certainly seems to be the case, with several countries returning to strong economic performance and growth.
When one thinks of Latin America one conjures images of happy people and a “mañana” attitude toward work and development. Long have people considered Brazil, for example, as the “country of the future,” more committed to samba and soccer than serious about growth and development. This is all changing, and while the passion for living is still strong, the passion for economic, political and social development is now equally strong.
In a recent special report on Latin America, The Economist discussed the recent history and direction in which the region is headed. In the five years leading up to 2008, Latin America had lived its best years since the 1960s, with average growth of 5.5% per year and (for the most part) single-digit inflation. Most of the countries in the region have transitioned successfully into democracies of one kind or another. The recession was brief and shallow for Latin America, lasting from the middle of 2008 to early 2009, and it is expected to reach 5% growth again this year. Much of this is a result of democratization as well as better management of macroeconomic and fiscal policy. It also helps that the region is rich in commodities (oil reserves, minerals and agricultural products), especially since global demand for commodities is growing. As a result, foreign capital is moving quickly into most countries in the region.
The ‘Latin American Decade’
According to The Economist, marketers are talking of the next decade as a “Latin American decade,” with income (per person) doubling. And some experts expect Brazil to become the world’s fifth largest economy behind the U.S., China, India and Japan. Its status as one of the BRIC (Brazil, Russia, India and China) countries has already put it in fairly exclusive company. Brazil is home to one-third of Latin America’s population and is responsible for 40% of its GDP.
Mexico, the other regional superpower, faired far worse during the recession, as its economy has been more dependent on the U.S. Violence due to surging drug wars has contributed to social instability and insecurity in the country. However, Mexico’s political and social institutions remain strong and there is a reasonable expectation that the economy will rebound.
The primary words of caution for Latin America have to do with inequality, violence, education and infrastructure. Latin America is tagged with having some of the worst rates of income as well as social inequality. While there has been significant progress in many countries and 40 million people have moved out of poverty over the past decade, the disparity of “haves and have nots” continues to be a major issue.
Continued or escalating violence, often associated with drug or gang wars, is terrifying for certain areas of Latin America. Compounded with paltry investments in education and infrastructure, it can make it hard to see the growth potential for the region. Latin America must use some of its wealth to fix these issues to ensure continued success.
The Latin Consumer
Latin America already consumes about a quarter of all U.S. exports and this trend is growing. With economies growing and millions of people moving out of poverty and into the consuming world over the past decade, the markets are primed for development.
Brazil and Mexico continue to represent the lion’s share of Latin America’s consumption of nutraceutical products. And the populations of these countries are growing, becoming more affluent and aging. Latin Americans are becoming increasingly aware of the importance of nutrition and maintaining their health. This represents a significant opportunity for companies looking at Latin America as an investment option. Competition is tight, however, with the major players well established and investing considerable money into promoting their products and brands.
While most consumers are still very interested in value, there is growing potential for alternative therapies. Some countries in Latin America, including Brazil, are strong proponents of alternative medicine. Homeopathy, Naturopathy, Herbalism, including TCM (Traditional Chinese Medicine), Acupuncture and Chiropractic are some of the alternative modes of treatment being adopted in the region.
Similarly, there is growing demand for beauty products (both oral and topical), as well as interest in functional foods (especially beverages), as global companies and marketers introduce new products across many markets. Some Latin American companies, like Brazil’s Natura, are becoming global brands of their own and demonstrating incredible creativity in their product development and marketing.
Regulatory Climate
The regulatory framework in Latin America is developing rather rapidly. While the larger market countries like Brazil and Mexico have fairly well established regulations for OTCs, the capacity to enforce regulations is limited in many cases. Vitamins and dietary supplements have only recently been viewed as a separate class of products from pharmaceuticals and foods. As a result, there is still quite a bit of work to do before Latin America catches up with regulatory structures existing in Europe, the U.S. or Japan.
Brazil’s ANVISA (Agencia Nacional de Vigilancia Sanitaria) regulates pharmaceuticals and therapeutic goods for the country. Through its regulations, Brazil may be the closest to global standards. Registration of all nutritional, therapeutic, food, pharmaceutical and even cosmetic products is required along with proof of safety and efficacy. Led by groups like ANVISA, there is an attempt to unify regulations throughout the South American common market, called Mercosur. However, it is unlikely that such an effort will conclude successfully in the near future.
What to Expect From Latin America
The next few years will likely challenge the notion of Latin America as a commodity supplier. Latin America is home to some exciting companies and technology development. Expect to find products with greater science, technology and validation. Companies from Latin America will soon be licensing their products and technologies to companies in the U.S. and Europe as they develop their own bioresources and leverage technologies.
Similarly, expect to find more consumer products from innovative and successful companies like Natura coming to shelves in stores (even if online) near you. The quality and innovative approach to some of these products is world class indeed.
For the Future
As the region continues to develop and prosper, Latin America will become a more desirable place to do business. The region is likely to receive considerable investment as stability and sound institutions are formed. Companies with products that offer unique selling propositions and valued correctly will find potential markets and eager consumers. Latin American companies will compete in global markets and challenge the convention that the region only produces commodities. As long as some of the broad issues (like inequality and violence) are addressed by the different governments, development will bring many new opportunities to the region which should in fact usher in the “Latin American decade.”
About the authors: Grant Washington-Smith has 20 years of experience across a variety of businesses in the natural products industry. He can be reached at gwashin@me.com. Paul Altaffer is on the product and business development team at RFI Ingredients, Blauvelt, NY, a manufacturer of innovative natural ingredients and custom formulations for the functional food and dietary supplement industries. He can be reached at paulo@rfiingredients.com.
Global sales grew to $68 billion in 2009, up only 2.5% or $1.7 billion more than in 2008, according to Euromonitor.* This is markedly down from a 10.6% increase between 2007 and 2008, and from the 8.6% increase between 2006 and 2007.
The recent deceleration is a result of the long-lasting recession, persistent regulatory issues and product saturation within dominant, mature markets.
Within this international landscape, however, some supplement categories have not only broken through with strong sales in most countries, a few have actually exploded with double-digit percentage sales increases in some markets. Fish oil for heart health is the fastest growing supplement category. Others that performed well in most markets included lutein and zeaxanthin for eye health, glucosamine for joint health and probiotic supplements for digestive and now skin health. The common denominator for the excellent performance of all of these supplement categories is consumer knowledge of the wealth of scientific evidence backing the effectiveness of the ingredients. In addition, sales show that consumers are beginning to enthusiastically embrace combination supplements, which bundle two or more ingredients in one for a more targeted, therapeutic result. One example is fish oil combined with CoQ10 for heart health.
Finally, there are growth opportunities to be found in each market. Fertile patches exist in more established markets, while most emerging markets continue to prove to be lands of plenty for a wide range of supplement prospects.
Steady, Healthy Growth: U.S. & China
The U.S. remains the leading market with slightly more than a 29.5% share of the global market at $20 billion for 2009. This is up well over 7% from the $18.6 billion in 2008—in keeping with the average annual growth of more than 7% since 2005.
Although the recession hasn’t halted sales growth, it has affected actual buying habits—which in turn have kept sales growth percentages at bay. Looking to maintain their health to be able to report to work and keep their jobs, as well as control healthcare and insurance costs, consumers are buying more supplements—considering it an insurance policy against illness. Interestingly, pharmaceutical chains report that people are asking more about supplements and less about pharmaceuticals. But as part of their general belt tightening, consumers have also traded down from premium brands to private labels to save money.
Regarding specific categories, vitamins account for close to $8.4 billion in sales, with multivitamins commanding slightly more than half of those sales, though for only a 2% increase. Sales for single vitamins, however, jumped nearly 13%, with B vitamins holding the top position, generating $1.36 billion in sales—a 14.5% increase. The recent deadly flu scares likely bolstered sales of this vitamin, which supports energy and the immune system.
Still, the rising star since 2007 has been vitamin D, logging a 20% increase in 2007, a 35% leap in 2008 and a breathtaking 48.5% jump in 2009, for total sales of $368 million. This astronomical growth is undoubtedly due to the widespread media coverage from daytime television figures popular with women who have touted vitamin D’s benefits for breast health and bone health by promoting calcium absorption.
Although non-herbal supplements trail slightly behind vitamins with more than $7 billion in sales, they far eclipse herbal/traditional supplements at $3 billion. The reason: science. Buyers have been influenced by the various studies reported by the mass media. Such coverage has not borne out the common notion of benefits for herbal/traditional supplements, including echinacea (posting an annual average decline of 6% since 2006) and garlic (posting an average annual decline of 7.5% since 2006). On the other hand, reported studies have told of positive benefits for a host of non-herbal dietary supplements. The standout supplements here include heart health supplements (fish oils and CoQ10) eye health supplements and probiotic supplements. These particular supplements are also performing well because they are being purchased mostly by aging Baby Boomers, who want to maintain a high quality of life. This market is huge and their disposable income is on the rise.
China is the third largest market with 12% of the global share at $8.2 billion in sales for 2009. This is up only 4% from the $8 billion in sales the country generated in 2008, though the average annual growth has been 7.6% since 2005—surpassing that of the U.S. This steady development is expected to carry on, turning China into the second largest market over Japan within two or three years.
So how did China become such a formidable global contender? As the already humongous population keeps on expanding, so does the middle class—along with its disposable income used to buy supplements. The multilevel marketing (MLM) groups that sell supplements also continue to enjoy tremendous success. Approximately 50% of the revenue generated for supplements is through direct sales, 25% through conference sales and 25% through traditional retail channels according to Natural Products Association China. A case in point: China is Amway’s No. 1 market in the world now. And there are huge growth opportunities for Herbalife and Avon as well. In particular, local MLMs—including such companies as New Era and Tiens—know the local regulatory authorities and how to work with them and their rules for the benefit of business.
Regarding specific categories, non-herbal dietary supplements lead in sales, posting $3.6 billion in 2009, for a tepid 2.8% increase (though the average annual increase has been 7.6% since 2005). Calcium continues to be No. 1 here ($1.4 billion), with protein powder, probiotics and fish oils following in sales and increasing in popularity. Herbal/traditional supplements are second in sales, pulling in $1.9 billion in 2009 for a 4.7% increase. This is no surprise, as it reflects the 5000-year-old practice of Traditional Chinese Medicine (TCM). Ginseng is the top-seller here, however, garlic, ginkgo biloba and lingzhi are becoming more desirable. Although third, vitamins are gaining ground, logging $1.3 billion in 2009 for a 4% increase over 2008 (6.8% average annual increase since 2005), with multivitamins making up 74% of sales.
Cooling Down: Japan & Western Europe
After a long history of growth that shaped it into a leading market, Japan remains in the No. 2 slot, barely behind the U.S., posting $15.3 billion in 2009 for 22% of global share. Nevertheless, 2009 was the fourth straight year of relatively flat sales, rising only a half percent from $15.19 billion in 2008. The average annual sales increase was also only slightly more than a half percent since 2006.
Sales are flat due to tough government regulations on product claims. Because regulators felt products sold via advertisements and infomercials had not been meeting stated claims, they only allowed marketers to describe nutrient content (i.e., 200 mg of vitamin C) and forbade mention of potential benefits. These standards continue to hold true today. However, in 2009 another level of scrutiny was added with the creation of a Consumer Affairs Agency (CAA). This agency not only polices false statements on benefits, but it also screens for the safety of products and their ingredients.
Vitamin sales continue to lead at more than $6 billion. Multivitamins account for almost half of sales, with vitamin B residing as the top-selling single vitamin, at $1.5 billion. Within the second place non-herbal supplement category ($4 billion), probiotic supplements are the top sellers, with royal jelly following behind, along with calcium and amino acids. The fastest growing categories include fish oils and glucosamine. Among herbal/traditional supplements ($2.46 billion), prune extract leads, with rising stars since 2005 being evening primrose oil, ukon, ginkgo biloba, ginseng and garlic.
Sales in Western Europe as a whole are up, but the growth rate has been steadily dropping since 2005, from a 5% increase between 2004 and 2005 to a 2% increase between 2008 and 2009. Total sales reached $9.4 billion for about 14% of global market share. Vitamins were flat ($2.6 million), with multivitamins actually dipping, while single vitamins, such as B and D, rose slightly (2.7% and 2.8%, respectively). Dietary supplements themselves logged a modest 3% increase ($6 billion), buoyed by a 2.7% increase in combination supplements ($915 million). Mineral supplements, in particular calcium, remain the top-sellers, but the supplements with substantial sales figures and highest growth rates once again include fish oils, probiotics and glucosamine.
Growth continues at tortoise-like speed due to a combination of product saturation and price competition. In addition, there has been a lack of innovation because the regulatory commission, European Food Safety Authority (EFSA), has denied most attempted product claims. The nutricosmetic category also has reached a plateau after an initial hot phase of early stage adoption.
These conditions are reflected in the bleak reports of more developed supplement markets. France’s sales rose a miniscule .3% in 2009 after the country saw an average annual growth rate of 8.25% between 2005 and 2008. Spain’s sales dropped .4% in 2009, while Portugal’s sales dipped 3.7% in 2008 and another 5% in 2009.
Nevertheless, positive sales increases are popping up in other markets where there is obviously room to grow: Ireland (4.4%), Greece (3.7%), Austria (3.3%), Netherlands (5.8%), Norway (4.7%) and Sweden (3.4%). Italy appears to be the strongest market as of 2009, logging a 4.6% increase, and an average annual increase of 6.8% since 2005. Some of these countries have unique supplement favorites—spirulina in Greece, red wine leaves in Austria, and child-specific vitamins and dietary supplements in Italy. Yet again, the popular supplements common in all of these countries are fish oils, probiotics and glucosamine.
Still Warming: Eastern Europe, Brazil & India
After enjoying double-digit sales growth rates for an average annual increase of almost 17% between 2005 and 2008, Eastern Europe experienced 7% growth, going from $2.26 billion in 2008 to $2.43 billion in 2009, for 3.6% of the total global market share. Although these figures reflect a slowdown, the sales increases are nevertheless very healthy and a consequence of the ongoing embrace of capitalism and the sustained expansion of the middle class. Probiotic supplements lead in sales, followed by minerals, calcium, lutein, fish oils and glucosamine.
Russia remains the No. 1 market, with total 2009 sales of $1.17 billion, representing nearly 12% growth over 2008 sales. This increase is not quite half of the average annual growth of 26% between 2005 and 2008, but it is still a hefty double-digit number in part because of the efforts of a new trade association, Council of Dietary Supplement Producers or CDSP, which was created in 2008.
Under the leadership of two former Institute of Nutrition members and several local and multinational dietary supplement manufacturers, distributors and marketers, the CDSP has become the main vehicle for lobbying Russian authorities about regulations, making them more transparent and easy to meet with the extensive research that has long been conducted to substantiate product claims. In addition, most of the business still stems from Moscow and St. Petersburg because of large populations, concentration of advertising and superior distribution networks.
Vitamins, largely multivitamins, lead in sales ($371 million), but combination dietary supplements are second and growing quickly ($224 million for a 13.5% increase), with probiotic supplements third ($130 million for a 13.3% increase).
Posting $337 million in 2009 sales, Poland is the No. 2 market, with the biggest growth seen in sales for probiotic supplements at 12% and eye health supplements at 6.5%. Poland is followed by Hungary ($145 million) and the Czech Republic ($103 million)—though each of their total sales increases have settled into the 4% range or less. Not so with Romania, the 5th largest market. Its sales skyrocketed almost 13%, from $87.5 million in 2008 to almost $99 million in 2009. This is an extension of explosive growth that averaged 16.4% annually between 2005 and 2008. The largest growing categories included CoQ10, glucosamine, eye health, fish oils and combination supplements.
Brazil logged a bit over $1 billion in sales for the first time in 2009, an 8% jump over 2008—slightly lower than 10% average annual increase between 2005 and 2008, but still encouraging. Vitamin sales comprise the lion’s share at $626 million and will undoubtedly continue to enjoy a healthy climb, which has averaged 10.4% annually between 2005 and 2009. That’s because as of spring 2010 manufacturers only had to notify authorities about taking a vitamin product to market within 30 days rather than spending several months and thousands of dollars for product review under a registration process.
Despite these unceasing regulatory roadblocks for supplements, some categories are selling and growing quite well, including calcium, ginseng, probiotic supplements, minerals, fish oils and eye health.
And, of course, nutricosmetics should get a boost from the never-ending demand from Brazil’s notoriously beauty-conscious consumers. The market is so fruitful that Avon is looking to establish a second distribution center in Sao Paulo, noting that Brazilian sales surpassed U.S. sales for the first time in 3rd Quarter 2009, according to a report in GCI Magazine’s July 2010 issue. L’Oreal has also announced plans to increase market share of its Brazilian product sales from 20% to 35% through a new Serie Nature line of silicone-free formulas and natural fragrances. Other beauty companies entering the market include Revlon, Biotera (Shiseido) and TIGI (Unilever). And all of these companies would likely offer oral cosmetics to complement their topical products.
The remainder of Latin America shows promise as well. Serious efforts to change the regulatory environment are the best evidence. A 2009 conference in Brazil was well attended by representatives from several countries. Subsequently, to continue conversations, IADSA (International Alliance of Dietary/Food Supplement Associations) sponsored a conference in October 2010 in Santiago, Chile to bring leaders of regulatory policy from all over Latin America together.
As the world’s second largest populated country, India continues to offer huge potential. Total 2009 sales were $628 million, an 11% increase over 2008, and well above the average annual sales increase of 9.85% between 2005 and 2008. Mineral supplements are No. 1 here, followed by vitamins and protein powder, with combination supplements starting to catch on. To promote further growth, regulatory chaos must be addressed. This process has been started; the Indian government’s Central Food Technological Research Institute is currently one of several organizations drafting revisions of food and supplement regulations.
Future Global Trends
Combining known ingredients with unknown (i.e., fish oil with tocotrienols, for example) for condition-specific benefits will continue and be the source of growth in otherwise mature markets. Areas of focus will continue to be heart, bone and eye health along with energy and sleep for mature markets, while emerging markets will continue to focus on more well-known multivitamins and minerals.
In the U.S., growth will be somewhere between 3-5% for two to three years as there will be fewer new products launched. Further, with the new GMPs now firmly in place for all manufacturers and marketers ,consolidation will ramp up among the smaller, more entrepreneurial players in the market. Lastly, the impending NDI (New Dietary Ingredient) guidance should be expected soon from the FDA and could further reduce the amount of new products coming to market.
Europe will see less growth than the U.S. as it continues to struggle with EFSA on claims for dietary supplement products in the EU. Recently, there has been hope that EFSA is beginning to recognize the burden to industry and may be revising the batch approval process of claims in place today.
Ingredients such as krill oil will see growth, especially in mature markets looking for something new. However, the growing pains associated with krill oil suppliers continue to unfold as they battle for market share.
As was true of this year, the next couple of years will hold great promise for some markets and ingredients and a bust for others. Just because there is huge growth in a region does not mean your company should participate. Careful analysis needs to be done up front to increase your chances of success. Even then, the risk is always there!
About the author: Pete Zambetti is the senior manager, Global Business Development for Dietary Supplements, at Capsugel, Peapack, NJ. He can be reached at peter.zambetti@pfizer.com.
* All figures are sourced from Euromonitor unless otherwise stated.
By Grant Washington-Smith Business & Brand Development Canzus Partners & Paul Altaffer Product & Business Development RFI Ingredients
The global financial crisis has had an impact on both the Australian and New Zealand natural products industries over the past couple of years. While there were no developed economies that actually escaped this impact, some countries have faired better than others.
Leading the way with the best-performing developed economy was Australia, which technically never entered into an economic recession. New Zealand also managed well, and while it did dip into recession for six months, it emerged again in March 2009. Nevertheless, the natural products industry came under pressure during this period, with a high proportion of consumers, who view natural products as a discretionary expense, choosing not to purchase. This effect appeared to be larger in mass food and drug, retail pharmacy and practitioner channels, while health food retailers saw a smaller decline in sales.
Within Australia, which is often referred to by locals as the “Lucky Country,” it has been widely reported in the media recently that its complementary medicines (dietary supplements) industry has now exceeded AUD $2 billion (USD $1.94 billion), although some government groups still put this figure closer to AUD $1 billion. In contrast, the U.S. dietary supplement industry is worth nearly $24 billion (NBJ 2010). But in general, Australians still spend around the same on their dietary supplements, per head of population, as their U.S. counterparts.
The size of the New Zealand dietary supplement market remains considerably smaller than that of Australia, at around NZD $110 (USD $80 million). Over the last couple of years the New Zealand market has lost ground to Australia on a relative market size basis and these figures represent around half of what the U.S. and Australia spend (per person) on dietary supplements.
Regulations & Consolidation
Since the last time the Australian and New Zealand market was reviewed (Nutraceuticals World, November 2008), there have been a couple of key changes. Several years ago it was rumored that there were plans to harmonize the regulatory framework for dietary supplements between Australia and New Zealand, using Health Canada and Australia’s TGA system as models. As recent as March 2010, a New Zealand government consultation paper was sent out to the industry requesting guidance and submissions. At the present time, however, there appears to be no indication of when this process will be completed.
So while the mainstream media in Australia is calling for the new Australian socialist coalition government to overhaul the TGA with tighter regulations and tougher controls for their complementary medicines (dietary supplements) industry, New Zealand remains as unregulated as ever.
A significant development on the commercial landscape has been the consolidation of business activity within the industry. In late 2008, Sanofi-Aventis Consumer Healthcare reported that it had acquired several retail brands from another Australian company, Symbion CP Holdings Pty Limited, for $542 million (representing a multiple of approximately three times sales). In New Zealand, around the same time, two of the country’s largest manufacturers, Healtheries and Nutralife, combined to form a new company called Vitaco Health, with combined sales of around $130 million.
These consolidations mean that there are now three major brand manufacturers, which dominate the commercial landscape in Australia and New Zealand. The two largest Australian companies include Sanofi-Aventis Consumer Healthcare and Blackmore’s Ltd, both of which have annual sales in dietary supplements of around $210 million. Blackmore’s, however, is the leading brand manufacturer in the Australian and New Zealand market, while Sanofi-Aventis Consumer Healthcare has sales amalgamated across a number of brand franchises. Following behind these two companies is New Zealand’s Vitaco Health.
Due to the limited size of the Australian and New Zealand markets and the relative proximity of several major Asian markets, brand manufacturers and ingredient suppliers have generally adopted an export-focused strategy to increase sales revenue. During the past couple of years, however, the global financial crisis has impacted this strategy in two ways. First and foremost, it has dampened demand, which has clearly impacted sales. Second, the relative strength of the Australian and New Zealand economies throughout the financial crisis has resulted in the strengthening of both their respective currencies relative to their trading partners. This has further suppressed demand due to the higher cost of landed goods in trading markets and reduction of profits due to currency losses for exporters.
Product Performance
In 2009, the global health scare from the H1N1 pandemic did result in a spike in demand for many Australian and New Zealand brand manufacturers and exporters to Asia, as well as dramatic improvements in domestic demand for dietary supplements and complementary medicines. In 2010 there has been no such stimulus for the industry but some retail distributors have reported a gradual pick-up in sales in both countries, in the health retail and pharmacy channels. The professional channel and mass food and drug appear to be responding more slowly, but both are expected to improve in 2011.
The categories that dominate dietary supplements and complementary medicines sales, for both countries, in the health retail and pharmacy channel include weight management, children, sports supplements, joint health and mobility, digestive health and women’s health. Within these functional groups, omega 3 crosses many categories. In addition, digestive health and weight management are generally targeted to women.
Within the supply side of the Australian market, there has not been a great deal of new ingredient development, although Australia has been a leader in olive leaf extract. Many of the major global ingredient suppliers have either established a presence in Australia or are represented through an ingredient distributor.
New Zealand also has several smaller ingredient distributors. But unlike Australia, New Zealand is continuing to develop a robust bio-discovery and process development industry for novel ingredients of New Zealand origin. Examples include the characterization of the health benefits on native Manuka and Rewa honey, which are now being sold in the U.S. The New Zealand green kiwi is also the basis of a development program in digestive health. The oil and glycogen extraction from the New Zealand green shell mussel has been the target of research into joint health and mobility. Additionally, the global dairy giant Fonterra has an active research program around novel bioactives from dairy.
A major reason for the advancement of New Zealand’s bio-discovery and development has, in large part, been due to the availability and accessibility of advanced extraction technologies and industrial process engineers, who support the country’s primary industries and are funded centrally through the New Zealand government. Another important reason for the relative success is that over the past few years there has been the recognition of New Zealand-grown raw materials as being among the most bioactive in the world. This has been attributed to the high level of UV-B sunlight, which New Zealand is exposed to resulting from a seasonal hole in the ozone layer. This causes the plants, fruits and vegetables to elevate secondary metabolites, such as anthocyanins and polyphenols, to protect themselves from UV damage.
About the authors: Grant Washington-Smith has 20 years of experience across a variety of businesses in the natural products industry. He can be reached at gwashin@me.com. Paul Altaffer is on the product and business development team at RFI Ingredients, Blauvelt, NY, a manufacturer of innovative natural ingredients and custom formulations for the functional food and dietary supplement industries. He can be reached at paulo@rfiingredients.com.
By Michael Chernyak Managing Director CK Nutritional Ingredients
To say that 2010 has been an eventful year for the Canadian Natural Health Products (NHP) sector is an understatement. Beginning in February with a surprise directive from Canada’s pharmacy regulatory association urging pharmacies to no longer offer for sale “unlicensed” NHPs, the Canadian NHP sector has been forced to contend with one regulatory challenge after another.
On the bright side, challenges and obstacles like those stemming from Canada’s complex regulatory situation have forced NHP suppliers to step it up—to improve their operations, to boost product quality, safety and efficacy, and to fine-tune marketing and consumer education efforts.
Further, judging by the strong attendance and upbeat activity at recent trade events, and in speaking with numerous executives that represent Canada’s NHP suppliers of various size and scope, business is good and new product development (the lifeblood of the industry) is hopping.
We’re Small, But Not That Small!
Understandably, the Canadian NHP market is not a top priority in the eyes of our neighbors stateside, or our friends in Europe, Asia and South America. After all, we’re only a population of about 34 million, which is no match for the U.S. and many international markets. Add to this the (accurate) perception that Canadian NHP regulations are some of the toughest in the world, and it is no surprise that few non-Canadian raw material suppliers and NHP suppliers have the necessary time and resources to create great business outcomes in Canada.
Taking a closer look at Canada, however, reveals an NHP market that can be quite lucrative! Regulatory consultants here report that their client base has shifted to an increasing number of U.S. and international companies. Furthermore, supplement use in Canada is among the highest anywhere, with a full 71% of Canadian adults reporting that 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 expected to approach $3 billion by 2011) 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 the time to learn about the Canadian NHP market. 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 retailers and MLMs 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—Ocean Nutrition, Neptune Technologies and Bioressources, Forbes Medi-Tech, InnoVactiv—it relies heavily on raw materials from U.S. and international sources. Furthermore, because the regulations require human clinical studies to support ingredients, this presents an excellent opportunity for suppliers who 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 this market.
Will the Backlog Ever End?
Over the past year, the regulatory situation in Canada as it relates to NHPs has been chaotic to say the least. Health Canada’s Natural Health Products Directorate (NHPD) has been unable to efficiently process product license applications since the division was erected in 2004 and this has resulted in a perpetual backlog of applications. As of July 29, 2010, the NHPD had received a total of 52,363 applications for product licenses. Of those, 45% have failed to obtain a product license (35% refused by the NHPD and 10% withdrawn by the license applicant) and 21% are still backlogged. In other words, 10,952 applications are presently held up in the NHPD queue and, lately, the backlog appears to be on the rise again.
Developments over the past year have definitely made things more interesting. Until recently, NHP suppliers were permitted to bring their products to market with a submission number, thereby allowing consumer access to NHPs while regulators work through the backlog. However, a surprise directive by the National Association of Pharmacy Regulatory Authorities early in 2010 forced the NHPD to enact amendments to the regulations in order to address the backlog. Although the amendments are well intentioned, they are a far-from-ideal solution to the issue.
The recent changes to the Canadian NHP regulations offer improved visibility and allow NHP suppliers to better plan their sales and marketing efforts. However, they have also slowed time-to-market for new product innovations, which is very frustrating for the industry as a whole.
Although NHP suppliers can no longer go to market solely with submission numbers, the creation of Exemption Numbers (ENs) allows them to ship products to retailers while their product license applications sit in the queue for evaluation. An EN is in essence a temporary license that allows a product to reach consumers while the license application awaits regulatory review. One issue is that an EN will only be granted if an application has not been reviewed within 180 days. Because a cursory safety review is required at the front-end of the process, and other delays at the back-end, in reality an NHP supplier is looking at 240 or 250 days before they have their EN. That’s an awfully long time to wait to get a product to market! Furthermore, if, after a product has been launched with an EN, the NHPD (upon eventual review of the license application) concludes that the product is not backed by sufficient scientific evidence to support efficacy, the NHP supplier may be forced to remove the product from the market.
In Summary…
These are just some of the regulatory changes and challenges connected to the Canadian NHP market—a complete explanation of all regulatory updates is well beyond the scope of this article. At the same time, Canada still offers a highly lucrative market for NHP finished product and raw material suppliers alike, and those with innovative products that blend quality with science are likely to enjoy long-term success.
About the author: Michael Chernyak is managing director of Canada-based CK Nutritional Ingredients. He can be reached at mchernyak@ckfoods.com.
By Jeff Crowther Founder U.S.–China Health Products Association
During the first quarter of 2010 (April-June), China’s economy was worth $1.3 trillion, which was enough to surpass Japan as the world’s second largest economy behind the U.S. Although this made international news and generated many scholarly discussions on China’s position as a growing economic powerhouse, it was not a big surprise among global economists. Japan has held this position since 1968, but with its decade-plus stagnant economy, it was only a matter of time before China surged into second place. This news is, of course, promising to dietary supplement and health product companies who are interested in China as a potential new market. Together with economic development, China’s regulatory environment and product demand must be considered as key indicators of a truly viable market.
Developing the Supplement Category in China
With an economy of this size and lots of momentum behind it, one would expect a well-developed dietary supplement industry. Unfortunately, this is not the case. Although China has been posting record gains to its GDP, it is far behind its top-tier global colleagues in terms of a thriving supplement industry. With that said, having an established supplement industry is not the measure by which countries are judged in terms of economic prowess. Nevertheless, having one does reflect an established consumer base with expendable income seeking a higher quality of life, which China is in the process of building one brick at a time.
To offer a little more perspective on China’s second place medal on the podium of the great GDP race, China’s GDP and per capita GDP couldn’t be farther apart. In 2009, the World Bank and International Monetary Fund ranked China’s per capita GDP as 92nd and 96th in the world, respectively, averaging in at $6621. In contrast, the U.S. is first in terms of GDP and sixth in terms of per capita GDP ($46,400). For the dietary supplement industry to gain more mass appeal and acceptance, China will need to continue closing the gap between GDP and per capita GDP. This will elevate more of the population to middle-class or true consumer status, possessing the money needed to spend on personal health and well being. One positive sign of consumer growth was the recently released consumer spending indicators for July 2010 from China’s National Bureau of Statistics. Year on year comparison of spending on retail consumer goods, which includes dietary supplements, grew almost 18%.
It wasn’t until recently that China realized a genuine consumer base with a level of financial freedom to become consumers of international brands and, more importantly, for our discussion, dietary supplements. Keep in mind, this “consumer base” is not spread evenly across China and makes up only a small portion of the population—mostly found in China’s well-to-do first-tier cities like Shanghai, Beijing, Guangzhou and Shenzhen.
Although there is a need for dietary supplements in the market, the demand at the moment is underdeveloped. One reason is many Chinese consumers are not used to taking pills, tablets or other dosage forms common to dietary supplements on a daily basis. In fact, these dosage forms are generally synonymous with medicine. Combine this with one of the world’s most stringent regulatory systems and you have an industry with huge potential, but moving at a snail’s pace.
In order for consumer spending to increase, regulations must be adjusted to a more reasonable level to encourage both domestic and foreign investment, as well as the spread of product education. If consumers don’t understand the products, they will not buy them.
Current regulations require large investments of both time and capital to achieve market approval from China’s State Food and Drug Administration (SFDA). The product registration process takes up to two years and costs around $50,000 per individual product (SKU). As a result, companies often need to hire a registration consultant in order to successfully navigate the registration process. The bulk of the estimated $50,000 will actually be paid to one of these consultants with a smaller portion going toward government fees. At this point, consultants are necessary due to the complexities and lack of transparencies involved in the registration process.
The process is rigorous and requires tests such as human and animal testing at state-approved laboratories. Because SFDA’s current regulations pose unreasonable financial burdens as well as expenditures of precious time, many dietary supplement companies choose to market their products simply as food by getting label approval and hygiene certificates from local level Inspection and Quarantine Bureaus. Doing this is certainly less intensive in terms of costs and time, but no product claims or advertisements are allowed. It seems most companies are willing to give these up in order to make it to the shelf in a timely, less costly fashion.
The Main Attraction
The dietary supplement industry, or “the healthy food products industry” as it is known in China, has been the center of attention over the last couple of years among industry organizations and government. Due to a variety of factors, including incremental consumer demand, consumer safety and protection, increased foreign investment as well as industry pressure, China’s State Council has been working on amending current regulations in order to further develop the industry. However, this is turning out to be a difficult task.
There are a variety of players involved in sculpting the new industry legislation, including the SFDA, an assortment of nutritional scientists, leaders from different segments of industry such as direct sellers (MLM), manufacturers/suppliers, retailers, Traditional Chinese Medicine (TCM) companies as well as industry associations. Like all other regulatory shifts in the world, those leading the charge for change are not always on the same page.
The draft implementation regulations for dietary supplements have been under review, advisement and revision for more than a year. It was expected that by the spring of 2010 the new regulations would have been released. However, the industry is still waiting for a final draft that will hopefully include some of the suggestions made, such as moving toward a more open system of notification, approving ingredients not product formulas, increasing the upper limits of some nutrients and establishing a structure-function claim system similar to that used in the U.S., which would replace SFDA’s current 27 approved health claims.
Although there remains much to be accomplished with regard to regulations and consumer education, the industry is beginning to show signs of progress. At this point, it is obvious that the State Council, SFDA and China Health Care Association are committed to change; it is just a matter of time, which in the world of regulatory advocacy can equate to years. Nevertheless, industry and consumers are not willing to wait for legislators to finalize the forthcoming new laws. China’s dietary supplement industry is moving forward with anticipation that new legislation is on the way and will be moving in a direction of openness and transparency.
Retail Developments
During the last couple of years, China has witnessed the opening and expansion of retail health food stores, mall and hypermarket kiosks and websites, all selling domestically made as well as imported dietary supplements, sports nutrition products, natural cosmetics, eco-friendly cleaners, organic foods and a variety of other health products. Many of these companies are foreign owned or invested and in some cases bring decades of experience in retail health food management to the market. These health product pioneers are taking advantage of being first in the market and laying the foundation for what’s to come.
It’s not just retailers blazing the trail for industry development; some of the industry’s global heavyweights have been and continue to invest in China’s future health product industry. For example, Amway, Herbalife and Nuskin, to name a few, have been operating successfully in the market for several years and are in it for the long haul, content with growing and developing as the market dictates.
And investors are certainly not standing by waiting for regulations to change. In fact, U.S.-based USANA just sealed its entry into China by acquiring BabyCare, a direct seller that has been operating in China for more than a decade. This move will allow USANA to enter the market with preexisting direct sales licenses and an established in-country management team.
On the raw material side, large ingredient companies are pushing for ingredient approvals. This past year has seen the approval of fish oil, conjugated linoleic acid (CLA), DHA and plant sterols by the Ministry of Health as new resource foods.
Although the regulatory system has not made significant movement since last year, it is hoped that by the end of this year there will be some positive developments. Regardless of what happens, those on the ground in China envision healthy futures and are optimistic about China’s dietary supplement and health product industry.
About the author: Jeff Crowther is a consultant based in Beijing, who has more than 17 years of experience in the natural products industry, having worked in retail sales and management, international business development and regulatory advocacy. He also manages the U.S.–China Health Products Association. In this capacity, he is responsible for working on industry matters affecting U.S.-based companies, as well as acting as a liaison for both American and Chinese companies. He can be reached at jeffcrowther@gmail.com.
By Monica Feldman & Ewa Hudson Euromonitor International
Struggling economies, the fear of pandemics and emerging holistic approaches to health are all contributing to a positive performance in the sales of vitamins and dietary supplements in Europe. In the European Union (EU), the vitamins and dietary supplements category grew 2% to nearly €7 billion in 2009 (see Table 1). Growth came from strong performances in Romania (13%), the Netherlands (6%), Italy (5%) and Greece (4%) as consumers increased their purchases of dietary supplements as a preventative to falling ill.
In Romania, a rising number of consumers interested in improving their wellbeing have become more accepting of dietary supplements to support general health and the immune system. Value growth is most evident in large urban areas, such as Bucharest and other big cities. Consumers in rural areas and small cities perceive dietary supplements as non-essential products, which are mostly purchased on the recommendation of a physician.
Dutch consumers are gradually becoming more interested in health issues and prevention, which contributed to a positive increase in demand for dietary supplements in 2009. With the exception of calcium supplements and glucosamine, dietary supplements are still niche products. Glucosamine experienced remarkable growth due to a widened consumer base of aging citizens and its intensified promotion as a dietary supplement to manage joint health.
Italian consumer demand for dietary supplements is mature and guided by increasing knowledge of their benefits. Companies have boosted demand through ambitious promotional and educational campaigns, portraying dietary supplements as an effective means to improve general health. Probiotic supplements accounted for a 32% value share of dietary supplement sales in 2009, although fiber supplements achieved the strongest growth due to positive claims on bowel health.
Greece witnessed comprehensive health and wellness campaigns aimed to protect its citizens from the H1N1 influenza epidemic in 2009. Health experts and wellness publications promoted vitamins and dietary supplements as boosting the immune system and preventing illness. Echinacea, an herbal dietary supplement to strengthen the immune system, saw the strongest growth—18% in current value terms. (See Table 2 for a breakdown of specific ingredient categories.)
Euromonitor International’s 2009 research revealed that supplements taken to address digestive health, the immune system, joint health, beauty and heart health were the most popular products in Western Europe, accounting for more than 55% of value sales of all dietary supplements. A similar finding also applies to Eastern Europe. (See Table 3 on page 44 for the performance of health benefit categories.)
Navigating Rough Regulatory Waters
In spite of positive performance, contamination in dietary supplements has been one of the most pressing issues affecting the industry. A rising number of recalls, warnings and consumer complaints were evident in 2009 and early 2010 as a result of local and regional regulatory bodies paying more attention to compliance and checks on the quality, safety and efficacy of dietary supplements. Europe, the U.S. and Japan are currently working on the development of new quality guidance following the International Conference on Harmonization (ICH Q3D), which addresses the risks of potentially harmful heavy metals on human health. The guidance will also be applicable to dietary supplements.
Also troubling is that health claims used to promote dietary supplements are being questioned by regulatory bodies. The authorities believe that science should back health claims so as to protect consumers from potentially deceiving health results. In 2008, the European Food Safety Authority (EFSA) commenced the revision of health claim dossiers of food supplements based on scientific evidence. EFSA regulates dietary supplements under the 2002/46/EC and 2004/27/EC directives on food supplements and traditional herbal medicinal products, respectively. The health claims in question are contained in Articles 13.1 for general functional claims, 13.5 for new functional claims and 14 for reduction of disease risk or to children’s development or health. As of early May 2010, EFSA had published only 125 opinions from 4637 applications regarding Article 13.1, 22 opinions from 36 under Article 13.5 and 63 opinions from 167 for Article 14. The industry complains that a lack of clear guidance in the application process and bureaucratic red tape will threaten future sales and hinder consumer awareness of various food supplement options. Several companies do not want to incur costly clinical research studies to prove health claims.
Producers of ingredients and dietary supplements are scrambling to file their health claim dossiers and have them approved by EFSA. However, it has been disappointing for many of them to find out that their ingredients or products do not comply with the required scientific guidelines, leading to an unfavorable opinion. For example, in October 2009, EFSA’s panel concluded that “a cause and effect relationship has not been established between the consumption of glucosamine hydrochloride and a reduced rate of cartilage degeneration in individuals without osteoarthritis” (Question number: EFSA-Q-2009-00412). Consequently, popular glucosamine supplements cannot make that claim on their packaging and in their promotion and advertising.
In general, the industry believes EFSA should not be deciding what is good for people. Instead, consumers should be given the opportunity to choose what is best for them based on all available information.
Functional Food Performance Across the EU
Functional foods in the EU, and health claims pertaining to them, are just as much affected as dietary supplements by EFSA’s ongoing review. Unlike for food supplements, however, maximum levels regarding the addition of vitamins and minerals to foodstuffs have not yet been set, and derogations are permitted until January 2014 for the substances currently under EFSA review, subject to terms of the regulation. As for the regulation of other substances in foods, such as herbs and botanicals, the Commission appears to have no plans at present.
The growth performance of fortified/functional foods and beverages is somewhat less dynamic than it was prior to the onset of the global recession. Despite enthusiastic food industry efforts to develop new and exciting value-added offerings, consumers suddenly—but understandably—became more cautious in terms of their spending on premium-priced products during 2009.
Having said that, the market for fortified/functional products did not actually contract in 2009, but managed to deliver 2% global value growth. Only in North America did the category register a decline of nearly 4%. In Western Europe, on the other hand, 4% growth was achieved. A fair bit of dynamism was injected by the emerging regions of the Middle East and Africa, Latin America and Eastern Europe, but from fairly small base sales.
The highest growth rates were achieved (albeit from very small bases) by functional coffee products: fortified/functional RTD coffee value sales shot up 249%, amounting to $14 million in 2009, and those of fortified/functional instant coffee by 34% to $68 million. As anyone familiar with this industry would expect, many of the top brands are Japanese—Blendy (Ajinomoto Co) leads fortified/functional RTD coffee with a 68% global value share, followed by UCC (by UCC Ueshima Coffee Co) with 15%.
The relative popularity of functional ingredients is often driven by what’s fashionable at the moment. In Japan, for example, sales of foods and beverages containing beauty-enhancing collagen and polyphenols are rising, while heart-healthy CoQ10-enhanced products are falling. Although manufacturers have been trying very hard, they are still waiting for the beauty-from-within trend—which is so buoyant in many Asian-Pacific countries—to fully conquer North America and Western Europe.
Besides the vitamins that have a long history as food fortificants (such as vitamin C), probiotics are probably the most successful functional ingredients of all time. Euromonitor International’s ingredients data show that global volume consumption rose from 26,539 tons in 2004 to 44,661 tons in 2009. And although volume growth didn’t hit double-digit figures in 2008 and 2009, there is no reason to presume that the probiotic boom has come to an end. On the contrary, their strain-specific effects make probiotics some of the most versatile functional ingredients ever.
At present, probiotic product marketing is still pretty much fixated on digestive health and immune enhancement, but there are plenty of opportunities for other very promising directions. For instance, there is a body of scientific evidence accumulating, which suggests that some strains of probiotic bacteria may be useful for weight management.
The potential functional food categories for probiotic weight management ingredients are yogurt and meal replacement slimming products, but they are certainly not restricted to these. The emergence of heat-resistant probiotic strains, for instance, means that they could also be very successful in weight management-positioned bakery products.
Omega 3 ingredients have also experienced massive growth, with global volume consumption rocketing from 458 tons in 2004 to more than 13,000 tons in 2009.
One might wonder where the bulk of these omega 3 fatty acid ingredients end up. Euromonitor International’s ingredients data show that 45% (by volume) go into packaged bread, 32% into functional spreadable oils and fats and 20% into drinking milk products.
This is the global picture, and, as expected, there are notable regional (as well as country level) variations. For instance, in Western Europe, 49% of omega 3 ingredients are used in bread production, but in North America that percentage is much lower at 23%. In North America, just 14% of omega 3s go into functional spreads, compared to 43% in Western Europe.
Another key functional ingredient group in the face of rising global heart disease incidence is that of stanol/sterol esters. Global volume consumption rose by 61% over the 2004-2009 review period to nearly 21,000 tons. The bulk of this, 81%, ended up in functional spreadable oils and fats, and much of the rest in yogurt. Growth potential for these ingredients remains high, propelled by an aging population for one, but also because some markets, like Canada, are only just opening up to stanol/sterol ester food fortification.
The tricky issue with plant stanol/sterol ester ingredients, from a regulatory point of view, is that their cholesterol-lowering functionality makes them similar to drugs in the eyes of many regulatory bodies. However, due to the strong scientific evidence showing they work well in foods and also because many key countries and regions, such as the U.S. and the EU, have not found them to be a safety risk and have accepted them into their food supply, bolstered by accompanying health claims, these hurdles are rapidly disappearing.
About the authors: Monica Feldman is a Consumer Health Analyst, and Ewa Hudson is Head of Global Health & Wellness Research at Euromonitor International. For more information, www.euromonitor.com.
By Shaheen Majeed Marketing Director Sabinsa Corporation & Dr. Ria Biswas Senior Manager—Technical Marketing Sami Labs Limited
The Indian economy, estimated at roughly $1 trillion, is growing in tandem with the population. In fact, it is estimated to expand by at least 5% annually for the next 45 years, and be the only emerging economy to maintain such a robust pace of growth. This prevailing mood of economic confidence is likely to be reflected in the Indian healthcare industry, which seems to be relatively insulated and untouched by the recent crisis of recession.
The Indian healthcare industry is the third largest growing sector in India, and it is projected to reach nearly $40 billion by 2012, at a compounded annual growth rate (CAGR) of 15-17% for the next seven to 10 years. At the same time, India’s $14.7 billion pharmaceutical market is in a state of transition—the country’s economy is growing, foreign firms are increasing their presence, the government is spending more on healthcare, and local firms are looking abroad for new growth opportunities.
A Problematic Infrastructure
Traditionally, India has been a rural, agrarian economy. But with the recent rapid expansion of the economy enormous pressure has been placed on the country’s healthcare infrastructure, which has been struggling to keep pace. Despite the impressive performance of the healthcare industry, the physical infrastructure is woefully inadequate to meet the various healthcare demands. So while India maintains several centers of excellence in healthcare delivery, these facilities are limited in their ability to drive healthcare standards because of the poor infrastructural conditions.
As a result, only 25% of the Indian population has access to Western (allopathic) medicine, which is practiced mainly in urban areas—home to 72% of specialist practicing doctors, and two-thirds of India’s hospitals and health centers. The remaining 25% of doctors reside in semi-urban areas and a mere 3% in rural areas. As a result of this lopsided distribution, 80% of the medical facilities are concentrated in urban areas, with 20% existing in rural areas. This means most poor rural people continue to go without proper healthcare facilities, leaving them to rely mostly on traditional forms of treatment their ancestors used, such as Ayurveda, Unani and acupuncture.
Merging Tradition with Science
India has a long heritage of traditional medicine, which includes a conglomerate of Ayurveda, Siddha and Unani. It is one of the greatest living traditions and maintains a highly respectable place in the officially recognized healthcare system of the country. This comprehensive, natural healthcare system has been utilized for more than 5000 years for prevention, health promotion and treatment of disease. After undergoing a period of suppression during colonial rule, Ayurveda has experienced a revival in the last several decades and interest is growing worldwide. Simultaneously, a technological revolution is being utilized to investigate and validate Ayurveda in a new light through the scientific techniques of modern medicine. So as the “alternative goes mainstream,” the onus is on healthcare professionals to educate themselves and merge it with their existing medical knowledge.
Is India Ready for MLM? Yes!
In recent times, the Indian healthcare market has emerged as a new and profitable growth avenue for both existing players and new entrants. The Indian healthcare industry has been seen to offer investors a cheap entry into the relatively stable consumer and retail segment, which is benefiting from rising consumer sentiments and affluence. Here, investors not only get a piece of an international or nationwide whole-seller of innovative healthcare products, but also a lucrative stake in a rapidly expanding multi-level-marketing (MLM) business.
India offers a positive environment conducive to the development of network marketing. The MLM companies that hold exclusive distribution rights for their products are able to generate a steady stream of earnings for the group. These companies often remunerate their active and growing sales force using attractive commission packages.
Today, MLM or direct marketing is recognized throughout the world as a legitimate way of moving products into the marketplace, in turn rewarding individuals making the referrals and distributing the products. Network marketing is also an effective way to expand customer bases. The Indian healthcare arena is virgin turf for MLM companies with scalable, untapped market potential, as the FMCG category includes mostly personal care products, cosmetics and toiletries but few options for healthcare products. Imbibed from the richness of Ayurveda, traditional healthcare products in India also gain easy access into people’s homes owing to their already recognized, well-known efficacies. Easy business opportunities abound when it comes to selling “tried and tested” botanicals for health benefits.
Yet another advantage in India is its wildly growing population and the strength of its masses. It is beyond doubt that in MLM there are always good products to sell and great compensation schemes to flaunt, but the actual currency of network marketing industry is its “people.” Indians surely score high on building a congenial and affable seller-buyer relationship. Another significant advantage is the evolution of India from a savings economy to a consumption economy. With the purchasing power of the working class steadily rising, the Indian MLM industry has great growth potential, particularly in nutritional products where offerings are still somewhat limited.
Again, the social impact cannot be overlooked. More than 80% of people involved in MLM claim that their incomes have increased due to their involvement in network marketing, which has had a direct impact on their lifestyle. It also offers the opportunity to work part time with the potential to make full-time wages. This undoubtedly creates a strengthened and job-happy sales force, which in turn fuels and drives this industry ahead.
For the Future
India’s technology and business services industry has flourished in the last decade, with the potential to quadruple revenues over the next decade. Several macro-economic and social trends will support the rise of the MLM business in the future, in core and emerging healthcare sectors. However, it is imperative for industry stakeholders to break out of the traditional mold and make concerted efforts to maximize their returns through fresher avenues. This can be achieved through new business models, reinvented service offerings and an enabling environment supported by adequate levels of infrastructure. The government also needs to nurture this industry with consumer-friendly incentives and a simplified tax structure that will siphon investments from both national and international MLM ventures.
About the authors: Shaheen Majeed is marketing director for Sabinsa Corporation and Dr. Ria Biswas is senior manager, Technical Marketing for Sami Labs Limited. Mr. Majeed can be reached at shaheen@sabinsa.com.
By Ron Bailey California Functional Foods
In a year-end update two years ago (Nutraceuticals World, November 2008), not surprisingly, it was reported that the macroeconomic climate in Japan was deteriorating. Unfortunately, this still appears to be the case for many regions in Japan. Major urban areas—Tokyo and Nagoya, for example—have unemployment rates below the national average of around 5%, but the same is not true for many of the other prefectures.
Tokyo’s population continues to increase as young people move away from rural Japan, but that migration is creating serious problems in the rural areas that already rely heavily on government funds flowing from Tokyo to provide essential jobs and services. Complicating matters further, another new Prime Minister has been selected (the fifth in a four-year period), and he has committed to cutting public works projects across the country to try to help ease the growing national debt. It is not a pretty picture.
Demographics Update
For the 25th year in a row, Japanese women have been recognized as having the longest life expectancy—86.4 years in 2009—in the world. Japanese men are fifth in the world, with a life expectancy of just under 80 years. Supporting the health needs of this aging population, even if they are able to remain healthy, is already a major challenge for the Japanese government. Nearly a quarter of the population is now over 65 years of age, one of the highest levels in the world, and it is expected that 40% of the population will be 65 or older by the year 2050.
The aging problem is compounded by the very low birth rate in Japan, also one of the lowest in the world. The fertility rate is only 1.34 children per woman, well below the 2.10 children needed just to maintain the population. As a result, the population in Japan is projected to continue to decline. Attempts by the national and regional governments to encourage more babies have not been successful, and it is generally agreed that until the financial instability of the country has been resolved, the birthrate is not likely to increase.
This “perfect storm” of a rapidly aging population and a declining birthrate, combined with a very low level of immigration, has serious long-term social and economic implications for Japan.
Regulatory Overview
Last year at this time it was anticipated that the food and nutraceutical industry regulations would soon be modified, based on announced formal reviews of priorities by the newly installed Japanese government leaders at that time. The only obvious change, however, has been the reassignment of the FOSHU (Foods for Specified Health Use) approval process from the Ministry of Health, Labor, and Welfare to the Consumer Affairs Agency. The benefits of this change, if any, have not yet been reflected in the marketplace.
FOSHU Update: The Japan Health Food and Nutrition Food Association (JHNFA) issued in May of this year its annual overview of the regulatory framework and a brief profile of the market. This summary document is very helpful in understanding both the history and the current status of the products and regulations relevant to the FOSHU and some of the non-FOSHU markets in Japan. While the FOSHU market is the main focus of the report, JHNFA also explains the regulatory framework concerning health claims in Japan for several of the non-FOSHU categories of foods as well. Some of the important FOSHU highlights include:
• FOSHU approvals as of late April included 936 individual products (up from 755 the end of 2007, the time of the last official report on the FOSHU market).
• Health claims for “helps maintain good gastrointestinal condition” using oligosaccharides, probiotics and prebiotic dietary fibers represented 343 products, 37% of the total. Claims including “good for those who have high serum cholesterol/are concerned about serum triglycerides” was the second largest category, with 208 products (22% share) using soy protein, peptides, dietary fiber, plant sterols/stanols or diacylglycerol as the active ingredients.
• Total FOSHU product retail sales in 2009 were ¥550 billion ($6.5 billion at current exchange rates, down from ¥680 billion in 2007). This was the first year-to-year sales decline since the FOSHU market was established in the early 1990s.
• A gum health claim was permitted in 2009, the first new claim category allowed since 2000. Dental health (“helps maintain dental health”) has been an active FOSHU category for several years.
Overall, there seems to be much less enthusiasm regarding new FOSHU developments for the first time since the FOSHU category emerged in 1993. The eagerly anticipated expansion of the FOSHU categories to allow fatigue, stress and weight management health claims did not materialize, even after the expensive development of significant supporting safety and efficacy data by major Japanese companies. That costly rejection, combined with the severe global economic conditions and other factors, has resulted in a loss of interest in developing the extensive scientific support targeting potential new FOSHU opportunities. It was a major disappointment for the Japanese food and nutraceuticals industry.
What are the Future Prospects?
Even though formal FOSHU-related activities have slowed significantly, Japanese companies are still actively pursuing new opportunities in the food and nutraceuticals market, both for Japan and overseas. The recently held Health Ingredients Japan 2010 show, for example, included a wide range of exhibitor presentations in several current areas of interest. Reviewing some of the titles of the presentations provides a good snapshot of the trends and where companies are headed. There are the more obvious topics already covered by current FOSHU health claims, but there is also considerable interest in non-FOSHU categories—joint health/joint pain, weight loss/anti-obesity, anti-aging, fatigue, immune function—to name just a few. Most included concepts regarding the health claims they wish the Japanese government would allow, even though the near-term market opportunities may prove to be foreign, not domestic. To that end, it seems overseas companies will be active participants with new technologies that have applications in the U.S. as well as Japan.
Some of the food and nutraceuticals industry research and marketing attention in Japan has turned to the categories related to beauty and skin health (beauty from within) using nutraceutical ingredients. Health Ingredients Japan 2010 offered conferences related to beauty and anti-aging, for example. Japanese consumers are very much interested in products with demonstrated efficacy in these areas. Major Japanese companies have considerable experience in developing serious personal care product and ingredient science focused on these opportunities, so consumer credibility is already well-established in Japan. Actual on-label health claims will not be allowed for these non-FOSHU products, of course, but expected availability of published clinical information is legitimate and will be important to consumers.
Even though there is less attention from overseas companies being focused on developments in Japan these days, the Japanese food and nutraceuticals industry remains an excellent source of new product and new ingredient concepts with potential value to overseas partners. These concepts should be studied carefully, always keeping in mind that many of the dire demographics projections in Japan are in fact a preview of what may well happen in other developed countries during the next several years.
About the author: Ron Bailey is president of California Functional Foods and has been an independent consultant for more than 20 years, focusing primarily on the transfer of food technology between the U.S. and Japan. He can be reached at bailey@mind.net.
Editor’s Note: Important sources of information for this article are the annual English-language FOSHU and non-FOSHU market status report from the Japanese Health and Nutrition Food Association and the Health Ingredients Japan website.
By Grant Washington-Smith Business & Brand Development Canzus Partners & Paul Altaffer Product & Business Development RFI Ingredients
At the bottom of the global recession in 2008, it was expected that Latin America would land softly compared to other regions of the world and recover relatively quickly. This certainly seems to be the case, with several countries returning to strong economic performance and growth.
When one thinks of Latin America one conjures images of happy people and a “mañana” attitude toward work and development. Long have people considered Brazil, for example, as the “country of the future,” more committed to samba and soccer than serious about growth and development. This is all changing, and while the passion for living is still strong, the passion for economic, political and social development is now equally strong.
In a recent special report on Latin America, The Economist discussed the recent history and direction in which the region is headed. In the five years leading up to 2008, Latin America had lived its best years since the 1960s, with average growth of 5.5% per year and (for the most part) single-digit inflation. Most of the countries in the region have transitioned successfully into democracies of one kind or another. The recession was brief and shallow for Latin America, lasting from the middle of 2008 to early 2009, and it is expected to reach 5% growth again this year. Much of this is a result of democratization as well as better management of macroeconomic and fiscal policy. It also helps that the region is rich in commodities (oil reserves, minerals and agricultural products), especially since global demand for commodities is growing. As a result, foreign capital is moving quickly into most countries in the region.
The ‘Latin American Decade’
According to The Economist, marketers are talking of the next decade as a “Latin American decade,” with income (per person) doubling. And some experts expect Brazil to become the world’s fifth largest economy behind the U.S., China, India and Japan. Its status as one of the BRIC (Brazil, Russia, India and China) countries has already put it in fairly exclusive company. Brazil is home to one-third of Latin America’s population and is responsible for 40% of its GDP.
Mexico, the other regional superpower, faired far worse during the recession, as its economy has been more dependent on the U.S. Violence due to surging drug wars has contributed to social instability and insecurity in the country. However, Mexico’s political and social institutions remain strong and there is a reasonable expectation that the economy will rebound.
The primary words of caution for Latin America have to do with inequality, violence, education and infrastructure. Latin America is tagged with having some of the worst rates of income as well as social inequality. While there has been significant progress in many countries and 40 million people have moved out of poverty over the past decade, the disparity of “haves and have nots” continues to be a major issue.
Continued or escalating violence, often associated with drug or gang wars, is terrifying for certain areas of Latin America. Compounded with paltry investments in education and infrastructure, it can make it hard to see the growth potential for the region. Latin America must use some of its wealth to fix these issues to ensure continued success.
The Latin Consumer
Latin America already consumes about a quarter of all U.S. exports and this trend is growing. With economies growing and millions of people moving out of poverty and into the consuming world over the past decade, the markets are primed for development.
Brazil and Mexico continue to represent the lion’s share of Latin America’s consumption of nutraceutical products. And the populations of these countries are growing, becoming more affluent and aging. Latin Americans are becoming increasingly aware of the importance of nutrition and maintaining their health. This represents a significant opportunity for companies looking at Latin America as an investment option. Competition is tight, however, with the major players well established and investing considerable money into promoting their products and brands.
While most consumers are still very interested in value, there is growing potential for alternative therapies. Some countries in Latin America, including Brazil, are strong proponents of alternative medicine. Homeopathy, Naturopathy, Herbalism, including TCM (Traditional Chinese Medicine), Acupuncture and Chiropractic are some of the alternative modes of treatment being adopted in the region.
Similarly, there is growing demand for beauty products (both oral and topical), as well as interest in functional foods (especially beverages), as global companies and marketers introduce new products across many markets. Some Latin American companies, like Brazil’s Natura, are becoming global brands of their own and demonstrating incredible creativity in their product development and marketing.
Regulatory Climate
The regulatory framework in Latin America is developing rather rapidly. While the larger market countries like Brazil and Mexico have fairly well established regulations for OTCs, the capacity to enforce regulations is limited in many cases. Vitamins and dietary supplements have only recently been viewed as a separate class of products from pharmaceuticals and foods. As a result, there is still quite a bit of work to do before Latin America catches up with regulatory structures existing in Europe, the U.S. or Japan.
Brazil’s ANVISA (Agencia Nacional de Vigilancia Sanitaria) regulates pharmaceuticals and therapeutic goods for the country. Through its regulations, Brazil may be the closest to global standards. Registration of all nutritional, therapeutic, food, pharmaceutical and even cosmetic products is required along with proof of safety and efficacy. Led by groups like ANVISA, there is an attempt to unify regulations throughout the South American common market, called Mercosur. However, it is unlikely that such an effort will conclude successfully in the near future.
What to Expect From Latin America
The next few years will likely challenge the notion of Latin America as a commodity supplier. Latin America is home to some exciting companies and technology development. Expect to find products with greater science, technology and validation. Companies from Latin America will soon be licensing their products and technologies to companies in the U.S. and Europe as they develop their own bioresources and leverage technologies.
Similarly, expect to find more consumer products from innovative and successful companies like Natura coming to shelves in stores (even if online) near you. The quality and innovative approach to some of these products is world class indeed.
For the Future
As the region continues to develop and prosper, Latin America will become a more desirable place to do business. The region is likely to receive considerable investment as stability and sound institutions are formed. Companies with products that offer unique selling propositions and valued correctly will find potential markets and eager consumers. Latin American companies will compete in global markets and challenge the convention that the region only produces commodities. As long as some of the broad issues (like inequality and violence) are addressed by the different governments, development will bring many new opportunities to the region which should in fact usher in the “Latin American decade.”
About the authors: Grant Washington-Smith has 20 years of experience across a variety of businesses in the natural products industry. He can be reached at gwashin@me.com. Paul Altaffer is on the product and business development team at RFI Ingredients, Blauvelt, NY, a manufacturer of innovative natural ingredients and custom formulations for the functional food and dietary supplement industries. He can be reached at paulo@rfiingredients.com.