International Markets Report: Most Regions Paddle Along Sound Streams of Growth

By Peter Zambetti, Director, Global Business Development for Health & Nutrition, Capsugel & Chairman, International Alliance of Dietary Supplements Associations (IADSA) | November 1, 2012

Many countries are pulled forward by more research, regulation advances, population income shifts and entry of pharmaceutical companies into the health & nutrition market.

Worldwide demand for vitamins and dietary supplements is escalating steadily, like a river flow gradually picking up pace. Global sales grew to $84.26 billion in 2011, up 6.1% from $79.43 billion in 2010, according to Euromonitor. This percentage increase is slightly higher than the average annual percentage increase of 5.66% since 2006, and the biggest one-year jump of the last five years.
Many markets have been riding accelerating growth currents powered by consumer knowledge of more research, growing middle classes, regulation advances and entry of pharmaceutical companies and consumer packaged goods companies into the health and nutrition market via mergers and acquisitions.
Leading categories globally in 2011 were multivitamins ($16.12 billion), tonics and bottled nutritive drinks ($7.53 billion), combination supplements ($7.4 billion), calcium ($5.19 billion), vitamin B ($4.5 billion), vitamin C ($4.19 billion), minerals ($3.55 billion), fish oils/omegas ($3.08 billion), probiotics ($2.7 billion) and ginseng ($2.5 billion).
The fastest growing category, however, is vitamin D. Sales in 2011 were $897 million, a 24.8% jump over 2010 sales of $719 million—and a 284% skyrocket over the $234 million in 2006. This catapult is likely because scientific studies and recent media reports have touted that vitamin D bolsters bone health by improving calcium absorption.  
Other growth category leaders inlcude protein powder, probiotics, ginseng, omega 3s, eye health and combination supplements. Omega 3 sales are powered by consumer knowledge of the oils’ scientific evidence for heart health. Widespread product advertising with digestive health claims and scientific backing bolster probiotics. Busy, stressed consumers embrace combination supplements with two or more ingredients in one product for their convenience and cost-effective, targeted therapeutic effects. Aging populations, especially the huge U.S. Baby Boomer market, drive purchases of eye health supplements. The robust Chinese and Indian markets boost protein powder, a supplement to the food staple of rice; and ginseng, a long-standing traditional supplement. 
Each market, however, faces its own ripples and turns.
U.S. & China: Constantly Flowing Forward  
The U.S. remains the top market with 26.2% global share at $22.12 billion for 2011, virtually the same share for 2010 and 2009 and slightly higher than the 25.7% share in 2008. Total domestic 2011 sales were up 6.2% from $20.8 billion in 2010, ahead of the 5.8% increase between 2009 and 2010, but slightly lower than the average annual percentage increase of 6.78% between 2006 and 2011.  
Although holding strong, the U.S. market shows a slowing acceleration with a stagnant global market share despite rising domestic sales. Why? “Emerging markets are growing at a frantic pace as their budding middle classes look to supplements as an option to control their everyday health and wellness,” noted Cliff Kendrick, business development manager, Capsugel, Americas Region.
Increases in U.S. sales have leveled off due to a tightening of the regulatory climate, as well as media reports and renewed consumer questions over the industry’s credibility. 
Since 2010, FDA found that a third of the supplement manufacturing industry has failed to meet current Good Manufacturing Practice (cGMP) guidelines in some areas. FDA has been screening ingredients more closely as well, and its recent “cease and desist” letter to stop the use of DMAA in sports nutrition supplements for its alleged ephedrine-like effect has the industry on edge about future clamp downs. 
Companies have also launched fewer new products because of uncertainty about how the New Dietary Ingredient (NDI) guidelines will affect the industry; currently, 4,000 comments from the industry are being reviewed with the guidelines expected to be released in 2013. In addition, calls from individual consumers reporting adverse effects of supplements have risen ever since an 800 phone number was required on bottles starting in 2011. Recent articles in respected publications have fed these concerns about false claims, faulty ingredients and potential risks. 
More economical buying habits during this long, deep recession have also dampened sales growth. Brand loyalty is waning as consumers gravitate toward private labels for the price differentials. Furthermore, the surge in sales of combination supplements—third in 2011 sales at $1.43 billion, with consistent sales of $1.1 billion or more annually since 2006—have cut into single-supplement sales. “Buyers are simplifying their lives while saving money by purchasing fewer products and consuming less individual dosages,” Mr. Kendrick explained.
Despite these ebbs, new flows of growth are emerging as major pharmaceutical and/or consumer goods companies are acquiring health and nutrition companies. For example, Procter & Gamble (P&G) purchased Brattleboro, VT-based New Chapter in 2012. 
Other leading supplement categories include multivitamins, B vitamins, tonics and bottled nutritive drinks, calcium, mineral supplements, vitamin C, fish oils/omegas, probiotics and vitamin D.
B vitamins have edged out calcium domestically, though not worldwide, because they have been touted as an excellent source of energy from huge media buys of 5 Hour Energy and other energy beverages, Mr. Kendrick said. Their staggering sales volume is also a main reason the category of tonic and bottled nutritive drinks logged the biggest percentage increases (29% between 2010 and 2011; and 79% between 2009 and 2011.) Other factors driving this category are convenience, portability and effectiveness. 
The U.S. medical establishment is helping to boost sales of vitamin D. Its benefit to calcium absorption “has put vitamin D on the radars of a growing number of primary care physicians who are testing patients for vitamin D deficiencies,” Mr. Kendrick said.
After riding a wave of positive scientific studies and big advertising dollars from yogurt companies touting benefits to consumers, probiotics sales are expected to continue growing quickly as they are increasingly utilized in supplements and mass-market foods. Fish oils enjoyed a lift from alternate forms of omega 3 products, including algal sources and krill oil. Mr. Kendrick added that the market will open further for innovation on algae sources now that Martek’s/DSM’s patent on algae DHA oils expired in July 2012. 
Continued growth is also expected in the categories of energy management and joint health, and the underdeveloped categories of anti-inflammatories and digestive health, especially enzymes.
In terms of global markets, China remains third with $12.7% market share at $10.67 billion for 2011, up a robust 11% from 2010 sales of $9.6 billion. Sales jumped 9% between 2010 and 2009 ($8.8 billion.) Its global market share is gradually ticking up from 12.1% in 2010 and 11.7% in 2009. This strong development is expected to carry on, turning China into the second largest market over Japan by 2013. “Driven in part by huge potential in the over-60 market (now 13% of the population at approximately 174 million), China’s sales are expected to increase 6% annually for the next 10 years, competing with and eventually overtaking the U.S. as the No. 1 market,” noted Jiangjiang Yu, business development manager, Capsugel, China.
“A general reason for the explosion is the greater attention to personal health by the world’s most populated country since the SARS scare in 2003,” he explained. “Chinese consumers have been shifting to self-health protection over medical treatment as they have become more aware of science and research that show health foods can effectively manage chronic diseases, which are increasing annually, and as regulation and management in the health industry have improved, especially since 2009.”
More specifically, the 1.34 billion Chinese will continue to provide a huge work force for industrial expansion, fueling growth in the middle class and its disposable income used to buy supplements. To satisfy this ongoing burgeoning demand, the number of manufacturing companies producing dietary supplement finished goods has grown tremendously and will keep multiplying. Suzhou, about 1.5 hours southwest of Shanghai, is a key production hub.
In marketing to this ever-rising middle class, the multilevel marketing (MLM) groups continue to enjoy tremendous success. They are the ultimate social network to promote sales because the Chinese people trust the referrals and recommendations of family and friends regarding health information over doctors, the Internet or government restrictions. Approximately 50% of revenue generated for supplements is through direct sales and conference sales. Amway, Herbalife, Avon, Tiens and New Era are the major MLM players among the 30 direct-selling companies, and know the local regulatory authorities and how to work with them and their rules.
Credible changes in the regulatory environment, such as reduction in available claims and scientific backing of an ingredient’s effectiveness, have spurred growth. Continued chipping away of old restrictions will fuel market explosion. Global brands will start to build a presence more easily with their own brick-and-mortar stores; in fact, NBTY opened its first retail store in Shanghai in 2012 under its Holland & Barrett brand name. Better regulations will also further diffuse consumers’ concerns about contaminated and/or adulterated ingredients by companies that still skirt cGMPs to keep price points low.
Leading categories in 2011 were calcium and multivitamins because they are very well known among consumers; others were combination supplements, tonics and nutritive drinks, protein powder, ginseng, e-jiao and fish oils.  
Categories with the biggest growth increases were protein powder (a popular gift item presented in ornate boxes), e-jiao (a donkey-hide product of traditional Chinese medicine and thought to enhance women’s health), tonics and other nutritive drinks, combination supplements and fish oils.
Japan & Western Europe: Treading Water  
Although it remains the No. 2 global market with 22.2% market share, Japan has been dammed up since 2006. Sales of $18.68 billion in 2011 inched up a paltry 0.7% over 2010. Sales in 2010 also nudged up the same 0.7% over 2009. While 2008 saw a 4.1% increase in sales over 2007, the average annual increase between 2006 and 2011 was an anemic 1.08%—with sales in 2007 actually dropping 0.5% compared to 2006. 
Beyond the devastating earthquake and tsunami of 2011, tough government regulations on product claims have anchored growth. Because regulators believed products sold via advertisements and infomercials had not been meeting stated claims, they have only allowed marketers to describe nutrient content (i.e., 200 mg of vitamin C) and have forbidden mention of potential benefits. In 2009, the newly created Consumer Affairs Agency added more scrutiny by policing false statements on benefits and screening for safety of products and their ingredients. As a result, innovation has stopped, and no new ingredients have come into Japan. 
An complete decline has been halted, however, because regulators, seeing that the industry has learned its lessons, slightly eased restriction on direct selling. Direct sellers and demonstration sale companies can accept credit cards again, making buying more convenient, especially through periodic auto-shipping that drives ongoing, uninterrupted sales.    
Leading categories for 2011 sales were multivitamins, B vitamins, vitamin C, combination supplements, collagen, prune extract, royal jelly, probiotics, calcium and amino acid. Among these, vitamin C logged the biggest jump in annual sales when comparing 2011 with 2006 (23.1%), followed by calcium (12.1%), amino acids (10%), royal jelly (8%), combination supplements (6.8%), multivitamins (6.8%) and B vitamins (6.3%). However, due to market saturation, sales in 2011 for probiotics and prune extract (a direct-selling darling) actually declined when compared to 2006 levels.  
Western Europe is keeping its head just above water. In 2011, the No. 4 global market captured 12.5% market share, but with only a 3% increase in sales over 2010 for a total of $10.5 billion. This was a slight improvement over the 1.7% increase in sales between 2009 and 2010. The average annual increase in sales has been 3.22% between 2006 and 2011. So Western Europe is growing, but barely, while global market share is slowly declining from 14% in 2006.
This developed region has been stymied because of product saturation in top-market countries, price competition from private labels and lack of innovation and new product launches due to the rejection of most product claims submitted to the European Food Safety Authority (EFSA).
“Since 2006, health claims were being reviewed and just released in 2012. This delay caused confusion and uncertainty about the future of supplements,” noted Dominik Mattern, business development manager, Capsugel, Germany.
While ingredient labeling is now allowed with 222 health claims approved, mostly for vitamins and minerals, many problems remain, especially for botanicals, for which claims have yet to be released, Mr. Mattern continued. Companies must tread carefully when labeling, even for known products like Jointcare in the U.K. Products with educational marketing messages are especially vulnerable. For example, beginning in 2013, the word “probiotic” won’t be allowed on labels as the word itself is considered a claim because it infers promotion of digestive health due to widespread explanations of how probiotics work in the intestinal tract.     
To work around this issue, some countries have been writing their own laws and regulations without waiting for harmonization of regulations for the entire region. To say this makes free trade between countries harder is an understatement. Manufacturers can’t predict if a product that is legal one year will be considered legal the next year.
What might help punch a hole in the logjam is the continuation of big pharmaceutical companies investing in health and nutrition and supplement brands. For example, in 2011, Pfizer purchased Ferrosan, a vitamin manufacturer in Denmark.
Many countries are stalled in these tricky rapids, either inching forward or downright flat in sales for 2011 and 2010. Some are larger, more mature markets: No. 1 Italy (0.7% and 5.7%, respectively), No. 3 U.K. (4.2% and 1.7%) and No. 4 France (1.6% and -0.1%).  
“Price competition from the more economical private labels of major grocery retailers has affected U.K. sales, as has expensive costs for licenses required on herbal products,” noted John Marenghi, territory sales manager, Capsugel, United Kingdom. As mature markets, Italy and France are hampered by product saturation, as well as limited new product introduction suffocated by the regulatory environment.
Growth categories holding up the fort in Italy are combination supplements, minerals, aloe, fiber, eye health, fish oils, B vitamins and the reigning leader, probiotics, which logged a 13% jump over 2010 for $590 million in 2011 sales. (Italy is the world’s second largest market for probiotics). In the U.K., multivitamins represent the largest category, followed by fish oils, combination supplements and eye health. In France, both categories of tonics and nutritive drinks as well as vitamins at large are spiraling downward, while cranberry and probiotics are swinging up significantly.
Some countries are simply going under in the rapids, posting sales declines for 2011 and 2010. The No. 2 market Germany (-1% and -2%, respectively) has suffered heavily from the health claim regulations, as well as negative press on vitamins, Mr. Mattern explained. Other declining markets are Norway (-1.5% and .02%), as well as Spain (-0.3% and -0.6%) and Greece (1.6% and -6.49%), both of which are undoubtedly withering under their well publicized economic and debt crises.
Nevertheless, throughout Western Europe, some categories show real promise, according to Mr. Mattern, including vitamin D, of course, for its positive affect on bone health. Black cumin seed oil, natural vitamin E complex and omega 3s are represented prominently by direct marketing and teleshopping channels. Krill oil could become the next generation of omega 3. First movers can have a substantial advantage in a segment marked by price fights. An already healthy sports nutrition category is beginning to branch out by targeting lifestyle users and weekenders with vegetarian protein alternatives like pea protein.
Emerging Markets: Steering Through Surges of Growth
Five emerging markets, while not rushing onto the global market, are picking up speed gradually. In 2011, Latin America, Eastern Europe, Australasia, India and the Middle East & Africa logged cumulative sales of $11.23 billion, or 13.4% of global market share. The five-market global share was 12.5% in 2009 ($9.45 billion total sales) and 11.3% in 2006 ($7.23 billion in total sales). Altogether, they posted a cumulative average annual increase of 9.48% between 2006 and 2011.
When zeroing in on sales activities of key individual regions, the growth currents are gushing. Although only 1% of the global market, with $805 million in 2011 sales, India is the fastest growing emerging market—a 12.5% jump in 2011 from 2010 sales of $715 million, and 13.5% between 2009 ($630 million) and 2010, with an average annual growth of 11.8% between 2006 and 2011.
India is the world’s second largest populated country (1.21 billion in 2011) with a growing middle class desiring Western products. Mineral supplements were No. 1 here, followed by protein powder, multivitamins, chyawanprash, ginseng, combination supplements, vitamin C and calcium. (Chyawanprash is an ancient Ayurvedic jam-like mixture of herbs and spices rich in vitamin C.)
Nabajyoti Acharya, Capsugel’s business development manager in India, expects food supplement sales to exceed $921 million by 2013, around a 7% average increase in both 2012 and 2013. This slight slowdown might be due to a confusing, tight and changing regulatory environment. 
Supplements have been regulated as food and found only in pharmaceutical sections of supermarkets. In addition, the blurred line between drug and food supplements surfaced when the National Pharmaceutical Pricing Authority, a drug price regulator, noted in 2009 that pharmaceutical firms were marketing drugs as food supplements to escape the price ceiling net. 
To rectify matters, as of September 2012, the Drug Controller General of India and the Food Safety and Standards Authority (FSSA) of India have discussed mandatory “non-medicinal use” certification of all vitamin manufacturers using any drug as ingredients in their products, among other guidelines. The Drug Technical Advisory Board is also planning to require manufacturers of such projects to provide analysis methods or testing protocols for finished formulations to ensure they conform to prescribed standards. Recently, the central FSSA canceled and withdrew licenses for food supplements it felt were erroneously granted by state regulators, as reported by The Financial Express.
To unleash India’s full gangbuster potential, however, regulations must be clarified—and even loosened. “One positive sign is that the Indian government has finally allowed foreign direct investment in the retail sector. Now, multi-brand retailers can open stores in India for a real impact on the nutraceutical market,” said Mr. Acharya, citing a Reuters report from September.
Latin America is the second fastest growing emerging market. In 2011, it posted $3.9 billion in sales, up 12% from 2010 sales of $3.52 billion—and a 62.4% jump over 2006 sales of $2.4 billion, for an average annual increase of 10.2% between 2006 and 2011. Latin America made up 4.7% of global market share in 2011, compared to 3.8% in 2006.
Brazil has long been the region’s dominant market, capturing more than 40% of Latin American sales since 2006. In 2011, it logged 42.2% of the market’s sales for $1.67 billion, up 12.4% from 2010 sales of $1.48 billion—an almost 70% increase over 2006 sales of $980 million, for an average annual increase of 11.18% between 2006 and 2011.  
Leading categories are multivitamins, vitamin C, calcium, B vitamins, fish oils, fiber and probiotics, minerals, tonics and bottled nutrient drinks and guarana. Promising product categories include bone, heart, energy, women’s health and sports nutrition.
What powers sales and top category performance? “Among the 200 million Brazilians, a growing middle class has more disposable income to spend on supplements, as does a burgeoning segment of the aging population due to a decline in births,” said Allessandro Hinrichsen, business development manger for Brazil and Mercosur.
Merging with health and nutrition companies, the pharmaceutical industry pushes supplement sales, including vitamins and minerals that are often classified as medicine. For instance, any vitamin C formula that contains more than 45 mg has to be registered as a drug, a long expensive process that only pharmaceutical companies can afford. The recently launched Prolive, a probiotic product classified as a food supplement by Ache, was sold through prescription, Mr. Hinrichsen noted.  
Other products are commonly sold through established MLM networks, with new ones like Natura expected to enter in the near future. Strong MLMs like Avon (Avon Brazil is the No. 1 global operation) and Brazil’s notoriously beauty-conscious consumers have helped increase nutricosmetic revenues alone 53% between 2011 and 2012. Other nutricosmetic drivers are product line and brand launches of international companies in 2011 such as Oenobiol by Sanofi Aventis and Eximia brand by the pharmaceutical company Farmoquimica. Sizzling growth for this category is predicted with the additions of new distribution facilities by L’Oreal and Avon soon. 
Some loosening of regulatory restrictions has helped vitamin sales. Manufacturers of vitamin products need only notify the government, reducing time to market to 30 days, rather than delaying product release for up to 18 months under the previous registration process. Unfortunately, botanicals and other supplements must still operate under registration protocols. Their sales are also hampered by categorization as more expensive drugs by the ANVISA (local FDA), including probiotics, resveratrol, plant extracts, enzymes and most amino acids. “The ANVISA believes there is no evidence of safety for these products to be sold as food,” Mr. Hinrichsen explained.
Eastern Europe showed the emerging markets’ fourth fastest growing increase, 9.3% over 2010 for a total of $3.4 billion in 2011 and 4% of global market share. This was an improvement over the 4.3% increase between 2009 and 2010 and the 6% increase between 2008 and 2009, though nowhere near the average annual increase of 17% between 2005 and 2008. It does, however, keep pace with the average annual increase of 9.4% between 2006 and 2011. Comparing total sales of 2006 and 2011, the region saw a 56.4% jump from $2.16 billion.
The ebbs and flows of sales are linked largely to the ups and downs of the general economic environment. Between 2005 and 2008, Eastern European countries joined the European Union; trade between countries opened and jump-started the markets leading to skyrocketing sales. The global financial crisis in 2008 put the brakes on sales, which improved as the global economy began to recover in 2010 and 2011.
With sales in the low hundreds of millions, most Eastern European countries are experiencing healthy growth, despite unclear regulations in some countries. Supplements are often hard to find because stores aren’t sure how to classify them. Are they drugs behind the pharmaceutical counter or supplements placed elsewhere? Those behind the pharmaceutical counter would be more expensive—a real restraint on growth. 
The key exception is Russia. It remains the region’s No. 1 market, posting almost 44% of sales at $1.48 billion in 2011, up 13.2% from 2010 sales of $1.3 billion and up 21.1% from 2009 sales of $1.22 billion. 
Here, efforts of the trade association, Council of Dietary Supplement Producers (CDSP), have actually continued to boost sales. 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 is 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 growth still stems from Moscow and St. Petersburg because of large middle class populations, concentration of advertising and superior distribution networks.
Even greater sales could be generated if Russia were more open to imports. Domestic supplement manufacturers are favored, but they generally don’t offer many choices. Foreign companies find it difficult to register products and find distributors. Consumers have trouble accessing Western products because retailers often only receive 20-40% of product shipped.
The most popular supplements in Russia are multivitamins, combination supplements, probiotics, tonics and bottled nutritive drinks, eye health, calcium, minerals and vitamin C.
As the region’s No. 2 market, Poland is faring pretty well, posting almost 25% of the region’s sales at $836 million in 2011, up 5.6% from 2010 sales of $792 million. This was a minor uptick, given that the annual percentage growth rate remained relatively flat at 4.5% between 2006 and 2011 and hit a 10-year low at 4.1% between 2009 and 2010.   
“The slow growth is due to a weakening of purchasing power brought on by an economic crisis in 2009,” said Maciej Majszyk, Capsugel’s territory sales manager for Eastern Europe.
Growth was also thwarted because new H&N/pharmaceutical regulations forced companies to reorganize their portfolios and move borderline products (mostly herbal) into the pharmaceutical category in 2010. “Companies underwent a costly pharmaceutical registration process. According to the research company PMR, approximately 10% of companies had to withdraw a part of their products as a result of the regulations,” Mr. Majszyk noted.
In 2011, the most popular categories were multivitamins, minerals, combination supplements, probiotics, calcium and vitamin C. In addition, Mr. Majszyk sees a growing interest omega 3s, vitamins D-3 and K-1 for children, slimming products, and herbal products for digestion and liver protection due to Polish dietary traditions.
Future Global Trends: Moving Forward at a Steady Pace
While the growth currents of some countries will continue to flow boldly and quickly, others will advance confidently ahead at a steady clip, while a few will stagnate. On balance, the total global market will continue to move forward at a steady pace.
The growing consumer preference to substitute drugs with supplements might well become a major boon to the industry. Increasingly, pharmacists are relaying more and more anecdotes about consumers questioning traditional medical advice. They don’t necessarily feel better if they are taking a drug because of numerous side effects. More pharmacists are being trained with scripted responses to their needs. “Don’t like your cholesterol drug? Have you tried alternative medicine?”
This consumer sentiment will undoubtedly spur greater consumer demand for science-backed supplements, which will in turn motivate regulators to require even better substantiation for claims. The overall result will be to enhance the credibility of the industry.
Rising consumer demand for supplements over drugs will also induce more pharmaceutical and consumer goods companies to get into the supplement market. More will be acquiring established supplement brands. Procter & Gamble’s purchase of New Chapter was big news. These companies know they don’t have the mindset to grow brands from scratch so they will go out and buy them.
Whether an emerging or established market, large or small manufacturing company, the name of the game is to pick and choose the right paddles—even change them if necessary—to navigate the ever-changing ripples and turns for a long, successful ride in the health and nutrition industry.          

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