Brand manufacturers and distributors in the natural products industry within New Zealand are bracing themselves for the tough times that lie ahead. The Australian natural products industry remains more insulated from economic shock compared to its smaller pacific neighbor, in part due to a higher level of mainstream consumer acceptance of nutritional supplements, which leads to greater market penetration. Additionally, Australia has a population of 21.4 million people, which is more than five times greater than that of New Zealand. According to the International Monetary Fund's data on income, wealth and prosperity, the average Australian also earns more ($45,682 per year) compared to the average New Zealander ($30,256 per year).
Estimates of market size for the natural products industry put the Australian market at $953 million, while the New Zealand market is around $131 million. This implies that given the relative size of the two markets, Australia has about a 26% higher "per capita" retail consumption of natural products than New Zealand.
The Regulatory Picture
The major difference in the natural products industries of Australia and New Zealand remains the regulatory framework under which they operate. Many might have expected the regulatory framework between these two countries to be harmonized by now, but this still remains the most significant difference between the two markets. New Zealand and Australia do have joint framework when it comes to food and food regulations, which is managed by a separate agency called FSANZ (Food Standards Australia and New Zealand). Importantly for the natural products industry, this agency manages and oversees the regulations for all functional food and beverage products. As a general rule of thumb, if the finished product looks like a food, a bar, confectionery, beverage, etc., then it falls under the control of FSANZ, but if it looks more like a medicine, such as a tablet, capsule, syrup etc., then it currently falls under the responsibility of the TGA (Therapeutic Goods Administration) in Australia, or MedSafe in New Zealand.
The good (and bad) news about having a harmonized code such as FSANZ is that a product, which is compliant and already selling in one market, will automatically comply with the other market. The bad news, of course, is that if a product doesn't comply with FSANZ standard in one country, the same product will not be able to obtain regulatory approval simply by switching to the other country and re-applying.
With respect to the more traditional tablets and capsules, an attempt was made in 2007 to harmonize the code of practice between the two countries, with New Zealand adopting the Australian TGA regulations for dietary supplements and complementary medicines. Unfortunately, the initiative was defeated when it came to a vote before the New Zealand government. The failure of this harmonization bill reinforced the long-held opinion of the Australian TGA that New Zealand was an unregulated market where almost anything could be labeled as a dietary supplement and sold to the consumer, regardless of the quality standard.
Indeed, some New Zealand manufacturers felt this largely unregulated market was an advantage and represented the best in consumer choice. But consumer confidence in the product, rather than the extent of product choices available to consumers, appears to be a more significant driver of buying behavior. In fact, increasing product choice in the market, without a good degree of consumer education and support, appears to be detrimental to consumer buying behavior.
To address these concerns, a unique New Zealand regulatory framework is being developed. In fact, this month a draft proposal for a New Zealand based regulatory framework is nearing its final version, with industry expected to vote on it prior to its submission to the New Zealand government sometime in early 2009.
Robert Forbes is an Australia-based regulatory affairs consultant (Robert Forbes and Associates). He believes the TGA is responsible for restricting access of the more fringe or dubious products, thereby creating a level of consumer confidence in products sold at retail in Australia by demanding that all products comply with a quality standard. While Australian consumers are not exposed to the array of novel ingredients that characterize other markets like New Zealand and the U.S., Mr. Forbes says this hasn't adversely restricted manufacturers who have been applying greater innovation to delivery systems and packaging convenience.
To illustrate the dynamics of the Australian and New Zealand markets, Australia-based Blackmores Ltd., a dominant natural products manufacturer, posted a 34% growth rate in sales over the last four years, according to its 2008 annual report. However, growth has significantly slowed during the past 12 months.
The slowdown in sales reflected in the latest Blackmores annual report is also echoed in New Zealand. Brett Edmonds, a New Zealand-based retail distributor and brand manufacturer, Health and Herbs Ltd, also suggests that business has been great over the past five years, both in terms of sales revenue and an increasing number of retailers. Unfortunately, he's also noticed signs of slowing during 2008 and expects little or no growth in the market in the foreseeable future. Mr. Edmonds said that his company, which represents Nature's Way in New Zealand, has good market penetration at retail, and on a per capita basis even "out sells" the U.S.
Because the natural products industry has never been tested by a major consumer slowdown or recession, Mr. Edmonds is unsure whether this market's products will fall prey to discretionary spending or if they will benefit as more "counter cyclical," representing a less expensive form of healthcare when cash is tight. Whatever happens, he expects the core natural product consumers who are looking for quality to remain loyal during these hard economic times.