The Russian nutraceuticals (dietary supplements and functional foods) market has also posted some impressive growth during the past few years. Unfortunately, however, the global economic crisis did take a big bite from that growth.
This month’s column will review the Russian market and ask the question: Is the Russian market expected to continue to grow (ride a Bull market) or will it turn sour (become a Bear market)? To find the answer, “From the Corners of the World” turned to two Russian market experts: Vladimir Fedotov, research Analyst for Euromonitor International in Russia, and Natalya Ioudina, president, Integra Medical Inc., in Ontario, Canada.
A Tale of Two Markets
Ms. Ioudina and Mr. Fedotov both describe the Russian nutraceuticals market similarly, as a “tale of two markets.” According to Ms. Ioudina, the dietary supplement market is one of the most dynamic and opportunity-rich markets, exceeding $2 billion in 2009. While about $1 billion in sales came from “official” channels, another $1 billion in sales was generated from the “black market,” or unregulated channels. With an unregulated market as big as the official market it is difficult to imagine how the industry can properly evolve.
In the same vein, Mr. Fedotov describes a market that is split between the reputable and the disreputable companies. Facing a tough situation with illegal sales of low quality and even harmful products, the Russian government is putting more pressure on the industry and writing a host of new regulations.
These regulatory changes are strongly affecting the market. For example, requirements to meet new product registration procedures implemented in 2010 led to the withdrawal of many minor brands, mostly coming from Eastern Asia. The general trend is to “whiten” the market with more brands legally entering into pharmacy retail.
This has certainly influenced Traditional Chinese Medicine (TCM) products and how they are marketed. Since many of these products have been marketed unscrupulously over the last five years, attitudes toward many of these practices are changing and people are losing trust. This unethical behavior is also causing media to provide coverage on the possible harm to health while also prompting the government to step up regulatory efforts. This may yet be good news for the official market, as affordable and reliable products offered in pharmacies are supporting the switch toward more “Western style” or traditional Russian dietary supplements.
Russia’s Regulatory Environment
Ms. Ioudina feels much of the controversy in the nutraceuticals market is brought on by the Russian government itself and that new regulations might be on the excessive side. She believes the government is on the “warpath against the dietary supplement industry.” The Russian government has for quite some time increased regulatory activity, causing distrust among the public toward supplements. Significant limitations have been imposed on the nutraceutical market with regard to advertising, promotion and distribution, especially in “official” sales channels. As a result, Ms. Ioudina suggested that foreign companies who want to enter the Russian market secure relationships with existing reputable local players that understand the space and can navigate through the regulatory and product launch stages.
Mr. Fedotov agreed, saying that increased regulation in the nutraceuticals sector has made entrance to the market more difficult for newcomers, as registration procedures take time, patience and a lot of effort. The process for registering dietary supplements consists of two main stages—a dossier of documents provided by the company applying for a registration, and proof of safety of the products for consumer health. The first stage, he said, should not take more than 40 days, but the second stage could take two to three months. Once all the requirements are fulfilled, there is a short period required for issuing and registering the certificates.
Russian legislation forbids positioning dietary supplements as substances for curing disease. Further, all promotional materials must explicitly state that the dietary supplement is not a drug, is not intended for healing, and can only be used in a supportive function. While any positive effects stated by the manufacturer must be clinically proven, relatively low levels of substantiation are required for dietary supplement registration.
The Major Players
According to Euromonitor International, some of the successful international brands include: Nutrilite, Herbalife, Nu Skin and Sunrider in the MLM/direct sales channels; and Nycomed, Ferrosan and Unipharm in the pharmacy channel. Brands such as Linex, Vitrum, Hylak and Centrum hold strong positions and have remained market leaders for a long time.
Some of the strongest Russian companies in the sector include Evalar, Diod and Akvion, with brands like Complivit, Turboslim, Ovesol, Kapilar Viardo and Alphavit being among the most recognized. Evalar is a leader in the Russian dietary supplement industry. While pharmacies dominate the retail space, about one-third of weight loss supplements are sold by MLM companies, who also do quite well with sales of a variety of other dietary supplements.
Key Trends & Emerging Opportunities
Russians have similar health concerns as those in Europe, according to Mr. Fedotov. They tend to consume nutraceuticals that affect the digestive system, general health and bones. He also said there should be strong growth in children’s dietary supplements buoyed by growing birth rates and a shift in parental attitudes toward the needs of children. Multivitamins are also very popular, especially for children and teenagers. In terms of gender, women are often concerned with weight issues, while men are concerned with others such as erectile dysfunction. “Hepatoprotectors” (products that support liver function) are also very popular among Russians and show continued growth.
In a search done on the Innova Database, several other trends seem worth monitoring: probiotics; sports & energy ;antioxidants; and anti-inflammatory—turmeric (curcumin) is becoming popular.
Some of the best examples of popular functional foods include probiotic yogurts offered by companies like Danone. Russians also like food and beverage products fortified with vitamins and minerals. However, while consumers value the positive effect of functional foods, Mr. Fedotov pointed out that they do not perceive them to be alternatives to dietary supplements. Dietary supplement products are perceived by Russian consumers to be closer to health/wellness than to functional foods. Novel concepts that resonate in the U.S. and Europe, such as “beauty from within” and certified organic, are still in their infancy but offer potential for growth in the future.
Big Bear: Strategies for Doing Business in Russia
The nutraceuticals market has shown low resistance toward the economic recession. According to Euromonitor, sales of some leading brands, in particular subcategories, dropped up to 70%. In general the growth in value terms slowed down to rates close to zero for vitamins and dietary supplements between 2009 and 2010. Weight management supplements specifically experienced a double-digit decline in 2010.
Poor performance in 2010 caused by economic troubles and regulatory pressures will certainly temper future growth. After a continuous period of robust advancement, the Russian market is expected to slow down during the next few years. In fact, Euromonitor does not expect to see the double-digit growth observed before the economic crisis for some time. Future growth is projected at 7% for weight loss supplements, 8% for dietary supplements and 9% for vitamins. But ultimately this growth will be dictated by structural changes caused by regulations and by maturing of the market itself.
Still, Mr. Fedotov believes strong companies seriously considering entering the Russian market will benefit generously from a very large market with low levels of saturation, developing distributor infrastructure and growing economies. Should the rules and regulations also become more transparent, this too should help the market evolve. And because the market is in a consolidation stage, the time for entering the market is just right.
Russia seems to demonstrate some significant risks and susceptibility to downward trends, yet the opportunity also seems excellent with strong growth potential and good timing. The question is: Do you believe in “bulls” or “bears?”