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    Features

    State of the Industry Review & Outlook for 2016

    Experts offer their perspectives on the past, present and future of the nutraceuticals market.

    State of the Industry Review & Outlook for 2016
    If you’re not on the right track, you better watch out for the oncoming train.
    12.03.15
    The nutraceuticals industry has been on high alert since February 2015, following the investigation into herbal dietary supplements orchestrated by New York Attorney General Eric Schneiderman, who continued to make news headlines throughout the year by questioning product safety and industry credibility.

    With a proliferation of negative press, the full long-term impact on business and consumer confidence remains in doubt. Ultimately though, people have a sizeable appetite for natural products and supplements that align with their wellness goals.

    The industry has been challenged to deliver on its promises of better health for consumers and must be united in taking appropriate and responsible steps to insulate itself from critics. Making tough decisions today to ensure consumer trust tomorrow is just smart business.

    For example, actions need to be taken to truly isolate and eliminate companies that adulterate products with pharmaceuticals and sell unapproved new drugs masquerading as supplements. Supply chain integrity needs to be top of mind. Quality, safety, efficacy, sustainability and transparency are all critical elements to future success; they can’t just be marketing buzzwords.

    In the end, this industry is about wellness, and it needs to be part of the solution to public health problems. Sometimes it’s hard to see where the bend in the road up ahead will lead you, especially when faced with day-to-day business decisions that will impact your bottom line. However, if you’re not on the right track, you better watch out for the oncoming train.

    But don’t take my word for it, listen to the experts that follow ...

    —Sean Moloughney, Editor, Nutraceuticals World


    Much like that faced by legendary blues musician Robert Johnson, the dietary supplement industry is standing at a crossroads. The direction it takes will determine its future health and well-being—perhaps forever, but certainly for the foreseeable future. The decisions it makes within the next 12 months regarding how to deal with regulatory compliance, congressional oversight, ongoing media attacks and eroding consumer confidence—along with the new challenge of increased enforcement activity by state attorneys general and risks by litigation-happy class-action plaintiffs—will collectively determine whether this industry remains a viable and valued player in and a contributor to the national healthcare conversation.

    It’s no secret that much of yesterday’s industry made its fortunes on the latest miracle product du jour and the media frenzy that feeds the hype, all the while maintaining a reactive, as opposed to proactive, stance around foundational issues, such as product and clinical research, political engagement, consumer and media education, and yes, a productive, collaborative relationship with regulators.

    The industry of tomorrow, however, must collectively invest in those same areas if it is to succeed. It’s time to accept the mantle of responsibility as a mature and growing alternative—that provides real, science-backed answers—to the disease-based medical establishment and the rabbit hole of rising costs and the declining quality of life that comes with addressing only the symptoms instead of the sources of those health challenges.

    If our mission is to truly help our customers achieve optimum health and well-being, we owe them no less than our selfless and best-considered decisions when we decide which road to take into the future.

    —Loren Israelsen, President, and Frank Lampe, VP of Communications & Industry Relations, United Natural Products Alliance


    Last year I stated that botanical product manufacturers need to provide specific, detailed information about the production and accurate identity of their herbal ingredients, and for dietary supplement companies to know what they are buying and to understand that their responsibility to this end has never been more clearly expected and required. This year has only magnified that need for industry to take ownership and responsibility.

    The implementation of DNA barcode identification technology to identify genetic material consistent with source botanicals is an excellent tool, and is good for identity verification under specific circumstances and inappropriate for ID profiling in refined (extracted) botanicals ingredients. DNA analysis is an appropriate identification test and will have a proper place in the Botanical Identification Analysis toolbox.

    Meanwhile, the classification of herbal ingredients, based on how they are identified, is defined by a set of standards that should originate from the implementation of accurate and acceptable industry guidance protocols. Regulatory authorities will then be in a better position to appropriately regulate finished products when the botanical industry issues proper disclosure of products profiles, starting with the accurate listing of ingredients and how they are used in the production of botanical products.

    —Steven Dentali, PhD, Research Fellow, Botanical Development, Herbalife


    It has been a tumultuous year in the omega-3 industry, with a near-continuous onslaught of negative consumer media. Articles have questioned the science behind omega-3s as well as test results and label claims and we expect there is more to come. We continue to fight an uphill battle against sensational headlines and less than thoroughly researched stories.

    On a positive note, GOED and the Omega-3 Coalition completed a successful consumer education campaign, increasing year-over-year monthly sales by 5%. While the campaign was underfunded and did not return the market to positive growth, we saw the impact of positive messaging around omega-3s and we go into 2016 with new energy and ideas to spread the word about the benefits of omega-3s.

    —Ellen Schutt, Communications Director, GOED


    As health conscious consumers seek clean labels product developers are streamlining labels to contain fewer and simpler ingredients, stymieing the food industry’s traditional opportunities to fortify foods. This may direct shoppers to seek fortification directly in supplement forms rather than in food. The carryover trends of local, natural, authentic remain active and are applied in an evaluation of the supplement source. Herbal (plant) sources may seem “cleaner” and more “authentic,” especially when their sourcing is disclosed. Locally grown, or locally packaged, or a local brand may have advantages to these discerning consumers.

    —Nancy Childs, PhD, Professor of Food Marketing and Gerald E. Peck Fellow, Saint Joseph’s University, Erivan K. Haub School of Business


    The “clean label” trend has morphed into a worldwide movement. Few events have hammered this home more clearly than Kraft Foods Inc. recently announcing plans to remove synthetic colors and artificial preservatives from its iconic Macaroni & Cheese after demands from consumer groups.

    In the supplement arena, consumers are increasingly equating clean label to higher quality—for which they are willing to pay a premium. In fact, clean-label products are achieving a 26% price premium as consumers look for value—a balance between quality and price.

    These consumers are checking for labels like “natural,” “organic,” “unprocessed” and “raw” to help determine a product’s attractiveness. Millennials, ages 15 to 35, have clamored the most loudly for these signature markers; their recent growing interest in non-GMO (54% of supplement users), Kosher (35%) and Vegetarian (60%) certifications are increasingly driving their purchase intent.

    The industry has responded to this trend. Fifty-nine percent of supplements introduced in the U.S. in 2014 carried a clean-label claim, while 35% of supplements launched in Western Europe between 2009 and 2014 had a clean-label claim. Clean-label vegetarian supplements, in particular, are desired by 38% of U.S. users whereas such supplements grew 118% in 2013 in Europe. To meet this burgeoning demand, Capsugel recently announced a $25 million investment to bolster its worldwide production capacity of its vegetarian capsules. Capsugel’s robust system of sourcing raw materials is also helping customers support the clean-label claims that consumers want. 

    Dosage forms are being specialized to satisfy consumers’ increasing appetite for something new. Lipid multi-particulate (LMP) technology, a pharmaceutical expertise transferred into nutraceuticals and proprietary to Capsugel, mixes lipid-based formulations to deliver spherical pellets dosed within a capsule, or added to products like drink mixes directly. It can mask bitter tastes (e.g., teacrine), modulate release over time (e.g., caffeine), or enhance bioavailability of poorly soluble ingredients (e.g., curcumin) depending on customer needs. 

    Consumers will continue to demand that companies bring to market high-quality products, based on sound science and engineering, needed to earn their trust and drive regular consumption.

    —Peter Zambetti, Director of Global Business Development, Health and Nutrition, Capsugel


    Consolidation of companies in the dietary supplement sector is an ongoing speculative aspect of the past, present and future of this industry. Speculation inevitability gives way to consolidation on a larger scale than what has been experienced to date. Previously, economic potential and profit opportunities were the guiding factors for many of the mergers and acquisitions occurring within the dietary supplement industry. The new emerging factor not accounted for previously is the increasingly impactful regulatory environment.

    When the Dietary Supplement Health and Education Act (DSHEA) of 1994 was passed it was lauded as providing the strength, autonomy, direction and definition needed by the industry to grow and provide the highest quality products for consumers. Arguably, DSHEA was the defining action that allowed a tremendous evolution and growth of the industry to take place. The industry is not what it was in 1994 and DSHEA is not either. DSHEA allowed room for innovation and entrepreneurship; today’s regulatory landscape, not as much.

    Innovation and entrepreneurship in the dietary supplement industry are not dead. However, the robust activity and vitality that emerged from DSHEA in 1994 is decidedly more tepid. The cost of entry or sustainability to the companies in the dietary supplement industry continues to rise with each new regulation, Act of Congress or deleterious judicial outcome. Innovators and entrepreneurs will still exist, but their ideas are either less likely to come to market or have a shorter timeframe of opportunity to survive.

    The fear of the inevitable outcome of consolidation and increased regulation relates to a decreased level of innovation and product offering. The positive prognosis is the industry will continue to become stronger with increasingly greater internal and external confidence as a result of the winnowing of the field. No longer is the concern of consolidation a consideration in the dietary supplement industry, only the outcome of consolidation is the concern.

    —Scott Steinford, CEO & President, CoQ10 Association & NAXA


    It is more important than ever for the natural products industry to stay relevant and in tune with consumer needs, as regulatory and scientific scrutiny have increased and will continue to increase. We need to remain relevant, valuable and top of mind for consumers. 

    I see a tremendous opportunity in new products to fight prediabetes because half of American adults are now either prediabetic or diabetic. Fermentable dietary fibers have great promise for prediabetics, as one of the manufacturers of resistant starch submitted a qualified health claim petition that this particular type of dietary fiber increases insulin sensitivity (through intestinal fermentation and changing microbial composition in the gut) and thus may reduce the risk of type 2 diabetes. In my opinion, this petition has an excellent chance of being approved in early 2016, offering the industry an opportunity with substantial credibility and fresh market appeal.   

    As the public health authorities (and pharma companies) spend billions of dollars on raising awareness of prediabetes and the need to manage blood sugar levels, there will be great opportunities for the natural products industry to increase new product development in this area. I project that fermentable dietary fibers will eventually become a major category within the natural products industry for their benefits in helping people manage their microbiome and their blood sugar levels. 

    —Rhonda Witwer, Principal, Witwer Works LLC


    2015 seems to have been the year of probiotics. The good bugs are helping to continue nice growth in the digestive category. We’re seeing vegetarian and vegan ingredients are strong across all categories. Bone health, heart health, pain and circulation are also doing well in terms of growth categories and new product launches. Marine oils remained disappointing in 2015 but it’s still a huge category and commands major shelf space at all store types. We need to think of this as a “healthy correction” in the long history of growth. We hope algae will bring some new projects and products in the coming year.  

    The strong U.S. dollar will likely remain that way for 2016 which helps imports and hurts exports, so it’s all about your perspective. The U.S. economy is doing better on a quarter-by-quarter basis, but Canada is suffering along with parts of Asia. Some companies I spoke with during the fall trade shows were not having good a year and looking for better times ahead. I suspect these are the commodity type products where competition is challenging. Companies with specialty products or niche markets were upbeat. Regulation is probably our biggest concern as an industry. Most of us simply wish the authorities would spend a little more time on enforcement of existing rules before making new ones.

    —Dan Murray, VP Business Development, Xsto Solutions, LLC


    The past year has witnessed some real change in the dietary supplement industry, but these are changes that will ultimately strengthen the industry and relationships with our consumers. Despite the misguided nature of the New York AG’s investigation, some positives have emerged from this episode that include much more serious conversations about quality, supply chain transparency and ingredient integrity. Increased attention to how ingredients are sourced, the appropriate role of testing at all stages in manufacturing and the transparency of label information give industry members a chance to renew their promises to consumers that these products will help to maintain and improve their health.

    I’m encouraged by the expressions from FDA to collaborate more with industry to improve compliance with GMPs, to crack down on illegal tainted products and address areas of disagreement with NDIs, and label claims. The courts have pushed back on the FTC this year and affirmed a flexible approach to advertising substantiation that includes a variety of robust science, not just RCTs. Even as states are asking more questions about the federal regulation of supplements, they are displaying curiosity to learn more about those regulatory requirements and how states can buttress federal standards. CRN’s recently announced initiative to develop a voluntary dietary supplement registry will help regulators gain more visibility to our products. So while we are headed into a time of increased regulatory attention, I think the industry is poised to respond appropriately and responsible companies will demonstrate their commitment to quality through these examinations.

    —Steve Mister, President & CEO, Council for Responsible Nutrition (CRN)


    The nutraceuticals industry continued its steady growth in 2015 thanks to increasing consumer demand for high-quality products that help them enjoy a higher quality of life. This continued growth created new challenges and opportunities.

    Like any industry that enjoys increasing consumer popularity, the nutraceutical industry continued to draw the attention of the media and regulators, most notably state attorneys general. Because bad news sells, regulators and the media often inflate risks and issues associated with nutraceutical products in order to alarm the public. While negative publicity (especially when it is inaccurate) is unwelcomed by the industry, it is unlikely to subside while the industry continues to grow so rapidly. The industry will continue to refute critics who spread misinformation and address any real safety issues as they arise, but it is also important to note that increasing scrutiny comes with growth and industry critics are unlikely to halt their attacks as long as the industry’s popularity continues.

    The good news is that all these attacks don’t seem to impact most consumers’ opinions. They continue to trust their brands and to benefit from the industry’s products. The negative publicity in 2015 also created more demand for high-quality products that consumers can trust, and many companies were able to capitalize on this opportunity. Looking forward, the industry should expect this growth, accompanied by additional scrutiny, to continue.

    —Michael McGuffin, President, American Herbal Products Association (AHPA)


    On Oct. 1, 2015, China passed its new Food Safety Law. Within this new legislation there is a framework for new dietary supplement policy. The aim of the new supplement regulations is to streamline the system and make bringing products to market more transparent. Although the implementation regulations for supplements have not yet been completed, the foundation of the overall system is in place.

    The most notable change is that there will be a recording system for nutritional supplements such as vitamins, minerals and some other yet-to-be-determined nutrients. China FDA and National Health Commission are currently creating a list of ingredients that will be allowed in supplements.

    Cross-border E-commerce (CBEC) has become the preferred channel for health products since January 2014. At that time, it became impossible for foreign companies to import supplements as food, which forced companies to register with China’s FDA. That process requires 2-3 years to complete and can cost in excess of $100k.

    CBEC sales channel avoids this registration process as these sales are seen as direct-to-consumer purchases similar to if the consumer was visiting the U.S., purchased some supplements and brought them back to China.

    There is still a lot of work to accomplish before China’s dietary supplement industry reaches its full potential, but these new regulations look to be a step in the right direction. 

    —Jeff Crowther, Executive Director, U.S.-China Health Products Association


    From our vantage point, as insurance brokers for the industry, the trend for lower product liability insurance premiums continues, which has a “good news, bad news” aspect to it. The good news is insurance costs are decreasing, which is good for the bottom line. How much lower prices can go is problematic, however; in the past 10 years the prices have decreased about 80%, by all measures.

    The bad news is that carriers are sneaking in exclusions and other coverage limitations that are often buried deep in the policy, and not disclosed at the time of purchase. Certainly insurance companies are allowed to craft limitations to their coverage—limitations that are directed squarely at the supplement industry. The issue, however, is transparency, and often the disclosure necessary to make good buying decisions is not evident in the insurance supply chain. 

    Large retailers continue to slowly but surely raise the liability insurance requirements for their supplement suppliers, as evidenced by KeHe Distributors’ recent move to require a minimum of $5 million of coverage. Supply chain contracts, encouraged by many in the industry, are another challenge, as sometimes they contain insurance provisions that are difficult and occasionally impossible to comply with.

    Finally, we have seen the return of DMAA into the sports nutrition arena. After the DMAA dust-up of a few years ago, all of the product liability insurers added DMAA to their excluded ingredients list. If DMAA becomes popular again, its insurability will be tentative at best. The media has so vilified DMAA that even if it is insurable, it’s debatable whether the mass drug and other chains would put it back on their shelves.

    —Greg Doherty, Managing Director Dietary Supplement Practice Group, Bolton & Company


    The omega-3 market continues to be a challenging one. However, most of the data projections point toward a brighter future compared to the last couple years. Even a percentage point or two in the black will be a vast improvement.

    Going forward, the substantiation of health benefits will remain a top priority but slowly creeping up in importance will be sustainability. Consumers are asking hard questions about the sources of their ingredients, and this trend is trickling into dietary supplements, particularly those containing marine omega-3s. Aker BioMarine is in an ideal position to answer questions about sustainability, science and traceability. In fact, we look forward to those conversations.

    The next 12 months will be very telling in the krill business and I think you will start to see more separation between the central and peripheral players. From science to sustainability, we will continue making some pivotal moves to further secure our future.

    —Becky Wright, Marketing Director, Aker BioMarine Antarctic US


    The coming year will likely see explosive growth in the probiotics category. Emerging research is identifying specific probiotic strains that are highly effective in supporting cholesterol reduction, reducing anxiety, increasing macronutrient absorption, reducing IBS and IBD symptoms, enhancing immune response and supporting gut health. What’s more, new strains and advanced delivery systems are allowing greater flexibility in delivery of efficacious dosages. Global volume consumption of probiotics is more than three times that of omega-3s, making probiotics the most successful functional ingredient in packaged foods after vitamins and minerals. On the supplement side, probiotics climbed 22% last year, making probiotic supplements the fastest growing category. I believe we are only seeing the tip of the iceberg.

    —Peter Leighton, Founder, Abunda


    As the nutritional industry continues to mature, we experience some very annoying growing pains. The relentless onslaught by our detractors regarding the quality and integrity of dietary supplements is an issue we cannot avoid. The industry, in its haste to grow business, has overlooked a major component of any market—the quality and true effectiveness of its products. The regulatory, legal and media scrutiny we face is a serious reminder that manufacturers should deploy all resources to assure the quality of their product lines—perhaps even eschewing economic considerations—and make certain that the finished forms contain the required dosage of the supplement.

    Reliability is key to ensuring the industry’s future, so that we can confidently progress into the future. 

    —Don Stanek, Director of Sales U.S., Linnea


    Consumers have taken great interest in maintaining their health and overall wellness, and often look for natural supplements that prompt such results and can address a variety of applications. They are seeking validation from trustworthy sources that show their wellness investment is worth it. This is why there is a need to conduct independent clinical trials on both ingredients and products to ensure safety and efficacy, and to uncover the full range of health benefits. 

    More than 130 clinical studies have been conducted on Pycnogenol French maritime pine bark over the years, with exciting new ones this year that further supported its benefits for cognitive support, women’s health, skin care and the common cold. By continuing to invest research on our brand, we are able to uncover impressive findings that help improve the health of a variety of consumers.

    —Sébastien Bornet, Vice President Global Sales and Marketing at Horphag Research (exclusive worldwide supplier of Pycnogenol)


    The global probiotic food and beverage market is growing at a breakneck pace. Consumers continue to demand functional food and beverage products that are efficacious, lifestyle friendly, and created with the highest quality ingredients. In addition to digestive and immune health, we continue to see a multitude of additional ways that probiotics can be beneficial—such as the gut/muscle or gut/brain axis. We at Ganeden believe that the next several years will bring innovative, science-driven applications developed with cross-functional market segments in mind.

    —Michael Bush, Senior Vice President, Ganeden


    2015 has been a very positive, exciting and eventful year at PLT. During a time of rapid change in our industry, PLT is making major investments into talent management, new technology, and new product innovations to deliver on our promise of delivering best-in-class solutions to our customers. 

    We welcome the intense public and government scrutiny of supplements as a once-in-a-decade opportunity for the responsible companies in the industry to rise to the challenge and differentiate themselves. PLT is grateful to the leaders of key industry associations who have been identifying, clarifying and uniting the companies who are stepping up to the common cause. Together, we must provide essential input and have an important say in the new paradigm that will define the post-DSHEA rules within which our industry will function.

    At PLT, we continue to expand our commitment to providing differentiating solutions. “PLT360—Trust Builds Brands” is PLT’s full-throttle commitment to “Integrity, Quality, Sustainability and Efficacy.” Further, at PLT, we have made new investments to accelerate our product development pipeline to feed our customers’ demand for innovative, best-in-class, branded ingredients that will grow the sales of their consumer products. We continue to seek out and closely coordinate with industry stakeholders—both supply partners and customers—who share our commitment to the relentless pursuit of excellence and who are in it for the long term.

    —Paul Flowerman, President and CEO, PLT Health Solutions


    Better, faster, stronger is a continuing drive for those looking to integrate increasing technology opportunities into the dietary supplement industry. Until recently, emerging dietary supplement technologies in the form of nanodispersion and nanoparticle varieties were relegated to a few premium-priced products in specialty health food stores. Now these technologies can be found routinely in products offered in big box retail stores at competitive pricing.

    This past year has seen the explosion of an emerging health technology in the form of wearables that track activity, sleep, heart rate and more. Mintel estimated nearly 20% of individuals who exercise regularly incorporate a wearable device into their exercise, daily activity or both. The addition of the Apple Watch and the ensuing competitors indicates more people will be paying attention to activity and health. This adoption of technology by health-conscious individuals offers greater incentive to continue the development of more advanced forms of dietary supplement dosing.

    Not all new food technology is being embraced with open arms. National Public Radio recently decried GMO as “old hat” with synthetically modified food as the “new frontier” for concern. Vanillin is the demonstrated battleground for the immediate issue, but supplements and foods will be correctly targeted as future opportunities for this technology.

    Technology has already demonstrated its power to be a driving force in other industries and continues to do so in the dietary supplement arena as well.

    —Charles Brain, President and CEO, 3i Solutions

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