6 January 2009 E-MAIL SEARCH Home Page Newsroom From the Top Business Buzz Marketing Mix Financial Focus Management Matters PR Points Web Wisdom Industry Reports Business Glossary Resources U.S. Gov. Resources      Growing Nutraceuticals   Over the past 20 years the nutraceutical industry in the United States has grown from a cottage industry targeting a fringe group of health food enthusiasts to a mainstream business embraced by the full range of consumers and healthcare professionals. See the View from the States archive for Mark Dollinger's view on aspects of doing business in the United States. For nearly a year, we have met with and spoken to a number of senior managers at some of the leading nutraceutical companies in the United States. As well, we have accompanied clients in this industry on marketing trips to meet with large potential strategic partners in the States. This column reviews six different aspects of this growing — but confusing — field. The regulatory environment Interestingly, the U.S. Food and Drug Administration (FDA), which tightly regulates the pharmaceutical industry, does not regulate the nutraceutical industry to the same degree. However, consumer groups, and to some extent the industry itself, are now attempting to clean up their act and eliminate the most inappropriate claims of certain dangerous preparations and supplements. Some of the most dangerous supplements (those believed to pose a public health risk) have even been ordered off store shelves by the FDA. There is widespread belief within the industry that the FDA will begin to issue guidelines for the industry in the not too distant future. The health of the industry Like many other sectors within the U.S. economy, there has been some consolidation with larger, healthier companies buying up smaller ones and the family-owned entrepreneurial companies bringing in a new generation of professional managers to help them either grow or prepare themselves for acquisition. The nutraceutical industry is currently spending a good bit of its energy looking inward. Unique market segmentation The nutraceutical industry has a particularly broad retail distribution platform. This industry still has a vibrant multilevel marketing (MLM) sector, which is not common to other sectors. MLMs sell direct to the consumer through an extensive network of independent contractors. The industry maintains its core base of health food stores and healthcare practitioners (nutritionists, naturopaths, dieticians, chiropractors, and physicians) and now has broad distribution through national chains in the drug, grocery, and mass merchant market segments. The supply chain overview The supplier structure contains a lot of "noise" caused by consolidation and the uncommon structure of companies that occupy multiple spaces in the supply chain. Within this industry, it is possible for a company to be both a manufacturer and a distributor of nutraceuticals to various outlets and also to own either retail stores or an MLM division. Add to the mix the proliferation of products that are now standard on the shelves of the national chains. This leads to brand migration and brand positioning decisions for both suppliers and retailers. Plenty of products While the leading 50 or so supplements account for 80% of the business, the range of vitamins and herbal and mineral supplements is truly mind-boggling. It is not uncommon for a large supermarket to stock 40 to 50 different types and strengths of vitamin C. Multiply this by other popular vitamins and supplements, and the shelf space just grows. Many of the most popular products on the shelves are available as tablets, capsules, caplets, chewables, wafers, powders, and liquids. Margins under pressure The proliferation of retail outlets has created the classic effect of increasing competition, placing pressure on the retail pricing, constricting the retailers' margins, and putting pressure on the suppliers to cut their wholesale costs. One response from the suppliers: proprietary blends of supplements targeted at various ailments. Outstanding in Its Field In spite of the changes that are occurring in this industry, we have helped our clients position themselves in the crowded U.S. market with innovative products. Think about your product by asking the following questions: Does your supplement address an actual need in the market? Is another ginkgo biloba or vitamin E really necessary on the U.S. grocery store shelves? (Probably not.) On the other hand, can your product naturally reduce blood pressure? Lower cholesterol? Shrink the size of the prostate? (The market may be interested.) Is your supplement safe and effective? Can you offer proof (through research results)? Make certain you know the active agent(s) in the supplement and the proper concentration(s) of the active agent. Avoid making unrealistic claims. The nutraceutical industry has begun to turn away from wild claims of "instant" or "miracle" cures. Will a potential strategic partner get your product to market and give it the necessary exposure so it can be outstanding in its field? If you have any marketing questions that you would like me to address in a future column, or have a comment about this column, drop me a line. Mark Dollinger President Trendlines America ©2002–2008 Trendlines International Ltd. All rights reserved. Phone: +972.4.958.3323 | postmaster@trendlines.com Directions | Privacy Policy | Site Map This site contains material copyrighted by third parties. This site is best viewed in Internet Explorer version 5 or higher.