The Products
Historical Overview
The Dietary Supplement Health and Education Act
FDA Attempts to Reassert Itself
Product Breakouts

The Market
1998 Sales Near $9 Billion
Table 1-1: Retail Sales of US Vitamin, Supplement, and Mineral Market, 1994-2003 (dollars)
Supplements Spurring Growth
Sales by Retail Outlet Type
Sales by Product Type in Health and Natural Food Stores
Sales by Product Type in Drugstores and Mass Merchandisers
Sales by Product Type in Food Stores
Positive Factors Affecting Market Growth
Negative Factors Affecting Market Growth

The Marketers
Hundreds of Companies in Field
Leading VSM Marketers
Private Label Holds Major Share
Variant Marketing Methods
Growing Emphasis on New Products
Figure 1-1: The US VSM Market: Number of New Product Introductions, 1990-October 1998
New Products Increasingly Specialized
Medical Claims Joined by Pharmaceutical-Style Packaging
Sleeping Giants Awaken
Mergers and Acquisitions

Distribution and Retail
Two Distinct Distribution Sectors
Distributor Margins for the Two Sectors
Health and Natural Food Stores Essential for VSM Market
Customer Service in Health and Natural Food Stores
Larger Retail Margins in Health and Natural Food Stores
Mass Merchandisers Compete on Price, Selection, and Advertising
VSM Also Important to Drugstores
Space Devoted to VSM Products

The Consumer
Percentage of US Adults Using VSM Products Is Growing
Demographics of VSM Users
Heavy Users of VSM Products
Multiple Formulas Most Popular, Followed by Vitamins C and E
Highest Percentage Shop for VSM Products at Drugstores; Mass Merchandisers Gaining
Consumers Believe VSM Important for Good Nutrition and Health Main Reasons for Not Taking Vitamins

Scope and Methodology
Market Parameters
Report Methodology

II. The Products

Scope of Report
Nutritional Vitamins, Supplements, and Minerals Sold at Retail

History of the Industry
Discovering Deficiencies
A Market Develops
First Laws Governing Vitamins
Megadoses Recommended by Some Authorities
"Miracle Properties" of Vitamin E Prompt FDA Attention FDA Sets
Maximum and Minimum Limits for RDA
Proxmire Amendment Reins in FDA, Opens Market
NLEA Gives FDA New Rules and Power
FDA Proposes Strict VSM-Claims Guidelines
FDA Takes Firm Stand, Particularly Against Herbal Supplements Passage of DSHEA Is Victory for Industry
FDA Attacks DSHEA After Ephedra Incident
The April 1998 FDA Proposal
Structure/Function Claims vs Disease Claims
President's Commission Recommendations
Industry Responds to FDA Proposal
Proposed Rules Set the Stage for More FDA Power FDA Responds to Flood of Structure/Function Claims

Product Breakouts
Three Product Categories¾And a Fourth Emerging
Product Definition: Vitamins
30 Known Vitamins, But Need Established for Only 14 Fat-Soluble or Water-Soluble
Certain Vitamins Are Also Antioxidants
Product Definition: Supplements
Herbal Products Major Segment of Supplement Category
Phytonutrients (Vegetables in Tablet Form)
Product Definition: Minerals
18 Minerals, But RDIs Currently Set for Only 12
Product Definition: VSM Combos
Pills (Tablets and Capsules) Most Common Delivery System
Single-Element vs Multivitamins/Minerals
Adults' vs Children's
Synthetic vs Natural
Health and Natural Food vs Mass Market
Table 2-1: Guide to Vitamins (16 Vitamins)
Table 2-2: Guide to Supplements (60 Supplements)
Table 2-3: Guide to Active Minerals (14 Minerals)

Government and Industry Regulators
Vitamins, Supplements, and Minerals Regulated by the FDA
RDAs, RDIs, DRVs, and DVs
RDA Revision Likely for Older Americans
Tolerable Upper Intake Levels
The Dietary Supplement Health and Education Act
Structure/Function Statements
Third-Party Literature
Recognized Health Claims
Supplement Facts Panels

Trade Associations
American Botanical Council
American College of Nutrition
American Herbal Products Association
Citizens for Health
Council for Responsible Nutrition
Herb Research Foundation
National Nutritional Foods Association
The US Pharmacopoeia

III. The Market
Figure 3-1: Retail Sales of US VSM Market, 1994-1998 (dollars)

Market Size and Growth
Sales Difficult to Quantify
1998 Sales Near $9 Billion
Sales Increases for Vitamins and Minerals Modest
Supplements Spurring Growth
Table 3-1: Retail Sales of US VSM Market, 1994-1998 (dollars)

Market Composition
Supplements Claim 44% of Market
Figure 3-2: Share of US VSM Sales by Product Category, 1994 vs 1998 (percent)
VSM Combos Also Fueling Growth
Health and Natural Food Stores Remain Stronghold
Mass Merchandisers Overtake Drugstores in Mass Market Table 3-2: Share of US VSM Sales by Retail Outlet Type, 1994-1998 (percent): 9 Outlet Types
Supplements Claim 62% of Health Food Sector VSM Sales Table 3-3: Share of US VSM Sales by Product Type: Health and Natural Food Stores, 1994-1998 (percent)
Sales by Segment in Health Food Sector
Top-Selling VSM Products in Nature's Bounty's Stores
Top-Selling Herbs
Table 3-4: Top-Selling Single Herbs in US Health and Natural Food Stores, 1997-1998 (percent): 10 Herbs, Other
Supplements Garner 29% of Mass Merchandiser/Drugstore VSM Sales Adult Multivitamins Remain Largest Segment
Table 3-5: Share of US VSM Sales by Product Type: Mass Merchandisers and Drugstores, 1994-1998 (percent) Vitamin Share Slips Below Two-Thirds in Food Stores
Table 3-6: Share of US VSM Sales by Product Type: Food Stores, 1994-1998 (percent)
West Leads Market for Vitamin and Mineral Use
Table 3-7: Regionality of Use of Vitamins and Minerals, 1998 (percent and index): West, Northeast, Midwest, South
Los Angeles and New York Biggest for Supermarket Sales Portland, Oregon Shows Highest Propensity for Vitamin Purchases Other Top Markets
Sales Stronger in Winter Months

Factors to Market Growth
Prevention and Self-Care Trend
Aging Population Will Drive VSM Sales
Living Longer, Living Well
Diets Deficient in Vitamins and Minerals
New Calcium RDIs Not Met
Higher Levels of Vitamin D
New Recommendations for Vitamins C and E
Folic Acid and Vitamin B12
Increased Interest in Natural Medicines
Increased Use of Herbal Supplements
Growing Interest in Ayurvedic Medicine
Women's Health and Aging
Modern Men's Health Involves Nutrition
Bones and Joints: An Aging Problem
Consumers Seeking VSMs to Fight or Prevent Chronic Diseases
Expanded Mainstream Distribution Adds to Growth
A New Playing Field with DSHEA
FDA Tries to Rein in VSM Industry
Private Testing Group Questions Label Claims
Standardization an Issue
WHO Medicinal Plant Monographs Anticipated by End of 1998
Associations Promote VSM Industry
Research Supports Interest in VSM Products
NIH Takes New Look at International Research
Not All Studies Positive
Too Much Can Be Potentially Harmful
New Products Based on New Science
Mainstream Press Picks Up Trend
Media Plus Extensive Advertising Campaigns Fuel Interest
Retailers Respond
A New Attitude Among Health Professionals
The Role of Medical Schools
A New Publication
HMOs and Insurance Companies Acknowledge Alternative Medicine
Vitamin Users Expanding to Other Products
Potential for Growth: Nearly Half of Adults Still Non-Users
Wall Street Healthy on VSM Sales
Big Players Enter Market, Beef Up Efforts
Foods and Beverages with VSM Ingredients Heighten Visibility, But Could Divert Sales
Increased Competition Leads to Lower Prices
Lack of Education Still an Obstacle
Supply Prices for Natural Vitamins Climbing
Figure 3-3: Projected Retail Sales of US VSM Market, 1998-2003 (dollars)

Projected Market Growth
Sales to Surpass $23 Billion by 2003
9%-7% Growth Rates for Vitamins
25%-17% Annual Growth Rates for Supplements
Minerals to Continue Slow Growth
Growth Expected Well Into the Future
Table 3-8: Projected Retail Sales of US VSM Market, 1998-2003 (dollars)

IV. The Marketers

The Marketers
Approximately 850 Companies in Market
Health and Natural Food Store Suppliers
Dominant Herbal Supplement Companies
Pharmaceutical Supplement Leaders
Cross-Over Now Occurring
Leading Broadline Marketers in the Mass Market
Multivitamin Mass Marketers Usually Large Conglomerates
New Players with Promise
Store Brands Play Important Role
Leading Direct Marketers
Mail-Order Marketers
Table 4-1: The US Market for Vitamin, Supplement, and Mineral Products: Selected Marketers and Brands (224 Marketers)

Marketer and Brand Shares
Leading Brands in Health and Natural Food Stores
Top-Selling Brands in Mass Merchandisers
Top-Selling Brands in Drugstores
Top-Selling Brands in Food Stores
Private Label Major, But Minerals and Supplements Show Decline
Table 4-2: Leading VSM Products Distributed by Nature's Best: By Product Segment Share of Sales, 2nd Quarter 1998 (company, brand/product, percent): 16 Product Segments
Table 4-3: Top VSM Products Sold Through Mass Merchandisers: By Product Segment Share of Sales, 1997 (brand and percent): 5 Product Segments
Table 4-4: Top VSM Products Sold Through Drugstores: By Product Segment Shares of Sales, 1997 (brand and percent): 5 Product Segments
Table 4-5: Top VSM Products Sold Through Food Stores: By Product Segment Share of Sales, 1997 (brand and percent): 5 Product Segments
Table 4-6: Private-Label VSM Sales Through the US Mass Market: By Distribution Outlet and Product Segment, 1995 vs 1997 (percent): 3 Product Segments

Competitive Overview
Increased Competition; Survival of the Fittest
Small Companies Better Positioned to Spring New Products Declining Stock Market Affects VSM Companies
Mergers and Acquisitions
Significant Marketing Budgets
Pharmaceutical Companies Up Activity
Lower Price Points and Greater Selection
Standardization vs Whole Herbal Products
Medical Legitimacy
St John's Wort Wars
Battle Lines Have Blurred
Differences Still Remain in Marketing

Competitive Focus: The Health and Natural Food Sector
New Products Drive Market
A Highly Fragmented Market
The Fight for Shelf Space
Line Extensions Win Shelf Space
Market Segments by Demographics and Symptom
Whole Food Ingredients for the Health and Natural Food Market
Natural and Technical Innovation Drive Market
Marketers Promote Through Health and Natural Food Publications
Advertising Expenditures Up, But Most Competition Still at Store Level
Marketers Stake Claims with In-Store Displays
Retailers Wooed at Trade Shows
Seminars and Lectures

Competitive Focus: The Mass Market
Largest Players Use Consumer Advertising and Promotion
Significance of Good Reputation
Health Food Products Repackaged for Mass Market
Price and Value Competition
Competition by Stores for Their Own Brands
Companies Compete by Specializing
Marketers Offer Plan-O-Grams and Shelf-Stocking Assistance

Competitive Profile: American Home Products Corp
Corporate Overview
Move Toward Pharmaceuticals
VSM Part of Consumer Healthcare Division
Agreement with PharmaPrint
Merger Misses
Acquisition of Solgar

Competitive Profile: Bayer AG
Corporate Overview
Emphasis on Health Care and Life Sciences
Consumer Care Division Handles VSMs
Recent Introductions and Future Plans
Investments in Research

Competitive Profile: Boehringer Ingelheim Pharmaceuticals, Inc (Pharmaton Natural Health Products)
Corporate Overview
Marketing Support for Ginsana
Beyond Ginsana

Competitive Profile: Bristol-Myers Squibb Co
Corporate Overview
VSM Part of Mead Johnson Nutritionals
More Attention to Pharmaceuticals
Future Growth Through International Business

Competitive Profile: Country Life Vitamins
Corporate Overview
History and Growth
Product Marketing Support

Competitive Profile: IVC Industries, Inc
Corporate Overview
Company Brands
Manufacturing Capabilities

Competitive Profile: Johnson & Johnson
Corporate Overview
VSM Products Marketed by McNeil Consumer Products Co
Growth Through New Products and Acquisitions

Competitive Profile: Leiner Health Products Group, Inc
Corporate Overview
A Leading Brand in Mass Market and in Private Label
Expanding Distribution
Healthy Increases for Herbs
Company Innovations
Your Life: Flagship Brand
The "Body Benefits" Category-Management Program

Competitive Profile: Natrol, Inc
Corporate Overview
Health and Natural Food Store Roots, Mass-Market Entry
Over 250 Products
New Products
Natrol Basics Line
Promotional Support
US Patent Awarded
Acquisition of Herbal Tea Line

Competitive Profile: NBTY, Inc
Corporate Overview
Diversified Distribution
New Products and Merchandising
Innovative Company
The Vitamin World Success
Mail-Order Acquisitions
Production Capabilities
Future Growth
Alliance with Advanced Plant Pharmaceuticals

Competitive Profile: Pharmavite Corp
Corporate Overview
Company History
Pharmavite Products
Products Meet USP Standards for Dissolution
Marketing Efforts
Pharmavite Vitamin and Herb University

Competitive Profile: Rexall Sundown, Inc
Corporate Overview
Many Products Sold Through Several Channels
History of Quality at Lower Price
Sundown: The Flagship Brand
Growth in Direct Marketing and Mail Order
More Aggressive Marketing
Other 1998 Activity

Marketing Trends
Growing Emphasis on New Products
Structure/Function Claims in Mass Market
Evidence of Softening as FDA Reacts
Pharmaceutical-Style Packaging and Promotional Materials
Unified Line Names
Use of Branded Ingredients
Marketers Participate in Co-Op Advertising
Endorsements and Celebrities

New Product Trends
Number of VSM Introductions Continue to Skyrocket
Table 4-7: The US VSM Market: Number of New Product Introductions, 1990-October 1998
Products Increasingly Specialized
Formulating VSM Combos: Vitamins with Herbs
"Hot" New Mass-Market Herbal Supplements
The St John's Wort Explosion
Top-Selling Herbs in Health and Natural Food Stores
Products for Demographic Groups
Products Endorsed by Doctors
Cholesterol Lowering Products
Products for Achy Joints
Essential Fatty Acids Diversify
Liquid Concentrates
More Children's Products
Table 4-8: The US Market for Vitamins, Supplements, and Minerals: Selected New Product Introductions, January 1998-September 1998

Consumer Advertising and Promotion
More Spent on VSM Advertising in 1997 and 1998
Many VSM Marketers Advertise
Top Advertisers—$10 Million+
Other Leading Advertisers
Disease Prevention and Cure¾Covertly Advertised
Structure/Function Claims: Limited Medical Language
Use of Claims Varies
Potency and Standardization
Scientific References and Language Sells Products
All-Natural and Whole Plants
Paradise—Or a Life Preserver—in a Bottle
Everyday People
Extraordinary Bodies
Educational Material Promotes Products
Educational Programs Also Sell VSM Products
Coupons and Rebates
Other Mass-Market Promotions
Consumer In-Store Magazines
Radio Health Shows
Contests and Sweepstakes
Examples of Consumer Advertising and Promotion

Trade Advertising and Promotion
Trade Ads Used by Most Marketers
Messages Different in Mass and Health and Natural Food Markets
Marketers Use Displays to Compete for Retail Space
Educational Retail Training Provided by Marketers
Marketers Offer Retailers Shelf-Planning and Maintenance Services
Trade Shows
Discounts Are Common Component of Promotions
Examples of Trade Advertising and Promotion

V. Distribution And Retail

At the Distribution Level
Two Distinct Distribution Sectors
Health and Natural Food Independent Distributors
Several Large Distributors Dominate Health Food Sector
Centralized Warehouses for Large Natural Food Retailers
Health and Natural Food Retailers Buying Direct
Mass-Market VSMs and Warehouse Delivery
A Few Mass Marketers Deliver Direct
Leading Drug Wholesalers
Distributor Margins for the Two Sectors Differ
Forward Buying by Distributors
Distributor Services
Brokers Support Marketers' Sales Efforts

At the Retail Level
Health and Natural Food Stores Retain Largest Share
Figure 5-1: Share of US VSM Sales by Retail Outlet Type, 1998
The Well-Stocked VSM Section
Category Management: Grouping Products by Function
Margins and Prices by Retailer Type

Retail Focus: Health and Natural Food Stores
Sector Essential to VSM Industry
VSMs Account for About 40% of Store Sales
Health Food Chains Are Oriented to VSMs
Educated Personnel
Competition for Health and Natural Food Stores
Meeting the Competition
Stores Growing Larger, Reaching Broader Customer Base
Selling Space for VSMs Is Growing
Number of Full Lines Carried Is Increasing
The Whole Foods Approach
VSM Selection in a Small Natural Food Store
Private Label Growing in Importance
Gross Margins Are Higher
Prices Also Higher
Major Promotional Tools
Slotting Fees—A New Trend?

Retail Focus: Mass Merchandisers
Competing on Price, Selection, and Advertising
Space Devoted to VSM
Private Label Key to Product Mix
Retailers Attracted by High Margins and Growth
Expanded Efforts to Reach VSM Consumers
Wal-Mart's Take Shape Centers

Retail Focus: Drugstores
VSMs Are Important to Drugstores
Responding to Competition from Discounters
Independent Drugstores Banking on VSMs
Organization of VSM Selection
VSM Products Usually Placed Near Pharmacy
Drugstore Staff Typically Not Trained
Increased Shelf Space
Chain Drugs Expanding Variety
Stores-Within-Stores
Gross Margins Exceed 33%
Willing to Offer In-Store Education
Rite Aid's Vitamin Club

Retail Focus: Supermarkets
Share of Sales Small from VSMs
VSMs Usually Located in HBC
VSM Departments Usually Small
Expanding to Second Locations
Full "Health Food Store" Departments
Private Label by Safeway
Training Staff to Answer Consumers' Questions
Gross Margins of 37%
Tips for Stronger VSM Sales

Retail Focus: Multi-Level, Mail-Order, and Internet Marketing
Multi-Level Marketing Works for VSMs
Unique Supplements Are Best Sellers
Personalized Service and Sales Techniques
Mail Order Still Strong on Price
VSMs Are Naturals on the World Wide Web
Web Advantages

VI. The Consumer

Consumer Usage of VSMs
The Simmons Survey System
56% of US Adults Use VSMs
Medium Users Account for Nearly Two-Thirds of Usage
37% Take Herbal Supplements
Women and Older Consumers
Education, Occupation, and Income Linked to VSM Use
Table 6-1: Demographic Characteristics Favoring Use of VSM Products: All Users vs Heavy Users, 1998 (US Adults)
Use and Heavy Use Are Higher in the West
Role of Household Size

Usage by Product Type
Multiple Formula Use Most Common, Followed by Vitamins C and E
Various Types of Supplements Used by About 5% of Consumers Other
Types of Products Used by Less Than 5%
Table 6-2: Percent of Consumers Who Use VSM Products by Product Type, 1993 vs 1998 (US Adults)
Vitamin E Most Popular Supplement
TheWhole FoodsSurvey of Health and Natural Food Shoppers VSM Products Used by Health and Natural Food Shoppers
Table 6-3: Percent of Health and Natural Food Store Shoppers Who Purchased VSM Products: By Product Type, 1996 vs 1998 (percent): 34 Type of Products
Increases and Decreases

Demographics by Product Type
Indicators for Use of Multiple Formula
Older Consumers, Small Households, and Westerners Use Vitamin C
Indicators for Use of Vitamin E
Older Women Use Calcium
Indicators for Use of Vitamin B-Complex
Education Not Factor for Vitamin B12 Use
Indicators for Use of Garlic Supplements
Broad Age Span for Use of Antioxidants
Young Mothers Buy Iron
Indicators for Use of Herbal Supplements
45+ Brackets Are Prime Users of Beta Carotene
Indicators for Use of Vitamin A
Table 6-4: Demographic Characteristics Favoring Use of VSM Products: By Product Type, 1998 (US Adults): Multiple Formula, Vitamin C, Vitamin E
Table 6-5: Demographic Characteristics Favoring Use of VSM Products: By Product Type, 1998 (US Adults): Calcium, Vitamin B-Complex, Vitamin B12
Table 6-6: Demographic Characteristics Favoring Use of VSM Products: By Product Type, 1998 (US Adults): Garlic, Antioxidants, Iron
Table 6-7: Demographic Characteristics Favoring Use of VSM Products: By Product Type, 1998 (US Adults): Herbal Supplements, Beta Carotene, Vitamin A

Consumer Purchasing Patterns
Highest Percentage Shop for VSM Products at Drugstores
Older Consumers, Women, and Northeasterners Purchase at Drugstores Indicators for Shopping at Mass Merchandisers and Discount Stores Consumers Age 35-44, Westerners, and College Graduates Buy from Food Stores
Indicators for Purchasing in Health and Natural Food/Vitamin Stores Aging Boomers and Older, Women, and College-Educated Buy by Mail Table 6-8: Where Consumers Shop for VSM Products, 1993 vs 1998 (percent): 6 Outlets
Table 6-9: Demographic Characteristics Favoring Purchase of VSM Products: By Retailer Type, 1998 (US Adults): Drugstores, Mass Merchandisers/Discount Stores, Supermarkets/Groceries Table 6-10: Demographic Characteristics Favoring Purchase of VSM Products: By Retailer Type, 1998 (US Adults): Health Food/Vitamin Store, Mail Order

Consumer Attitudes
Reasons for Supplementation
Educated Shoppers
Why Consumers Do Not Take VSM
Beliefs About Herbal Supplements
Preference for Mass-Market Shopping

Appendix I: Examples Of Consumer Advertising And Promotions
Appendix II: Addresses Of Selected Marketers