NLEA Allows Health Claims The Dietary Supplement Health and Education Act FDA Attempts to Reassert Itself but Fails Product Breakouts The Market
Growth Steady Across Categories, Slows for Supplements Table 1-1: Retail Sales of U.S. Vitamin, Supplement, and Mineral Market, 1995-2004 (dollars) Sales by Retail Outlet Type Top-Selling Herbs by Retail Channel U.S. Heartland Sees Greater Increase in VSM Sales Positive Factors Affecting Market Growth Negative Factors Affecting Market Growth The Marketers
Leading VSM Marketers Private-Label Brands Hold Large Share of Shelf Space Variant Marketing Methods by Retail Channel Increased Competition Will Lead to Shake-Out Competition Still New Product Driven Table 1-2: The U.S. VSM Market: Number of Product Introductions, 1990-1999 Line Extensions Used to Gain Shelf Space New Products Targeted to Demographic Groups Emotional Health and Memory Digestive Products Improve VSM Industry Bottom Line Endorsements and Celebrities Pharmaceutical Packaging Assures Consumers Use of Branded Ingredients Standardization vs. Whole Herb Big Spending on Advertising Not Necessarily Effective M&A and Investments Diversify and Strengthen Market Distribution and Retail
Many Buy Direct Distributor Margins for the Two Sectors Number of Stores Carrying VSM Private-Label Products Proliferating Larger Retail Margins in Health and Natural Product Stores Health and Natural Product Stores Retain Largest Market Share Drugstores a "Natural" for VSM Sales Burgeoning Product Sets Cause "ConSKUsion" Mass Merchandisers Compete on Price; Going After Drugstores Supermarkets: The Undeveloped VSM Channel Direct Sales an Important VSM Channel Internet Has Potential for Growth The Consumer
Demographics of VSM Users Measured Types of Use Declined from 1998 to 1999 Multiple Formulas Most Popular, Followed by Vitamins C and E Table 1-3: Percent of Consumers Who Use VSM Products by Product Type, 1999, 1998, 1993 (U.S. Adults) The Importance of Brands Belief in Necessity of VSM Is Growing Reasons for Taking VSM Products Opinions About Safety Hungry for Herbal Information
History of the Industry
A Market Develops First Laws Governing Vitamins Controversial Megadoses Show Promise "Miracle Properties" of Vitamin E Prompt FDA Attention FDA Labels High-Potency Vitamins as "Drugs" Proxmire Amendment Reins in FDA, Opens Market NLEA Gives FDA New Rules and Power FDA Frustrates VSM Marketers after NLEA Passage of DSHEA Is Victory for Industry DSHEA Structure/Function Claims vs. Disease Claims FDA Rules for DSHEA Implementation Upset Industry Final Rules for Structure/Function Claims Released January 2000 Implementation Plan Litigation Forces FDA to Review NLEA Health Claims NLEA Implementation Not Yet Final . . . . . . But Claims Are Still Pouring In Status of Cholestin Product Breakouts
Product Definition: Vitamins Of 30 Known Vitamins, Only 14 Have Been Quantified Fat-Soluble or Water-Soluble Antioxidant Vitamins Scavenge Free Radicals Product Definition: Supplements Herbal Products Top Segment Phytonutrients: Health-Promoting Compounds in Vegetables Product Definition: Minerals 18 Minerals, but RDIs Currently Set for Only 12 VSM Combos—An Emerging Category Other Delivery Systems Compete with Pills Single-Element vs. Multivitamins/Minerals Adults' vs. Children's Synthetic vs. Natural Health and Natural Product vs. Mass Market Table 2-1: Guide to Vitamins (16 Vitamins) Table 2-2: Guide to Supplements (83 Supplements) Table 2-3: Guide to Active Minerals (14 Minerals) Government and Industry Regulators
RDAs, RDIs, DRVs, and DVs Higher RDAs Likely for Older Americans Tolerable Upper Intake Levels Supplement Facts Panels FDA Confounded by DSHEA Structure/Function Statements Third-Party Literature Current NLEA Health Claims New Health Claims Possible Under Pearson v. Shalala Trade Associations
American College of Nutrition American Herbal Products Association American Nutraceutical Association Citizens For Health Consumer Healthcare Products Association Council for Responsible Nutrition Herb Research Foundation National Nutritional Foods Association The U.S. Pharmacopoeia
Numbers Vary by Source 1999 Sales Estimated at $9.6 Billion Sales Increases Strongest for Minerals Supplement Category Growth Spurred by New Substances Vitamin Growth Remains Steady VSM Combos Contribute to Growing Market Table 3-1: Retail Sales of U.S. VSM Market, 1995-1999 (dollars) Market Composition
Table 3-2 Share of VSM Product Sales by Categories and Types, 1999 (percent): 6 Types Top Performers in Vitamin Category Herb Sales Down but Other Supplements Rising Calcium Sales Up Health and Natural Product Stores Remain Primary Outlet Drugstores Hold Number-Two Share of VSM Market Slight U.S. Growth for Direct Sales Mail-Order and Internet Sales Account for 5% Table 3-3: Share of U.S. VSM Sales by Retail Outlet Type, 1999-1998 (percent): 6 Types Top-Selling Herbs by Retail Channel Mass-Market Herb Sales Rising and Falling U.S. Heartland Sees Greater Increase in VSM Sales Heavy Users Distributed Across America Table 3-4: Regionality of Heavy Use of VSM Products, 1999 (percent and index): Midwest, West, South, Northeast Factors Affecting Market Growth
Aging Population Will Drive VSM Sales Living Longer, Living Well DSHEA Final Rules Good for Industry OTC Labeling Opened to VSM Products Soy Health Claim Authorized Nutrient-Deficient Americans Need VSMs Calcium for Aging Bones Painful Joints: An Aging Problem Growth for Menopause Herbs Supplement Support for Older Men NIH Takes New Look at International Research U.S. Research on VSM Products Accelerates VSM Still Has Large Untapped Market Media Exposure Raises Profile of VSM Products Big-Dollar Advertising Campaigns Fuel Mass-Market Sales Mass-Market Chains Become Supplement Savvy More Health Professionals Endorse VSM Usage Health Insurers and HMOs Begin to Cover Supplements Market Responds to New Products Lack of Quality Highlighted by Press Spikes in Demand Cause Presence of Poor Quality Products Consumer Disappointment Slows Growth Mainstream Health Professionals Have Quality-Control Concerns NNFA GMP Seal Will Enforce High Standards Better Quality Control Sought through Methods Validation Move to Standardization Standardization Could Backfire Research Investments Offer Little Competitive Advantage Not All Studies Positive Phytonutrient Safety Questioned Functional Foods Could Cut Sales Growth But Not Widely Accepted in Health and Natural Channel Private-Label Expansion Lowers Sales Growth Projected Market Growth
6%-9% Growth Rates for Vitamins 7%-11% Annual Growth Rates for Supplements 7%-9% Growth Rates for Minerals Growth Expected Well into the Future Table 3-5: Projected Retail Sales of U.S. VSM Market, 1999-2004 (dollars)
Health and Natural Product Store Suppliers Dominant Herbal Supplement Companies Cross-Over into Mass Market Leading Mass-Market Broadline Marketers Large Conglomerate Mass Marketers Private Label Plays Important Role Leading Direct Marketers Table 4-1: The U.S. Market for Vitamin, Supplement, and Mineral Products: Selected Marketers and Brands (171 Marketers) Marketer and Brand Shares
Table 4-2: Leading VSM Products Distributed by Nature's Best: By Product Segment Share of Sales, 3rd Quarter 1999 (company, brand/product, percent): 16 Product Segments Top-Selling Brands in Mass Merchandisers Table 4-3: Top VSM Products Sold Through Mass Merchandisers: By Product Segment Share of Sales, 1999 (brand and percent): 5 Product Segments Top-Selling Brands in Drugstores Table 4-4: Top VSM Products Sold Through Drugstores: By Product Segment Shares of Sales, 1999 (brand and percent): 5 Product Segments Top-Selling Brands in Food Stores Table 4-5: Top VSM Products Sold Through Food Stores: By Product Segment Share of Sales, 1999 (brand and percent): 5 Product Segments Mass-Market Private Label Holds Strong Share Table 4-6: Private-Label VSM Sales Through the U.S. Mass Market: By Distribution Outlet and Product Segment, 1999 vs. 1997 (percent): 3 Channels, 4 Product Segments Private Label Growing in Health and Natural Channel Competitive Overview
Big Spending on Advertising Not Necessarily Effective Competition New Product Driven Race to Launch New Types of Supplements Joint-Support Products Fluid First-to-Market Enjoy Competitive Advantage Marketers Tout Unique Product Benefits Innovation Drives Market Mergers and Acquisitions Diversify and Strengthen Market Equity Investors Fuel Growth Move Toward Standardization Standardization Technology Encouraged Standardization Used as Selling Point Publicized Independent Studies Popularize Standardization Beyond Standardization Marketers Position VSMs at OTC Alternatives Fighting for Export Markets Structure/Function Line Extensions Used to Stay Competitive Delivery Systems Point of Differentiation Private-Label Brands Garner More Shelf Space Competitive Profile: American Home Products Corp.
Primarily a Pharmaceutical Company VSM Part of Consumer Health Division Centrum Best-Selling Multivitamin Centrum Herbals Steeped in Lawsuit Focus Formulas New Centrum Performance Soy Addition to Caltrate Line Solgar Brand Grows Slowly A String of Unsuccessful Merger Attempts Lederle Retained in Cyanamid Sell-off Competitive Profile: Herb Pharm
Company History Full-Spectrum, Whole-Plant Herbal Extracts Quality Assurance Standards Product Reputation Best Selling Tool Education Contributes to Company's Success Tried and True Product Line Competitive Profile: Leiner Health Products Group, Inc.
Private Label Bulk of Company Sales A History of Innovations Body Benefits Clarify Consumer Use Megatrends Marketing Approach Company Increases Advertising to Bolster Lagging Sales Publicity Focuses on Women's Health New Products and New Manufacturing Capabilities Granutec Acquisition Increases OTC Business Competitive Profile: Nu Skin Enterprises, Inc.
Three Distinct Divisions Company History Locally Produced and Managed The Pharmanex Division Research Facilities The Cholestin Controversy New Products and Ventures New Distribution Channels Competitive Profile: Nutraceutical Corp.
Centralizing a Diverse Product Line Exclusively Through Health Product Channel Research Supports Company Growth New Product Innovation Drives Sales Competitive Profile: Omni Nutraceuticals
Diverse Product Lines Company Embracing the Internet Multiple Sizes for Different Classes of Trade Patents Give Company Competitive Edge Clinical Trials Bolster Product Claims Ad Expenditures Up in 2000 Company Shifts to a Distributor/Broker Network Cash Infusion Boosts Growth Competitive Profile: Pfizer, Inc. (Pfizer Inc. and Warner-Lambert Co.)
Company's Product Lines Lipitor Partnership Joined Companies in 1996 Quanterra Line Part of Warner-Lambert's Consumer Health Division Quanterra Sales Sluggish Despite Heavy Ad Spending Competitive Profile: Rainbow Light Nutritional Systems, Inc.
Company History More Than 130 Products, Herbalist-Formulated Food-Based Approach Five Product Groups Company Sells Systems, Not Single Nutrients Known for Quality Ingredients Health and Natural Product Stores Main Customer Store-Within-a-Store Customers Next Online Direct Selling New Direction Competitive Profile: Rexall Sundown, Inc. (Royal Numico)
Acquired by Royal Numico Products Sold Through Diverse Channels History of Company Aggressive Marketing Acquires Two High-Growth Category Companies Company Divests Mail-Order Division Direct-Sell Website Launched Enters Children's Supplement Segment International Opportunity in Japan A Growing Private-Label Business Marketing Trends
Established Marketers Expand on Proven Products Endorsements and Celebrities Pharmaceutical Packaging Assures Consumers Repackaging for Structure/Function Category Management Novel Packaging Use of Branded Ingredients Purity of Ingredients Lends Cachet to Natural Brands Natural Product Store Exclusivity Selling to Seniors Selling to Children New Product Trends
Table 4-7: The U.S. VSM Market: Number of Product Introductions, 1990-1999 Line Extensions Used to Gain Shelf Space Unique Delivery Systems Colostrum a New Antioxidant Immune Builder Other Immune-Building Introductions Products for an Aging Population Joint Health Products Continue to Grow Eye-Health Products Abound The SAME-e Story Sexual Performance Products Memory Health Digestive Products Improve VSM Industry Bottom Line Plethora of Cleanse Products Heart-Health Sales Pumping Women's Health Children's Supplements Teens a Newly Targeted Market Table 4-8: The U.S. Market for Vitamins, Supplements, and Minerals: Selected New Product Introductions, January 1999-April 2000 Consumer Advertising and Expenditures
Many VSM Marketers Advertise Top Advertisers—$10 Million or More Other Leading Advertisers Advertising Positioning
Structure/Function Claims Cautious Changes in DSHEA Positive for VSM Marketers Selling Hard Science Male Authority Figures Endorse Product Technology and Engineered Processes Prime-Time Selling Physical Relief ….. ….And Emotional Relief Protecting Family and Loved Ones Keeping One's Competitive Edge Talking Directly to the Consumer Visual Gimmickry Draws in Reader Inner Beauty Equals Outer Beauty and Energy Examples of Consumer Advertising Consumer Promotion
Booklets and Newsletters Keep Consumers Informed Consumer In-Store Magazines Point-of-Sale Materials Are Educational Coupons and Rebates Sampling and Product Give-Aways In-Store and Staff Seminars Examples of Consumer Promotions Trade Advertising and Promotion
Ads Focus on Category Management and Profit Ingredient and Company Quality Contests and Sweepstakes Marketers Use Displays to Highlight Product Marketers Provide Educational Retail Training Marketers Offer Retailers Shelf-Planning and Maintenance Services Trade Shows Opportunity to Showcase Products Discounts Common Component of Promotions Examples of Trade Advertising and Promotions
Health and Natural Product Stores: A Distinct Distribution Channel Large Distributors Dominate Health Product Sector Health and Natural Product Distributors Gain Mass-Market Sales Leading Drug Wholesalers Distributor Services Add Value Mass Distributors Enlist Pharmacists as VSM Advocates The McKesson NutriStation Program Supermarket Distributors Focus on "Whole Health" Little Mass-to-Natural Distribution Crossover Many Mass-Market Retailers Buy Direct Selling Direct Offers Rewards to Marketers Direct Contact Keeps Product Top-of-Mind Distributor Margins Highest in Health and Natural Product Channel Using Brokers to Get and Keep Accounts Consolidation and Melding Expected Mass-Market Distributors May Target Health and Natural Stores Loyalty Counts but Lessening At the Retail Level
Health and Natural Product Stores Retain Largest Share Mass-Market Sales by Outlet Table 5-1: Share of U.S. VSM Sales by Retail Outlet Type, 1999 (percent): 6 Types of Outlet The Well-Stocked VSM Section Private-Label Products Proliferating DSHEA Rules and FDA Regulations Mold Retail Environment Retail Environment Makes Brands Less Important Some Products Cannot Be Categorized Margins by Retailer Type Retail Focus: Health and Natural Product Stores
VSMs Essential to Stores Five Types of Health and Natural Product Stores Supplement Chains Critical to Industry Success Supplement Chains Push Out Independents Competition for Health and Natural Product Stores Meeting Mass-Market Competition Newsletters and Seminars Customer Support Is Key Building Repeat Customers Spotlights on Latest Product VSM Product Sets in a Typical Natural Food Store Structure/Function Category Support Whole Foods Emphasizes Private Label Advertising and Promotions Increased Use of In-Store Magazines Retail Focus: Drugstores
Education with Assistance from Manufacturers and Distributors Chains Educate Their Pharmacists Rite Aid and GNC Join Forces Burgeoning Product Sets Cause "ConSKUsion" VSM Set at a Typical Chain Drug Retail Focus: Mass Merchandisers
…and Sales Growing Fast Top Mass Merchandisers Competing for Drugstore and Supermarket Customers Wal-Mart's OneSource Kmart's Nutritional Guide A Typical Kmart VSM Set Costco Emphasizes Big and Cheap Retail Focus: Supermarkets
Potential for Greater Sales The Whole Health Road to Increased Sales Whole Health in the Kansas City Metro Area Minneapolis Chain Leads Whole Health Race Whole Health Integrated in the Store Private-Label VSM on the Rise Retail Focus: Direct Sales
Companies Range Greatly in Size and Scope Sales Growth Relatively Flat for Majors Federal Scrutiny of Recruitment Practices Retail Focus: The Internet and Mail Order
Types of Internet Businesses Online Leaders Other Online Vendors Sell VSM Stores Use Internet as Marketing Tool Direct Marketers Go Online Online Retailers Strengthen Positions Information-Based Sales Large Advertising Expenditures Online Retailers Far from Profitable Mail Order May Move to Internet Examples of Retail Advertising and Promotions
54% of U.S. Adults Use VSMs Medium Users Account for Two-thirds of Usage Women and Older Consumers Education, Occupation, and Income Linked to VSM Use Region and Race Not Factors; Small Household Size Shows Tendency Table 6-1: Demographic Characteristics Favoring Use of VSM Products: All Users vs. Heavy Users, 1999 (U.S. Adults) Use by Product Type
Increases and Decreases in Use from 1993 Multiple Formula Use Most Common, Followed by Vitamins C and E Various Types of Supplements Used by 3%-5% of Consumers Other VSM Products Used by Nearly 7% Table 6-2: Percent of Consumers Who Use VSM Products by Product Type, 1999, 1998, 1993 (U.S. Adults) Health and Natural Product Store Shoppers: The Whole Foods Survey VSM Products Used by Health and Natural Product Store Shoppers Increases and Decreases Table 6-3: Percent of Health and Natural Product Store Shoppers Who Purchased VSM Products: By Product Type, 1999, 1998, 1997 (percent): 39 Types of Products Demographics by Product Type
Older Consumers, Both Sexes, and Westerners and Northeasterners Use Vitamin C Indicators for Use of Vitamin E Older Women Use Calcium Indicators for Use of Vitamin B-Complex Vitamin B12 Use High in West and South Indicators for Use of Herbal Supplements Indicators for Use of Garlic Supplements Women and All Ages Buy Iron Broad Age Span for Use of Antioxidants Indicators for Use of Vitamin A 45-64 Age Bracket Prime User of Stress Formula Table 6-4: Demographic Characteristics Favoring Use of VSM Products: By Product Type, 1999 (U.S. Adults): Multiple Formula, Vitamin C, Vitamin E Table 6-5: Demographic Characteristics Favoring Use of VSM Products: By Product Type, 1999 (U.S. Adults): Calcium, Vitamin B-Complex, Vitamin B12 Table 6-6: Demographic Characteristics Favoring Use of VSM Products: By Product Type, 1999 (U.S. Adults): Herbal Supplements, Garlic Supplements, Iron Table 6-7: Demographic Characteristics Favoring Use of VSM Products: By Product Type, 1999 (U.S. Adults): Antioxidants, Vitamin A, Stress Formula Attitudes and Use by Brand
35% Choose by Brand Minor Brands and Private Label Used by Highest Percentage Table 6-8: Percent of Consumers Who Use VSM Products by Brand, 1999 (U.S. Adults) Demographics by Brand
Profile of Users of Other Brands Demographics of Centrum Users Centrum Silver Users Are Older Table 6-9: Demographic Characteristics Favoring Use of VSM Products: By Brand, 1999 (U.S. Adults): Store Brand, Other Brands, Centrum, Centrum Silver Consumer Purchasing Patterns
Few Shop by Mail or Phone Consumer Attitudes
Growth in VSM Use as Alternative to Conventional Medications Consumers Take VSMs to Maintain Health and Feel Better Fighting Colds and Flu Living Longer, Looking Better Role of Herbal Remedies Unsure of Safety Use Will Continue Despite Professional Advice But Many Not Sure of Efficacy Government Oversight Sought Hungry for Herbal Information Key Information Sources Appendix I: Examples OF Consumer Advertising
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