The dietary supplement business, which is quoted as being worth up to $39 billion in the US domestic market, is rapidly becoming an interconnected global enterprise. This has been true for years on the supply side, and is now becoming more the case in the marketing of finished products, too. Usana is an example: It’s a MLM based in Salt Lake City focused on the sale of supplements and functional foods that in recent years has derived so much of its revenues from sales of products in mainland China that it was called by one analyst as “basically a Chinese company.”
Shocks in trade
So recent shocks in the course of international trade is of interest to the supplement sector. Beyond the fact that international trade has become one of the bigger political footballs in this fractious election season, the first big chunk of concrete evidence that something was amiss came with the bankruptcy at the end of August of the South Korean shipping giant Hanjin, an event that the Los Angeles Times called the “tip of the iceberg.” The global shipping industry is expected to lose $5 billion this year, according to London-based Drewry Shipping Consultants.
The more recent article in The New York Times said that global trade was flat in the first quarter of 2016 and fell by 0.8% in the second. US exports and imports fell by more than $200 billion last year, the Times said. It is said to be the first time since World War II that international trade has fallen during a time of global economic expansion.
Sluggish international growth is the primary driver of the shipping crisis. China’s days of double digit GDP growth seem to be over, and despite the durable economic performance of countries like Germany the EU as a whole has seen anemic growth since the depths of the 2008-2009 financial crisis.
The feeling of malaise is real
What does this mean for the dietary supplement industry? International business consultant Steve Hanson said one thing he’s learned in his frequent travels around the globe this year is that this mood of malaise is a very real thing.
“I can agree with a lot of what’s in The Times article because I have seen that in person in terms of how people are looking at things. Business in general is good but there is an economic uneasiness in a lot of markets, in Southeast Asia, in Western Europe, in Japan,” Hanson told NutraIngredients-USA.
As far as the impact that feeling of malaise has, Hanson puts supply and finished goods on different sides of the coin.
“I think trade fluctuations have less impact for ingredients than for finished products. If a company is supplying something that is unique, there will still be enough demand even if some of the finished goods brands are struggling,” he said.
Hanson said the special features of the Chinese market are more important than macro economic factors, though those must surely come into play at some point. For starters, he said the purchase of dietary supplements is a luxury choice, and supplement buyers in China and other East Asian markets are increasingly looking to get those benefits in the foods they purchase.
“The sales of supplements is still growing but not as fast. On the flip side, we see more rapid growth in healthy foods or organic foods,” he said.
Hanson said that the way products are sold is rapidly changing, too.
“GNC was one of the first US retail brands that initially had success in China,” Hanson said. “But now the growth is not coming from brick and mortar, it’s coming from cross-border (online) sales direct to consumers.”
Hanson said that the combination of a shift toward online sales combined with a culture of gift purchases means the sales of supplements in China could become more cyclical and seasonal than it has been in the past. Chinese consumers are attuned to buying consumer goods in elaborate packaging to give as gifts, which limits shelf space in brick-and-mortar outlets but is of less importance in online sales. These gifts are given during the holiday season, and one of the biggest gifting holidays is coming up on Nov. 11: Singles Day, a relatively new holiday celebrating unmarried people that has been co-opted in a huge way by online retaling giant Alibaba Group. According to one source, the retailer sold $14.3 billion worth of goods in 24 hours during the holiday last year on its sales platforms taobao.com and tmall.com. Alibaba says it expects to top that record this year.
Hanson said savvy supplement marketers are seeing the gifting economy as a sales opportunity.
“It’s an opportunity for companies to bundle products, for instance, putting an omega-3 supplement into a gift package with some other products,” he said.