From the Editor's Desk
Focus on supply chain will help top quality brands weather commoditization storm
The supplement market is going through a revolution similar to what happened beginning decades ago in the brick and mortar retailing of consumer packaged goods. Back in the day Walmart pioneered a strategy of driving hard bargains with suppliers and leveraging economies of scale to offer goods at prices that other retailers couldn’t match. The hollowing out of main street, with boards replacing windows at mom and pop retailers, is an old story, but one that is still relevant.
Revolution in supplement retailing
A similar revolution in the retailing of dietary supplements is now being abetted by Amazon and other online retailers. The cost savings and economies of scale offered by these platforms will be increasingly hard for standard brick and mortar outlets to compete with. And it will present an ever harder challenge for established supplement brands, regardless of where they sell their products.
For the natural products business, the threat is obvious. I did search just now on Amazon with the term ‘dietary supplements’ and came up with more than 50,000 hits. That means that a majority of the dietary supplements on the market today can be purchased on the site.
A good amount of these are sold by recognizable manufacturers, including Amazon’s own private label brands. But many are branded with the names of companies you’ve never heard of. What’s the value proposition of these unknown brands? They’re cheap.
Ecosystem feeding into online platforms
There is a whole ecosystem within the industry that supports these kind of products. One contract manufacturer who shall remain nameless here (I’m sure there are others) caters specifically to these kinds of sellers. A seller can start with a small order, a few hundred or a couple of thousand bottles, and bingo! Another hit goes up on Amazon for the ‘dietary supplements’ search.
Potential new brand holders can get onto the market in a matter of weeks, or a few months at most. And it’s probably a fair assumption that few of these new brand holders will have same kind of understanding of the importance of supply chain integrity as do established brands.
For example, a recent sampling the online market for essential oils found that few of the products tested met quality standards. The established dietary supplement manufacturer that did the testing said this might be attributed to an unfamiliarity with the supply chain complexities of essential oils on the part of these still wet behind the ears sellers.
One of the online supplement brands that I found during my recent search was advertising a ‘new product from established manufacturer’ on its store front. When going to that company’s website, one finds that when you get past the glitzy graphics and photos of attractive young people obviously enjoying their health, most of the text that would otherwise describe the products is the same bit of Latin, an old programmer’s shorthand for “text to come here.”
These sellers rely on the sourcing done by the contract manufacturer. This might be done well. But with the relentless drive toward low cost, there is a definite incentive to cut corners.
Supply chain integrity as differentiator
It seems unlikely that established manufacturers will be able to compete with these brands on price, speed to market, etc. To survive, established brands that are proud of their products will need to make an ever more convincing case for their quality.
This is much easier done in other product categories than it is for supplements. Mercedes Benz, for example, doesn’t have to convince people it has a high quality product. Most car buyers have enough knowledge of the car market to recognize a high quality automobile when they see one. The only question is are they willing to pay what Mercedes is asking.
It’s a tougher row to how in supplements. Put five of the same sort of product from different brands on the table. How many consumers could tell at first glance which ones are good, and which are junk? Nevertheless, the best companies have found ways to make this case, and one of the key pillars of that strategy is being open and transparent about your supply chain.
The days of brokers holding the source of their ingredients as a trade secret are numbered. For brands to earn the kind of repute that will underpin the kind of quality that consumers will ante up for, they will need to be able to say where all of—or at least their primary—ingredients come from.
Selling the relationships, not the stuff
While there is a natural tendency to want to hold as many aspects of one’s business as private as possible, it won’t be easy or even feasible for would be knockoff brands to replicate these kinds of reputable supply chains. What we’re really talking about here is relationships, with the farmers, the aggregators, the extractors and on up the line.
This is a human chain. It’s one in which you know the grower and make a case for how your business improves his or her life. Where you know your ingredient producer and the quality of their work, and can supply the registration, inspection and testing documents to prove it.
Being able to make that case in a forthright manner will go long way toward proving that a supplement is in the top class and is worth what you’re charging for it. (This doesn’t necessarily mean a good product has to carry a premium price tag, by the way, given the typical margins in this industry.) Without those assurances, all this talk of ‘science backed’ and ‘top quality ingredients’ is just so much hot air.