At the moment market research firms don’t seem to have a good handle on how to quantify these sales. Some of the public companies involved in the sector, such as GNC, have published some figures about how their online sales platforms are doing. But for the most part those companies are using the channel to support their brick and mortar operations, not as an end in itself.
Guessing at the size of the market
The estimates I’ve heard are that anywhere from 5% to as much as 20% of overall dietary supplement sales might be made online. But it is really a rough guess.
Paul Jarrett, CEO of sampling and market research firm BuluBox, confirmed for me the difficulty of sizing this market. In doing research for a presentation he made to investors, he said he found that about 18% of all consumer packaged goods purchases are now made online.
Jarrett said that that figure seems to be growing at about a 3% to 5% yearly clip. If the 5% figure is correct, and other factors of the market remain more or less the same, that means the online share of all CPG sales could be between 30% and 40% in 15 years, if we use the old ‘Rule of 72’ rule of thumb investment calculation.
Of that 18% of all CPG sales, Jarrett said he found that 60% or so of those shoppers made their purchases on Amazon. In doing more research on Amazon supplement sales specifically, Jarrett said he found that there are about 3 times to 4 times as many products for sale online as in brick and mortar outlets.
This fits in with what I’ve gleaned from contract manufacturers who cater to this trade. One such manufacturer with whom I spoke at a trade show said he had many clients who entered the dietary supplement industry by bringing a concept to him, and then going straight to online sales with the resulting finished goods that the contract manufacturer private labeled for them. Some of these brand holders started with as few as several hundred bottles and went on to become major customers, he said.
Why bother with brick and mortar?
Jarrett said one brand holder he met at a recent retailer conference said he is doing $40 million in sales on a lone dietary supplement product that he launched exclusively online. “After going to the event, he couldn’t understand the concept of paying for speed dating with retailers. He scoffed at the idea of having to ask a retailer to carry his product,” Jarrett told me.
Jarrett said he now advises entrepreneurs that going online first can be a lower cost way to bring in some revenue and hone product concepts without the delay, difficulty and risks associated with a brick and mortar launch.
In another anecdotal account, I met an entrepreneur in a plane whose sole activity was selling things on Amazon. Pretty much anything he could get a supply of, including ingestible products. While we were in line for takeoff his phone beeped repeatedly with transactions.
The growth of the online sales world has many implications for society as a whole. The hollowing out of sales tax receipts, the destruction of local businesses, boarded up retail districts, etc.
For the stakeholders in the dietary supplement industry, the question is who are these entrepreneurs, and how can they be engaged for the good of the industry as a whole? Few of these brands seem to be interested in joining trade associations, contributing to industry initiatives or negotiating with regulators.
“They are making so much money, growing so fast and doing so well that they don’t really care how things have been done up to now,” Jarrett said.
There is nothing inherent in the online sales platform that might lead one to conclude that these brands are cutting corners. But as they are currently flying pretty much under the radar, there’s no way to know.
No tidal wave of snake oil
That constitutes a major point of risk for the industry, or it seems to me. Trade organizations and educational groups are going to have to find a way to provide services specific to these kinds of companies, so that becoming members, and therefore taking a seat at the table, is seen as something that’s valuable for their brands. That looks to be a hard sell at the moment.
On the bright side, Jarrett said being online means that website reviews conducted by FDA would be fairly simple in the future. And if most of these products are made at a fairly small cadre of contract manufacturers, on site inspections might be simplified. So the fear that the online world might unleash a new tidal wave of snake oil salesmen on unsuspecting consumers might be overblown.
Nevertheless, it can’t help industry stakeholders to sleep at night to know that there is a whole army of companies that have pitched their tents in a far off field yet are still flying the banners of the dietary supplement industry.