From the editor's desk

Is going big the only way to win in the supplement industry?

By Hank Schultz

- Last updated on GMT

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Related tags Regulation Ingredients botanicals

The inauguration of a huge, shiny, new (well, repurposed) facility leads to the question of what scale in the industry best serves the dietary supplement consumer.

The new facility which formally opened in Broomfield, CO this week is devoted to the manufacture of CBD isolates.  It is largest and one of the most sophisticated of its type that I’ve seen.

The company that operates it, Mile High Labs, was saying all the right things about GMP compliance, quality control procedures, laboratory and manufacturing certifications and so forth.  Doing all that stuff takes money, and Mile High Labs seems to be very well funded.

Advantages of operating at the largest scales

Mile High Labs has ample room to grow at their newly repurposed facility, which at one time churned out millions of Xanax dosages annually.  That scale will put the company in a position to flourish when the regulatory pieces fall into place and large CPG customers come calling with orders for hundreds or thousands of kilos of product.  So this is a case of where shooting for large scale is helping a company do things right.

Another company that touts the benefits of operating at a large scale is Aker BioMarine.  The company has bought out the krill oil operations of two other competitors and now is the world’s largest harvester of krill. 

Fishing for krill in the waters off the Antarctic continent is not for the faint of heart nor the shallow of pockets.  Aker BioMarine, which is part of a large, diversified industrial conglomerate,  is now hundreds of millions of dollars into its investment in the krill business.

Aker CEO Matts Johansen has said on a number of occasions that being big of course helps the company be able to use economies of scale to profitably participate in this necessarily high cost endeavor.  But it also helps the company get the sustainability piece right, too, Johansen says, by giving it a margin to devote toward supporting ongoing science in the biology and life cycle of the krill swarms.

Economies of scale have made an impact on other aspects of the supplement industry.  Almost all of the servings of most vitamins that are added to foods, beverages and which are used in many multivitamin supplements come from just a few factories in China. Ditto for CoQ10.

While ingredients produced at scale are generally lower cost and in some cases might be better made, this is not always a case of go big or go home.  There needs to be a place for smaller companies in the supplement industry, too.  

Niche botanical products

Many companies dealing in botanical products deal at a small scale. They are contracting with wildcrafters or brokers for small lots of product that are sold into niche markets.

Even some companies that have grown to a significant size in this market, such as Sabinsa, have to devote time to developing relationships with small operators.  During a tour of their farming operations in southern India I saw how Sabinsa contracts with hundreds of small holding farmers to grow much of their botanical raw material such as turmeric root. 

Other botanical materials are sourced in forest areas in various parts of the globe. These can be result of local small scale development projects that benefit indigenous communities.

Part of the beauty of the supplement industry is that it still maintains this connection to local communities.  And it still avails itself of the wisdom of traditional herbal medicine systems.

There is an ongoing friction between the development of more and more sophisticated and demanding regulatory regimes and the realities (sometimes literally) on the ground at this lowest local level of the industry.

Keeping a place open for the smallest firms

I’m not arguing that the producers of artisanal products should be exempt from safety regulations.  Even if someone knows echinacea (for example), grows echinacea, and planted the field where they’re harvesting their raw material, they still should be able to prove to a third party about what’s inside the bottle and that that product is clean.

On the other hand, while there is certainly a place for and need for big, gleaming facilities of the sort I toured on Tuesday, I think it would be a shame if that became the sole way to success in this industry.

In the food realm most of the innovation comes from small companies, and the same seems to be true in the supplement realm as well.  I think there should be a place for entrepreneurs with a personal story and the right kind of drive to have a business within this industry.  Would we really want hedge fund managers deciding what kind of supplements consumers should have?

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