After high single-digit growth at this time last year in the food and drug channels of trade, all three mass channels are witnessing 3% to 5% declines in vitamin/supplement sales over the past five months.
"We anticipate continued weak vitamin, mineral and supplement sales through the remainder of calendar 2000, particularly within the food, drug and mass channels," said Greg Badishkanian, vice president, equity research with Salomon Smith Barney, New York, in a recent report on the mass retail vitamin market that outlined the slide of late.
Especially for those retailers vested heavily in whole health where the VMS category is a core component, this is not great news.
Valu Merchandisers Co., the nonfood distribution arm of Kansas City, Kan.-based Associated Wholesale Grocers, supplies over 800 retail units. Two years ago, the company launched a whole-health concept called Natural Solutions. With vitamins a significant part of the offering, the concept was adopted by a number of its retail accounts. Vitamin and supplement sales are "pretty flat," said Bob Carlson, director of nutrition centers for VMC. "Herbs were hot, then all of the sudden they found out maybe they couldn't do everything they said they could do."
In asking, "so, what will be the next big thing that herbs can do?" Carlson notes the faddishness of the segment that is susceptible to both positive and negative publicity. Of late, said Carlson, "there hasn't been anything out there to publicize."
"There's been some negative growth," Badishkanian told SN. "Growth was very strong in the previous year," he explained, citing month-to-month trends in late third quarter 1999 that produced high single-digit to low double-digit growth. "It is very hard to match those (previous year's) numbers."
Paddy Spence, chief executive officer of SPINS, San Francisco, agreed. "Last year we had tremendous growth in a range of categories. There were some tough numbers on a comparative basis to go up against."
Aside from tough year-over-year comparisons, Badishkanian attributed marginally negative growth in no particular order to lack of new products, bad press and the decline of shelf-space expansion for these products.
It was positive press about hot new products that drove sales in the herbal category a couple of years ago, according to Scott Van Winkle, vice president, research analyst at Adams, Harkness & Hill, Boston. "A lot of the growth in 1997 and 1998 was faddish," he said, citing a major national television news network feature that said St. John's Wort was more popular than Prozac in Germany. Now, "we're down to a more core consumption rate."
Laurie Demeritt, executive vice president, The Hartman Group, Bellevue, Wash., echoed that sentiment, pointing to the same network news report. "After the St. John's Wort segment aired, there was a huge surge up and that was an anomaly," she said.
What goes up must come down, however. "Later," said Van Winkle, "a story surfaced saying 'don't take St. John's Wort if you're pregnant."'
Added Demeritt, "We're seeing a leveling off to a more normalized position for herbals. The double-digit growth the category was experiencing couldn't be sustained long term."
Another factor affecting the category's performance is the issue of efficacy. When herbals became hot "there were companies making products of questionable quality," said Badishkanian, citing ingredients. This, coupled with a surge in demand, caused "supermarkets and other retailers to pick up these weaker brand products. And what happened is these products didn't work."
A result of this was consumer perception that the herb itself is ineffective, when it was actually the manufacturing process that rendered it so. "In essence, it wasn't the vitamin or herb, it was the brand you bought," said Carlson. "If you take something and it works, you're going to tell all your friends. If you take something that doesn't work, you're going to tell all your friends as well." The press also picked up on questionable ingredients and efficacy, observers said.
Carlson acknowledged that retailers supplied by VMC have noticed the lagging vitamin sales. Whole-health concepts like Natural Solutions, however, are going to help supermarkets in both the short term and the long term, sources said. What VMS lacks in the short term is being made up for by current growth in the other categories typically sold in the whole-health departments, many attested. "Our sales on the Natural [Solutions] side are growing all the time but most of the growth is coming from the food side, not the vitamins," explained Carlson.
"We all thought going in that a third of our natural sales would be in vitamins and two-thirds would come from grocery but we've found it's actually higher from grocery."
The whole-health approach "makes a lot of sense," said Badishkanian. "If you have that type of store and [related] services, you're going to be able to give better information to the consumer, creating a more loyal customer."
But industry experts agreed recent flat growth is not expected to last forever, which bodes well for the category over the long term. "Are herbals just going to fade away?" Demeritt asked. "Certainly not."
The two analysts spoke of a turnaround over the next two quarters to 12 months. Other industry experts shared this point of view, pointing to several major factors contributing to a potential rebound. These included supplier consolidation, which is expected to result in higher quality/more effective offerings. (The VMS industry, according to several sources, is highly fragmented in the manufacturing sector, with 50 companies accounting for half of total industry sales.) Also mentioned was product rationalization at retail, thereby paring down the number of repeat mineral, herbal supplement and letter vitamin offerings, cited as a cause of rampant consumer confusion.
In addition to product rationalization, an educated staff can reduce confusion and intimidation felt by consumers entering a VMS department, Demeritt said. "Walking into any dietary supplement aisle in grocery these days for consumers is a confusing experience," she said. "That's why it's so important to have knowledgeable staff people who can help and answer questions."
