Product and Service

Companies included in nutritional supplement sector in natural products industry primarily manufacture vitamins, minerals, other nutritional supplements, dietary supplements, and personal care distributing with a form of direct selling or retailing.

Companies, grouped into dietary supplements - direct selling, primarily manufacture dietary supplements.


Demand for Product and Service

It seems demand for nutritional supplements has been shrinking in developed markets as indicated by decreasing sales volume from store-based manufacturers and as well from direct selling. Nutritional supplement direct selling is, to large extent, about direct selling and pool size of sales force.

The Sector

Sector’s current, trend, causes behind trend, and future

Current and Trend

  1. Demand for nutritional supplements has been shrinking in developed markets as indicated by decreasing sales volume from store-based manufacturers.
  2. While direct selling companies may sell different nutritional supplements, in terms of quality, to different segments of consumers as store based manufacturers and changes in size of their sales force for those direct selling companies may reflect more on the direct selling business mode than changes in demand for their products, a general decrease in sales force/numbers in all developed market may be a sign that the demand for the products is shrinking.
  3. It is also possible that the favourable factors for direct selling, which are mainly consumers’ knowledge and their acceptance of direct selling, are shifting from developed market to developing markets.
  4. The average selling price of store-based products has risen as a result of raised costs. This exerted pressure on sales but also brought high margins.
  5. The drivers for direct selling have been shifting to developing market. However, the tightened regulation of direct selling in China may have significantly impacts on this shifting.

Causes behind the trend

  • We think that there are many reasons that may contribute the downward trend in demand for nutritional supplement including those factors from demographics and products’ distribution channels. However, the changes in consumer’s concepts on health and nutrition may play the major role. The increasing awareness for more natural and healthier lifestyle may make consumers to turn to intake nutrition naturally such as from foods instead of eating nutritional supplement.
  • The knowledge and concepts on nutrition and resulted demand for nutritional supplement have certainly direct impacts on performance in sales for those direct selling companies. However, to a large extent, direct selling is not selling one product but selling a business mode. Therefore, the direct selling depend more on size of potential sales pool ( local unemployment rate) and the acceptance of consumers to direct selling in that market but not on what are being sold. It is also related to government regulations and the available companies’ incentives, which is indirectly related to acceptance of consumers direct selling.


Industry Future

  • Demand for nutritional supplement products will continue to exist but probably experience increasing downward pressure from shrinking demand as consumers in mature market re-think the alternative ways for them to intake nutrition.
  • Direct selling is losing their drivers in mature market as more knowledgeable consumers grew up. New developing market, while getting more tightening in terms of regulation, will continue to present opportunities for direct selling.


General Financial Performance of Companies In the Sector

Our company data indicate that, in this direct selling nutritional supplements sector, the growth in sales, as compared vertically, basically has a direct relationship with the sales force (re-sellers). The key to attract more re-sellers is certainly related to brands’ realization, but it is, to much larger extent, determined by incentives/commissions/availability of sales force and employment rate. This is particularly true in matured markets such as Western Europe, North America, South America, and Japan, where the total numbers of active sales force are fixed.  As our data indicate, the sales have been flat for dietary supplement products in those markets for years. However, sales in developing market seem to have been decreasing until 2018 where we have seen strong growth in international market probably as a result of increased incentives. This is obviously different with what have been happening in nutritional supplement market where immature markets and consumers have already become the major driver for profit growth. It may be because the science concept behind dietary supplements is not as easy to be accepted as VMS products in developing market.

As direct selling company, high gross margin is major characteristic of this sector. The typical gross margin for company in this sector is around 83-85% with 49% commission as percentage of sales and 27% SG&A as percentage of sales. Therefore, they usually have operating margins of 9%. However, both gross margin (83% in 2018) and operating margin (5% in 2018) has decreased in 2018.

According our analysis, a typical ratio of enterprise price/adjusted EBI is about 30 with interest/EBITDA ratio of 4%. 


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