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 nutritional supplement - store-based sector, primarily manufacture nutritional supplements and distribute by health and natural food stores.


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 of sale volume indicate that the demand for store-based nutritional supplement products may have been shrinking in the past several years and may be hitting the bottom since this shrinking has been accompanied by raising price. This is particularly true in matured markets such as Western Europe, North America, South America, and Japan. Such a trend actually can also be proved by what have been happening in direct-selling nutritional supplement market, where matured markets also have experienced decrease in sales. Therefore, we think changes in consumers’ shopping mode cannot simply explain the decrease in store sales in those markets. There may be some deeper reasons from changes in consumers’ concepts about health and nutrition. In fact, nutritional supplement concepts are not new to consumers in those markets and there are increasingly new alternative health concepts and products available recently. The increasing demand in developing market as we see in direct selling market of nutritional supplements may be a proof of the shifting of nutrition concepts.

The typical gross margin for company in this sector is around 50% with 36% SG&A as percentage of sales. Therefore, they usually have operating margins of 14 %.

According our analysis, a typical ratio of enterprise price/adjusted EBI is between 16 and 19 with interest/EBI ratio of 6%. 

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