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Health and Beauty We examine the trends underlying the growth of the global marketplace in health, beauty and hygiene. Our analysts will point the way forward by highlighting critical innovations and behaviours that are driving industry evolution.

Personalization and E-Commerce Shaking up the Vitamins and Dietary Supplements Marketplace

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Talk to any manufacturer or marketer of vitamins and dietary supplements and you’ll catch word of two interconnected trends that are expected to drive industry growth for the foreseeable future: personalization and e-commerce. Personalization refers to tying supplement formulae to a particular consumer profile (gender, age, weight, medical history, etc.), which can be brought to bear through improved data and technology in the form of self-monitoring devices, web and mobile apps, and remote access to medical consultations. Above all, wide adoption of e- and m-commerce platforms are expected to be crucial factors that will spur a shift in this direction.

There are many reasons for players in the vitamins and dietary supplements industry to believe strongly in the inevitability of these drivers. For one, consumer demand already exists in this area. Core users of supplements have led the charge for broader product options around self-care, greater ownership in their personal health, and much greater ease in purchasing compared to traditional retail-based product offerings. For another, due to the personal nature of vitamins and dietary supplements, the industry has already seen greater adoption of e-commerce purchases than other consumer goods industries, with global sales of vitamins and dietary supplements via internet retailing reaching 14% in 2016 compared to 9% for consumer health as a whole and just 2% for packaged food.

For consumer health as a whole, internet retailing continues to pace total retailing growth, reaching US$18.6 billion in 2016, up 13% from the previous year. This is stark contrast to the complete lack of growth of the three main store-based distribution channels for consumer health (grocery retailers, chemists/pharmacies, and drugstores/parapharmacies), all of which showed 0% growth globally between 2015 and 2016. As a result, it’s clear that e-commerce options have already started to significantly eat into the dominance of traditional brick-and-mortar health channels, especially in more developed markets.

When viewing channel growth by region in 2016, one can see that internet retailing’s share of total retail sales is bound by a number of factors, including per capita GDP, internet and smart phone penetration rates, and regulatory barriers limiting where and how consumers can buy over-the-counter medications. Unsurprisingly, markets with largely liberal norms around the sale of consumer health products, such as Australasia (Australia and New Zealand) and North America (the US and Canada) show higher internet retailing penetration and a higher degree of retail fragmentation. Similarly, in much of Asia Pacific, looser regulations are combined with broad and fast consumer adoption of non-store options like direct selling and internet retail. Conversely, markets with more conservative point-of-sale rules, like many markets in Eastern Europe and the Middle East and Africa, have much lower adoption of e-commerce for consumer health products, with sales instead limited to smaller and unchained chemists/pharmacies.

E-commerce growth, sure, but who’s going to lead?

Though all the markers exist for this trend to deepen in the coming years, movement towards a more mobile, personalized world for vitamins and dietary supplements has developed in fits and starts and still is waiting on a market leader to emerge and unlock broader consumer adoption.

Traditional health and beauty specialist retailers would be well-placed to play a leading role in an expanding e-commerce landscape: they have spent years building their online presence; they provide brand loyalty mechanisms and incentives to drive traffic through their platforms; they have access to extensive data that they use to personalize and target consumers, with touch points online, in store and through email. However, none of the leading health and beauty specialist retailers in the US, for example, have yet been successful in converting their brick-and-mortar dominance into a full omnichannel consumer experience.

Walgreens and CVS are the two largest parapharmacies by retail sales in the US and both have invested significantly in their online presence in recent years yet neither has seen the percentage of sales via their online websites reach more than 1% of total sales in any year since 2012. In fact, in 2016, brick-and-mortar sales outpaced online sales for both establishments, due to improvements made by both companies to improve the in-store shopping experience, through greater focus on expanded product lines and refined store design and flow intended to attract younger, urban shoppers.

A comparable but more problematic scenario is occurring among other healthcare specialist retailers that specialize in vitamins and dietary supplements like GNC and the Vitamin Shoppe. Both companies have seen recent difficulties in sustaining retail sales growth through their brick-and-mortar establishments, losing share to both online sellers and modern grocery retailers like Whole Foods that provide in-store consultants and a wide variety of supplements at similar prices. Over the same period, both companies have attempted to entice core consumers of supplements to order via their online platforms by offering points programs and discounts. These initiatives never really took off, and their online platforms stalled at around 10-11% of total sales in 2016. Despite wide brand recognition, first-mover status and a cadre of core users who need frequent product refills, both companies have lost sales to upstart and niche competitors that offer a more tailored approach.

The fact that the leading store-based retailers in this space haven’t yet made the successful leap into e-commerce doesn’t mean that such a scenario won’t happen in the future. The void still exists; few major players have rushed in to take advantage, and fewer still have an advantage as secure as the broad databases on consumer behavior that companies like Walgreens and CVS control.

In fact, both of these companies are still fighting for relevance in this space, opting now for a broader omnichannel approach that targets connected consumers and attempts to get them any way they can, either through online sales or through enticements to get them to visit their retail stores. Convenience has taken a slight backseat to personalization—they know if you only visit their physical stores, you’re probably unlikely to take the time to build an online account but you’re quite likely to respond to a limited-time offer to purchase supplements at a discount at your local store. These companies are also experimenting with offers such as same-day delivery and curbside pickup as a way to build client retention and loyalty.

This level of personalization will be necessary in upcoming fights against the biggest e-dog of all, Amazon, which also has access to an immense database of purchasing history that it can use to push personalized consumer health options. Amazon offers rush delivery for a variety of over-the-counter products and vitamins and dietary supplements through its Amazon Prime Now service that is operational in around 30 metropolitan areas. Earlier this year, Amazon also quietly expanded its private-label line Amazon Elements into a handful of clean-label vitamins and supplement categories, which perhaps is a signal of the company’s intent to fully jump into this space and opportunistically fill the potential void if GNC and the Vitamin Shoppe continue to decline. As more consumers each day are showing a declining link to physical stores, Amazon has the ability to step in and dominate the market for these products much in the way it has for so many other household staples.

It remains to be seen how the e-commerce space for vitamins and dietary supplements will evolve in 2017 and beyond, but it is quite apparent that the long-term winners in this space will leverage data and their knowledge of their consumers to proactively offer products that fit their customers’ health needs and provide a degree of personalization and intimacy that don’t exist yet on a broad scale. Whether that comes in the form of a traditional parapharmacy like Walgreens or CVS, or an e-commerce behemoth like Amazon, or a future online health platform is still an open question. Until then, the need will continue to exist, waiting for someone to grab it.

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