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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.

Premium Private Label Vitamins and Dietary Supplements to Capture Greater Market Share

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Mark Strobel Bio

The US$206 billion global consumer health market is highly competitive. In 2013, the top ten companies determined just 25% of retail value share, with the next 25% split between more than 80 additional companies. The vitamins and dietary supplements (VDS) market is especially fragmented, with the three leading companies, Amway Corp, Pfizer Inc and NBTY Inc, combining for just 11% of global retail value sales. The growing presence of private label is intensifying the cutthroat competitive nature of the consumer health market. Though particularly strong among over-the-counter remedies (OTC), more consumers are turning to private label VDS. As private label VDS portfolios evolve from bare-bones economy goods to include high quality, value-added products with non-genetically modified organism (GMO), gluten free, organic, and vegetarian and vegan options, they will capture a greater share of the market by appealing to those consumers seeking premium supplements.

Private Label Presence in Consumer Health

Private label continues its rapid growth in consumer health, achieving a CAGR of 8% to reach retail value sales of US$13.9 billion in 2013. Significantly outpacing industry growth, private label accounts for a greater share of consumer health sales each year. While the US is the primary private label market with retail sales of US$11.2 billion in 2013, these products are gaining traction in other regions, particularly Australasia and Western Europe. The extensive retail chains in these developed regions have the infrastructure to outsource manufacturing, distribute, and provide an eye-catching in-store presence for these products. However, private label continues to have by far the strongest presence in the US, holding 19% retail value share in consumer health in 2013, compared to 5% in Western Europe and 3% in Australasia. Private label retail value share is minor in the emerging regions Asia Pacific, Eastern Europe, Latin America and Middle East and Africa with a share below 1%.

Private Label Limitations within VDS

Despite the strong overall performance, private label retail value sales skew heavily towards OTC remedies. In the US, OTC accounted for 69% of private label retail value sales in 2013 and VDS just under 30%. (The remaining private label consumer health sales came from weight management and sports nutrition.) Within OTC, cough, cold and allergy remedies (CCA), analgesics and digestive remedies are the most lucrative categories for private label, each with retail value sales of US$1.6 billion or higher. Private label also holds a commanding 55% retail value share for nicotine replacement therapy (NRT) smoking cessation aids. Though private label sales of non-herbal/traditional dietary supplements are strong, especially for probiotic supplements, fish oils/omega fatty acids and minerals, retail value share is just 16%, which is well below most OTC categories. Private label vitamins have also fail to have the same market impact as OTC, with retail sales of US$733 million and 8% value share.

US Private Label Retail Value Sales and Share by OTC and VDS Category 2013

Source: Euromonitor International

Price is the most influential driver of private label purchase. However, the importance of price for consumers relative to other factors, like quality, differs considerably by product category. This difference is a key contributor to the disparity in sales between private label VDS and private label OTC drugs. When selecting OTC drugs, US consumers tend to be highly price sensitive, frequently choosing the least expensive product. Easily identifiable active pharmaceutical ingredients and hard-to-miss product comparisons make the case for similar quality between private label and branded OTC, making price the largest differentiator and often the determining factor in purchase decisions. Though price is still highly influential on VDS purchase decisions, it is often a secondary consideration to quality. According to the Council for Responsible Nutrition (CRN), consumers of dietary supplements are more likely to engage in healthy habits, like diet and exercise. Also, consumption of dietary supplements increases with rising household income in the US. For example, 72% of US adults with a household income over US$50,000 a year take dietary supplements compared to 64% of adults with a household income under US$50,000. Many of these health and wellness conscious consumers who tend to have higher incomes prioritize superior quality over price when selecting VDS, and often times choose a brand that they perceive to be most efficacious. As a result, retailers are expanding their private label VDS portfolios into premium supplements to target these demanding consumers.

Premium Private Label Show Promise

Appealing to consumers who seek premium supplements is a realistic possibility for private label VDS. To do so, retailers are expanding their private label VDS offerings to include brands with premium positionings. Announced on 14 July 2014, CVS Caremark Corp rolled out Radiance PLATINUM, a premium positioned line of 44 VDS that is 100% preservative-free and includes certified non-GMO, gluten free, certified organic and vegan and vegetarian options.

CVS Radiance Platinum 2.jpg

Source: CVS Pharmacy

The retailer is attempting to reach consumers who seek high quality, value-added VDS with this line extension. According to George Coleman, Vice President of Merchandising, Store Brands and Quality Assurance at CVS Caremark Corp, “I am confident that our customers will be as enthusiastic as we are about having a premium vitamin and supplement option available right at their local CVS/pharmacy.” The Radiance PLATINUM line is placed on the top-shelf position with a striking, yet simple label that prominently states differentiating features, like “100% Natural”, “Certified Organic” and “Plant based”. Private label offerings like CVS’s Radiance PLATINUM are targeting consumers that purchase premium VDS, traditionally a segment that almost exclusively bought branded products. As these consumers try premium private label like Radiance PLATINUM, the share of private label sales in VDS may likely accelerate.

Radiance PLATINUM to boost CVS

There is significant competition among the retail providers of private label VDS as well. Premium private label supplements are not exclusive to the recent Radiance PLATINUM launch. Walgreen Co was one of the pioneering retailers in this VDS segment with the brand Finest Nutrition.

Walgreens Finest Nutrition.jpg

Source: Walgreens Pharmacy

Private label VDS is also not confined to pharmacies and drugstores. Walmart’s store brands, including Spring Valley, had the highest sales of private label VDS in 2013 with over US$300 million and Costco Wholesale Corp, a warehouse club, had the strongest retail value sales growth over 2012-2013 at 13% with Kirkland Signature and TruNature.

US Private label VDS Retail Value Sales and Year-On-Year Growth by Retailer 2013

Source: Euromonitor International

The Radiance PLATINUM line will go far in boosting CVS’s private label VDS retail sales. However, other retailers will likely follow suit and bolster their premium private label VDS offering. As the competition between retailers heats up and they increasingly target shoppers of premium supplements, private label will capture more value share of the market, spelling trouble for manufacturers of branded VDS.

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