Supplement brands have navigated a rocky sea of market challenges in recent years, including a global pandemic, supply chain woes, and evolving consumer demands, but there’s good news on the horizon. Industry experts say some waves may finally be calming as we head into 2024. “The industry has suffered ups and downs due to mis-pricing, especially on powders, and COVID-related supply chain challenges, especially with raw material importation from Asia, but I would characterize it as stabilizing,” says John Farr, Partner, Health and Wellness Group, Columbia West Investment Banking. “Some contract manufacturers recently have communicated mild growth (3-6%) in 2023, while others suggest flat revenue with lower margins. Further, a few have grown very well this year.”
Farr notes that working with a contract manufacturing (CM) partner can play a key role in helping brands stay ahead of the curve of market volatility and maintain a competitive edge, and the appeal of using CM to manufacture products is poised to grow. “Brands have traditionally been motivated to use CMs to allow focus on their own core competencies, product creation and marketing. That desire to focus is now compounded by the fact that companies move at greater speed today,” notes Farr. “Institutional capital in health and wellness is more prevalent than it was 10 years ago, facilitating faster growth, and even requiring greater speed in an effort to compete. Boot-strapped businesses are not growing as well as capitalized players with augmented teams and infrastructure. Supply chains, regulatory burdens, and consumer preferences are all more complicated, encouraging companies to outsource the manufacturing function in an effort to get more done. Outsourcing will further grow as CMs take on additional services such as ingredient sourcing and develop proactive research capabilities beyond mere quality assurance testing.”
Another benefit of partnering with a quality CM is being able to reduce the technical load involved in speedily expanding your brand’s product offerings without a large investment. “Contract manufacturers are still necessary because they can provide instant expertise and infrastructure to allow companies to expand their product offerings very quickly without massive capital outlay,” explains Hiroshi Kishimoto, Senior Vice President and CFO, Soft Gel Technologies, Inc. “Contract companies that are able to take a lot of the technical load are attractive, because it allows brand owners to completely focus on making sales, advertising, and marketing the product. By outsourcing production, there is no need to purchase or rent production facilities, buy equipment, qualify and purchase raw materials, or hire and train employees to produce the goods. There are also no headaches from dealing with employees who fail to report to work, equipment that breaks down, or any of the other minor details that any manufacturing company must face daily.”
In addition to managing the technical details of producing a product, a good CM partner can offer brands expertise in packaging, taste, marketing, and other industry trends. “Manufacturing quality is just one piece of the puzzle,” Patrick Brueggman, President and CEO, Vitaquest. “Contract manufacturers add value when they work with their customers from the time the customer brings them an idea until the product arrives on retail shelves. Brands should work with contract manufacturers who are versatile, flexible and that can scale with their needs.”
For instance, Brueggman says Vitaquest has a team of experts dedicated to helping brands navigate regulatory compliance. “Regulatory compliance is one of the biggest hurdles organizations in custom supplement manufacturing face,” he cautions. “Our team of regulatory experts helps customers avoid regulatory issues by providing all raw material and product documentation our customers need to ensure their products comply with regulations in all markets they plan to enter. This includes custom formula sheets, nutritional information, certificates of free sale and regulatory statements. We also ensure our customers’ supplement labels are accurate and factual. We have a team of experts who review all labels we package to help guide our customers in the best way to market how they want while also ensuring regulatory compliance. The label is the first thing consumers will look at when they see a nutritional supplement, so consumer trust is key to a successful product.”
All told, the growing appeal of CMs has led to growth in the sector. According to recent data from Business Research Insights, the global contract manufacturing market for dietary supplements reached $7.4 billion in 2021, and it is expected to expand to $11.5 billion by 2028, growing at a CAGR of 7.61%. “Regardless of the last 12-month performance,” Farr says, “contract manufacturers appear to be happier with their pipeline today than last year, and the trend towards healthier appetites will continue to serve this category.”
Keys to Choosing a Quality CM Partner
As the CM marketplace has expanded, it’s become even more critical to put in the work to select a quality CM partner, stresses Kishimoto. Choosing a bad actor in the space can put your business in jeopardy of regulatory fines, class-action lawsuits, and other serious headaches. To make sure you’re working with a quality partner, Kishimoto suggests starting with two baseline steps: Deal with a trustworthy, certified Good Manufacturing Practice (GMP) compliant facility, and perform an audit of them to ensure that their production standards are up to par with your expectations.
From there, consider whether a CM offers additional quality certifications or services. “For example, Soft Gel Technologies, Inc., has obtained GMP registration through NSF’s Dietary Supplement Certification program and the Natural Products Association (NPA) and has held these certifications for many years prior to the emergence of the FDA GMPs,” says Kishimoto. “We have also gone an extra step and are certified through NSF’s Athletic Banned Substances program, also known as GMP for Sport. These internationally recognized, third-party GMP inspections and certifications help assure our customers that the products we manufacture are up to the standards they demand in ensuring their purity, potency, and quality.”
Another factor to consider is whether or not the CM has its own in-house analytical lab, advises Gene Bruno, MS, MHS, RH(AHG), Chief Scientific Officer, Nutraland USA. If it doesn’t, make sure there’s an option to send products out for testing to accredited third-party analytical labs.
“You also want to do your due diligence and verify that the CM has expertise and experience producing your supplement’s type of delivery form,” Bruno adds.
Finding expertise in a specific delivery format is especially important if you’re interested in softgels, notes Kishimoto. “The manufacturing process of making high-quality softgel capsules implicates the use of sophisticated technology. During the rotary die process, the gelatin temperature, ribbon thickness, seam width, and fill quantity all need to be monitored and controlled. It involves high precision and requires constant oversight; inaccuracies make production more costly. In addition when formulating products, specific shell/fill interactions, which include chemical reactions of fill components with the gelatin and the plasticizer, and migration of fill components in or through the shell and vice versa, have to be considered.”
It’s also wise to ask about exclusivity or proprietary formulas, advises Nathan Cox, Chief Business Officer, Lief Labs. Many CMs (as well as private label manufacturers) sell stock formulas that may be attractive from a price point standard, but using them will make it harder to stand out in the marketplace. “You want to be able to go in and pitch Walmart or natural health retailers with a unique selling proposition,” says Cox. “A good CM can help you develop a proprietary formula and no one else can have that exact formulation. You can custom-tailor the formula to the exact demographic that you’re going after. That way, if you want to sell your company, you have some intellectual property that nobody else has access to, and you’ll have a more compelling story to sell to an investor.”
3 More Strategies for Success
1) Be smart on pricing. Once you’ve chosen a quality manufacturer, there’s room to negotiate on pricing—especially if you send out product specs to more than one CM for quotes, says Bruno. “Additionally, you have the right to reject a lot if it isn’t made according to your specifications. Of course, once you’ve established a relationship with your CMs of choice, you’re likely to get better customer service and pricing since you will have become a regular customer. Essentially, you want quality manufacturing of your products at a fair price. Working with CMs gives you a good opportunity to achieve that.”
That said, stay grounded with your pricepoint expectations, notes Cox. “People always want the Cadillac, but they want to pay the Volkswagen bug price. A good CM will help you come back to reality on what is possible and what’s not possible from a manufacturing perspective and then also a cost perspective. It may be the CM can point out a cost-saving aspect you may not be aware of, or open your eyes to some market blind spots or some new innovative ingredients to add to make a formula more effective. It’s not always going to be more expensive. We can create the SKU to the price point that you need it to be.”
2) Consider a third-party regulatory consultant. Even if your CM offers lab testing and regulatory compliance help, consider hiring your own consultant, advises Cox. “There are tens of thousands of ingredients to buy, and it’s impossible for a contract manufacturer to know everything that’s viable from a regulatory standpoint, and they’re not the ones that are ultimately putting their name on the label and selling it to the consumer. So it’s smart for brands to take that seriously and not try to pass the buck. Having someone strong on the legal side that’s able to make sure that your business doesn’t violate any FTC claims and keeps you in check from a marketing side is important and will save you a lot of hassle in the long run.”
3) Go heavy on inventory. “It’s very costly to run out of stock of your products,” cautions Cox. “Some companies try to stretch it and do just-in-time delivery, but things are going to happen in the supply chain. Do an analysis of your inventory and your sell-through rates to make sure you’re carrying enough product. Yes, it’s expensive to be heavy on inventory, but I think it’s much more costly to be out of stock than it is to be a little heavy on the inventory side.”
8 Growth Drivers for 2024
It can be hard to predict what consumers will want at any given moment, especially as social media channels, like TikTok, can cause an ingredient or supplement protocol to go viral overnight. “Looking ahead to 2024, consumer reliance on technology and social media platforms will continue to have a major impact on how people learn about and buy their supplements,” says Brueggman. “Messaging from influencers promotes supplements as part of a daily routine and healthy lifestyle across a wide range of popular categories. The segment of consumers influenced by this looks beyond the key nutrients they may be deficient in to pursue supplements that help them achieve their daily wellness goals.” He notes mushrooms seem to be the next ‘hero’ ingredient, with sales quadrupling since 2018, according to NBJ.
CMs have experts in place to study trends and consumer behavior and pass along insights to their clients, helping brands to jump on production and get viral products on shelves in time to capitalize on peak sales momentum. To help your business plan for 2024, we asked CMs to forecast the categories likely to drive growth.
1) Cognitive Health: “Brain health, including memory and cognition, is showing promise, reaching 7.2% with an expected CAGR of 8.1% through 2026,” reports Bruno.
2) Immunity: Consumers will continue to seek out nutrition support to combat COVID, colds, and flus, Brueggman says. “Zinc, elderberry, beta glucans and vitamins with improved bioavailability that support a healthy immune system are all experiencing greater demand.”
3) Stress & Sleep: Farr notes that stress and sleep are perennial favorites. Magnesium is a fast-growing market in the space, thanks to its ability to support mood as well as a healthy immune system, adds Brueggman. “It’s also a very versatile supplement that can be manufactured in numerous dose forms, including gummies, chews, as well as drink mixes. It can also be packaged in stick packs, shots and traditional bottles and jars.”
4) Women’s Health: “Interest in women’s health products—and really all gender-specific supplements—has grown, with consumers purchasing supplements that help build their beauty from within, improve personal health, gut health and combat signs of aging,” says Brueggman. “Beauty from within will also continue to grow across all age groups—younger consumers want to prevent signs of aging, while baby boomers want to improve hydration, fine lines, and wrinkles.”
5) Blood Sugar Management: Berberine is a rising ingredient, says Cox. “Even Pharma has taken a very positive stance on berberine. We’re seeing it in a lot of blood sugar or glucose support and metabolic support type of formulas.”
6) Hydration: Cox says, “There’s been a lot of research on the importance of hydration. It’s not only drinking plenty of water, but also the need to balance the electrolytes for optimal athletic performance, mental clarity, and cognitive performance.” Some traditional sports nutrition brands that have seen reduced performance in energy or weight-loss products may get a boost by shifting focus to hydration aimed at daily performance. “It’s a good way to get flavor into your water. Specialty drinks, like Moon Juice for example, target the more everyday athlete and find a more healthy way to consume your daily electrolytes.”
7) Gut Health: “Interest in improving gut health will continue to rise, with the ‘biotic bundle’ benefiting,” says Brueggman. “As science continues to discover more about how the microbiome influences so many aspects of our health, this segment of the market is expected to grow for years to come.”
8) Adaptogens: “Adaptogens continue to be strong,” says Cox. Mushrooms and ashwagandha have seen growth, and Tongkat Ali, a natural testosterone booster, has been trending, mainly via influencer marketing and some podcasts like Joe Rogan. WF
Why Retailers Should Consider Private Label
Nearly every big box retailer carries its own store brand, and natural health retailers would be smart to follow their lead, advises Paul Licata, President, Licata Enterprises. “It makes sense to copy success. Nearly all major retailers—CVS, Whole Foods, Walmart, and Kroger—have a significant private label; there must be a reason.”
Licata notes that as inflation and recession fears are putting the squeeze on consumer budgets, consumers increasingly seek out cost-savings. “We have seen an uptick in the multiple vitamin category as the economic realities of inflation have taken effect. Although prices are not increasing as quickly as they were, the overall prices are up some 8-10%,” Licata reports. “As people have to cut back on their spending, they are going to the basics.”
Offering quality private-label at a lower price point can appeal to budget-conscious customers and help you grow a more loyal customer base. “When you invest in private label, your customers recognize that you are not just another store or Amazon selling anything to make money. You are selecting particular items that you believe in and invest in so your customer can save money,” says Licata. “Your private label should be a focus point for your employees as well. They should be the first products they show customers. Your excitement will translate into your customers and your sales as well.”
Private label is an opportunity for retailers to tighten their inventory, adds Licata. “You don’t necessarily have to reduce the selection of branded formulations, but reduce the number of bottles on the shelf and give more space to your private label. Take the recession opportunity to demonstrate your private label formulations to your customers to save them money, while still providing a quality product.”