Natural and organic products are booming, but who will benefit most? Traditionally the stronghold of independent retailers, a changing regulatory landscape and the tightening stranglehold of the multiples are challenging their supremacy. Nevertheless, growing consumer acceptance for dietary supplements and natural foods means the time is ripe for independent retailers to seize the initiative, learned Catherine Sleep.
Go deeper with GlobalData
Held in conjunction with the Natural Products Europe show organised in London 7-8 April by Full Moon Communications, the Retailing in the Real World seminar offered independent retailers of natural products the chance to learn from the experts on different aspects of their business.
The natural product/healthfood category is subject to various definitions, but the research association Key Note describes it as the product range usually stocked by traditional health food outlets, including vitamins, supplements and herbal remedies as well as a wide range of foods, such as beans, pulses and organic produce. That said, the boundaries have become somewhat less clear in recent times, as products traditionally viewed as health foods have become mainstream staples, while new product areas have emerged – for example, functional foods and sports nutrition, which bridge the gulf between the mainstream and specialist markets.
A growing interest in self-help and health is fuelling the growth of the natural products market, said leading health journalist and writer Susan Clark. People are living longer, but, particularly in their later years, they are suffering from more chronic ailments. “Angina, arthritis, anaemia, allergies… and that’s just the As”, said Clark.
Fortunately, as disposable income rises, consumers are increasingly willing to take responsibility for their own health, and natural foods and supplements can address some of these ailments.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataA further factor that has hoisted the flag for natural products is the media coverage given to scares surrounding conventional medicine and conventionally grown foodstuffs. For example, there is concern over the side effects of Prozac, and worries that milk could lead to cancer. Such health scares are unsettling, but they create an important opportunity for retailers of natural products.
Paradigm shift in favour of natural products – but be realistic
Clark commented that it takes 40 years for society to make a paradigm shift in the way it thinks about something – and by her calculations, the time has come for natural health in the UK and other countries.
Sales of dietary supplements are growing fast to back this up, as mainstream science catches up with traditional or folklore ideas on healing and maintaining good health. Indeed, research association Mintel says the UK market for vitamins, minerals and supplements was valued at £355m (US$508.6m) in 2000, a rise of some 2% in real terms over 1999. In the US, meanwhile, retail sales of the same rose by 6% in 2000 to hit US$3.597bn.
Clark urged retailers to think realistically about how they pitch their products. “Be realistic about consumer lifestyles,” she said. “Some women do occasionally drink alcohol to excess, so let’s talk to them about milk thistle [a hangover remedy].” Changing one’s lifestyle is a major step, so in the meantime retailers should look at encouraging people to make natural health choices for the lifestyle they lead.
The lack of advice available at mainstream retail outlets of health products is hindering the growth in sales through those channels, added Clark. According to the group’s own research, a staggering 60% of shoppers at British chemist Boots have never bought a natural remedy, largely because they are ignorant of the properties they contain, or confused by the vast choice.
Regulatory landscape about to toughen up
Not that it’s easy for any retail channel to increase sales, and for retailers of natural products, things are about to get a whole lot harder, cautioned Chris Whitehouse, a consultant on political and regulatory affairs affecting the food and health industries. Three key regulatory initiatives due to come into force over the next year will greatly restrict the make-up of dietary supplements and how they can be sold. A raft of legislation is on its way, and White stressed it will impact the products sold by independent retailers – and their bottom line.
The Food Supplements Directive (FSD) will establish a list of permitted nutrients and the maximum permitted levels thereof. While this will secure food supplements as food and not medicine, and remove certain barriers to trade between countries, the Directive will also exclude many currently available nutrients that have not made it onto the list.
It is very bureaucratic and costly to get new nutrients added to the list, said White, although fellow conference speaker Patrick Holford later welcomed the list as it will at least bring some order to a chaotic and therefore confusing product landscape, although he said it was vital that the industry “crank up the permitted levels” to protect product efficacy.
White warned the specialist independent retailers in the audience that as a result of the Directive, they would soon find themselves having to sell watered-down versions of products which they don’t believe in, and which consumers could purchase in supermarkets. He urged the independent retail sector, the media that cover their news and the trade associations that represent their interests, to use the period of consultation to fight the more stringent regulations and ward off a strict enforcement. The text is already finalised, but it is not too late to fight for the most liberal interpretation, he urged.
Traditional Herbal Medicinal Products Directive
Meanwhile, the Traditional Herbal Medicinal Products Directive would allow herbal supplements to obtain a medicine licence, but only once it has been on the market in its current form for 30 years, 15 of which must be in the European Union. While this may provide a certificate for supplements that did not achieve a listing through the Food Supplements Directive, the thirty-year rule is very hard to prove, and standardised testing of a herbal ingredient no easy matter.
With this law also set to come into force in the near future, White urged independent retailers to take steps now to mitigate the adverse impact of both Directives. They should get in touch with their Member of Parliament and Member of the European Parliament to help ensure the best possible outcome in relation to the regulatory threats and opportunities they face. They should talk to their regular customers and get them interested in signing petitions, and take on responsibility for lobbying on behalf of the sector.
Organic food continues its ascendance
Amarjit Sahota, managing director of Organic Monitor, a research and marketing consulting company for the international organic food industry, had some more upbeat information for independent retailers of natural products. The EU organic food market is worth an estimated €13bn (US$11.4bn), having grown by 33% in 2001. Some 3.6m hectares of EU farmland is already converted to organic production and this is increasing steadily.
Not surprisingly, Organic Monitor’s statistics confirm the increasing dominance of the supermarkets over other retail channels. Supermarkets took the lead from specialist independent retailers in the UK some six years ago, and in the EU as a whole in 1999. Nevertheless, average per capita expenditure remains low, standing at just £15-17 a year in the UK for example, and there is huge scope for growth.
Quality paramount – the organic label is no magic wand
However, as organic foodstuffs reach a more mainstream audience, so the demands placed on them become more finely tuned. Consumers are not prepared to purchase food simply because it’s organic, said Sahota. Quality remains paramount – for example, producers of organic bacon have had a hard time because the quality of their product was not high enough.
Consumers of organic food are also largely keen to buy local food that has not travelled thousands of ‘food miles,’ so meeting the requirement for local organic food is key.
Independent retailers should take heart from the omission or inability of many of the mainstream retailers to satisfy consumer demand, added Sahota. In the UK, for example, Tesco and ASDA have placed their emphasis on high value organic foods, while Sainsbury and Waitrose focus on quality. Yet all the major multiples fail to supply as broad a product range as they could.
Supermarkets have undoubted strengths, such as bulk purchasing and the ensuing economies of scale, which enables them to offer low retail prices. They generally carry a wide range of basic items, and enjoy a broad geographical reach. However, they focus on high volume products, such as milk, juice and bread, but fail to offer a deep range of specific categories. For example, the major multiples usually offer organic orange and apple juice, but fail to provide more exotic organic juices, such as mango or kiwi. Many of them have uneasy relationships with their suppliers as they have squeezed the margins available to suppliers to an almost unprofitable level. The lack of product knowledge available to shoppers is also a serious drawback, Sahota added.
This is where independent retailers can create a unique selling point to secure their position. One idea is to focus resources on becoming the sole supplier in the area to offer a comprehensive range of organic cheeses, juices or meats. Shop floor staff should be educated about the products on offer, and be trained to share their knowledge with customers. Ad hoc information displays are easier to arrange in an independent store with no “head office” dictates.
Everything to play for
The independent retailers of natural products who attended the conference should have gone home cheered by what they heard, and galvanised into action. They face a huge regulatory challenge in the form of the new EU directives, and they should act now to minimise the impact on their business. Once the directives are in force, however, they must think creatively to promote interest in their products.
The mood of the conference, and at the Natural Products Europe show next door, was one of optimism, and passionate belief in the products on display and for sale in the independent retailers’ shops. If the retailers can convert this commitment into practical measures to improve their standing, consumers should come flocking to benefit from their product range and expertise.
By Catherine Sleep, just-food.com managing editor
just-food.com offers a range of Organic Monitor reports. To take a look at them, click here.
