Key takeaways

  • Consumer demand for VMS is increasing as customers look to support their immune health, boost overall wellness and reduce anxiety in the face of the COVID-19 pandemic.

  • Since the beginning of March, weekly VMS sales experienced growth of approximately 20%-140%, coupled with amplified social media interest.

  • VMS demand in 2020 is projected to continue to grow despite rising recessionary pressures in the market.

  • In this Executive Insights, we analyze the implications of a VMS commercial strategy and the considerations for partnership opportunities in a post-COVID-19 environment.


 

The impact of the unfolding COVID-19 pandemic has been far-reaching and significant. First and foremost, it is a public health crisis that will require a collective effort from governments, businesses and individuals to overcome.

From a business perspective, COVID-19 is significantly decreasing commercial activity, particularly in the consumer sector. As of April 20, 2020, approximately 95% of Americans are under stay-at-home orders that are driving down consumer spend across a multitude of categories. One category bucking this trend, however, is vitamins, minerals and supplements (VMS). Consumer demand in multiple pockets of VMS has actually increased as interest in overall health and wellness has grown.

Notably, we expect the VMS category to maintain momentum through the expected recessionary headwinds to come. The VMS category’s performance in past economic downturns has demonstrated its resilience, and the most recent market data suggests similarities to today’s trends. For ingredient suppliers, manufacturers and retailers, it is prudent to begin preparing now for a long-term market where consumer demand for VMS continues to grow beyond its historical base.

Surging demand for immunity boosters for overall health and wellness

The U.S. market for VMS has benefited from consistent ~6% growth per year from 2015-19, surpassing growth in both similar categories, such as functional food and beverages (2%-3% per year), and U.S. GDP (2%-3% per year) over the same time period (see Figure 1).

Figure 1
US VMS market (2015-19)

Over the past two months as COVID-19 has affected the U.S., consumers have increasingly turned toward VMS products, expressing greater interest in and engagement with the category. Analysis of social media activity related to VMS use cases (see Figure 2) clearly reflects this increasing engagement as customers look to boost their overall health and wellness as a precaution against illness.

Figure 2
Reddit, Twitter, and blog post volume on VMS use cases (Jan. 2019-March 2020)

This increased engagement is also evident in the analysis of social media activity related to VMS products (see Figure 3). Within VMS, specific sub-areas experiencing the most growth are those related to supporting immune health, boosting overall wellness, and reducing anxiety or stress.

Figure 3
Reddit, Twitter and blog post volume on key vitamins (Jan. 2019-March 2020)

Based on L.E.K. Consulting’s recent consumer research in partnership with Civis Analytics (3/31-4/2), consumer interest in VMS on social media is translating into behavior. On average, consumers are reporting an increase in monthly spend on VMS products of 10%-15% since the pandemic began (see Figure 4).

Figure 4
Impact of COVID-19 on VMS spend

Unsurprisingly, the bulk of activity has occurred in products related to immune health. Consumer chatter about vitamin C, vitamin D, elderberry and echinacea spiked by 3x-16x in March. Manufacturers along these value chains are experiencing this pull-through, with suppliers reporting demand increases of more than 20%. Surprisingly, recent sales data suggests that the growth has extended beyond immune health. Based on SPINS data from a recent NBJ webinar, overall vitamins and minerals, food supplements, performance nutrition, digestive aids and enzymes, and amino acids all experienced growth in weekly sales of approximately 20%-140% over the final three weeks of March (see Figure 5).

Figure 5 
US COVID-19 store sales in VMS

Given the rapidly changing environment, participants in the market need to consider a number of key questions:

  1. How much of this VMS demand is merely pantry stocking or transient one-time purchases? Will demand persist?
  2. Is a significant drop in demand expected if macroeconomic conditions push the economy into an extended recession?
  3. What operational or commercial actions should companies take to position for the growth in the VMS category?

A track record of sustainable growth in recessionary environments

The strong performance of the VMS category through past economic downturns points to a promising outlook for the category even with the rising recessionary pressures in the market. In the most recent recession of 2008-09, VMS as a whole remained resilient, exhibiting 6.8% growth in 2008 and 6.1% in 2009, while growth in overall U.S. consumer expenditure slowed considerably over the same time period (see Figure 6).

Figure 6
US VMS market (2003-09)

The consistent growth in 2008-09 reflects two key underlying elements of consumer behavior with VMS that suggest VMS demand in 2020 will form a new, higher base of sales from which the category can grow.

First, health and wellness spend, like VMS spend in particular, has historically been prioritized by consumers in times of recession and is one of the last discretionary spend categories to be impacted. For many, VMS consumption may actually increase, as it represents a cost-effective, preventive measure to mitigate the need for more costly physician or hospital visits, particularly when disposable income declines and/or health insurance coverage is reduced.

Second, the VMS category sustained its growth during and after the recession, averaging 5% per year growth through 2019. Notably, product trials during the recession brought new consumers into the market who were converted into consistent purchasers, establishing a higher base of consumers for category growth. This behavior is particularly pertinent given the significant increase in consumer interest in health and wellness that is occurring today.

Implications for VMS players today

Within the VMS market, a multitude of players should be considering how to prepare for the long-term increase in sales that is expected in the category. These include ingredient suppliers, contract manufacturers, consumer brands and retailers. For each of these participants across the value chain, beginning to prepare now can optimize value creation over time.

Based on our experience with consumer behaviors in the category, there are five key commercial implications that we think are critical for industry participants to consider now:

  1. Secure your supply chain and operations
  2. Refine and optimize your portfolio of offerings to tailor to consumer needs
  3. Establish a robust omnichannel capability now and in the future
  4. Develop a strategy for the expected increase in private-label demand
  5. Consider synergistic, personalized nutrition partnership opportunities

Secure your supply chain and operations

Despite elevated levels of demand for VMS products, retailers can provide only as much product as they can source. Both online and brick-and-mortar retailers are reporting shortages as new consumers enter the market and existing users stock up. Manufacturers are also experiencing raised prices and potential shortages of raw ingredients to keep up with consumer demand.

In the immediate term, securing your supply chain to fill as much of the near-term demand as possible is essential, in particular so that you do not lose potential new consumers who may be trialing the category. In the long run, the COVID-19 pandemic should also bring sourcing practices under the magnifying glass to guard against future developments. Reducing reliance on single sources (by supplier or geography, especially China) is a key next step to reducing operational risk and potential consumer concerns about product quality. 

Refine and optimize your portfolio of offerings to tailor to consumer needs

Although sales for almost all VMS sub-segments have risen, you can expect demand growth going forward to be asymmetric. While NBJ is projecting year-on-year sales growth of all supplements to reach approximately 5%-8% or more in 2020, sales of supplements addressing cold, flu and immunity are projected to exceed 25% year-on-year growth in 2020.2 In a related matter, demand for certain products that are typically more modest is likely to spike significantly; on social media, for example, the volume of consumer chatter about elderberry has risen by 16x, surpassing the volume of discussion about vitamin C and vitamin D combined (see Figure 3).

For retailers and manufacturers, right-sizing assortments and production resources to meet the changing balance of consumer needs in real time will be a challenge, but this is essential to maximize capture of consumer value and optimize in-stock levels in the future.

Establish a robust omnichannel capability now and in the future

A key impact highlighted by the COVID-19 pandemic and the resulting shelter-in-place directives is the increased importance of an omnichannel capability and strategy for brands and retailers. In the immediate term, market participants invested in online and/or direct-to-consumer (DTC) access are disproportionately benefiting from consumer demand (see Figure 7).

Figure 7
Impact of COVID-19 on retail channels

Going forward, the importance and relevance of an omnichannel distribution strategy is unlikely to abate. Even prior to the current retail conditions resulting from COVID-19, VMS sales through online channels have been growing at double-digit rates since 2015 (see Figure 8). As more consumers gain familiarity and experience with the online and DTC distribution models, we can expect the transition to online channels to likely intensify, as the urgency for participants to solidify a DTC and online strategy has only increased.

Figure 8
US VMS by sales channel (2015-19E)

Develop a strategy for the expected increase in private-label demand

Looking further ahead, the global economy continues to move toward an expected recession. With consumers likely to become more cost-conscious over time, past experience tells us that consumers will increasingly turn toward private-label offerings to maximize the value of their purchases.

Even in a non-recessionary environment, a recent L.E.K. survey indicated that approximately 70% of consumers associate private-label products with great value, and retailers have an incentive to invest behind private-label VMS products that provide better margins and a differentiated assortment. Many leading retailers now offer well-regarded private-label VMS products such as Amazon Elements, which had one of the highest Net Promoter Score ratings in L.E.K.’s 2020 Health & Wellness survey. As companies navigate the new normal post COVID-19, developing a commercial strategy to benefit from this market shift to private label will be important to ensure full participation in VMS market tailwinds.

Consider synergistic, personalized nutrition partnership opportunities

An underlying trend that is expected to only accelerate in a post-COVID-19 world is consumer interest in and use of digital or technology-enabled health and wellness solutions. In L.E.K. Consulting’s 2020 Health & Wellness survey, approximately 85% of respondents indicated interest in a technology-enabled personalized nutrition solution, while digital at-home fitness has been experiencing consistent growth over the past five years, driven by a multitude of fitness providers. More than ever, consumers are engaging with at-home fitness and wellness regimens through apps, connected equipment and other devices. Partnerships to accompany these regimens with personalized supplements can form a compelling opportunity.


Endnotes:
1NBJ survey on 3/30/2020
2NBJ estimates as of 4/1/2020

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