Bad business in abandoning supplements

Drug Store News, July 23, 2001 by Rob Eder

Despite the best efforts of the consumer press--not to mention some less than responsible voices that have arisen from certain sectors of the trade--news of the demise of the dietary supplement business has been greatly exaggerated.

This matter was of chief concern to many of the chain buyers and category managers this editor remembers from days spent on the OTC/natural health beat.

There was a time when the category was the hottest story in the front-store. Just a couple of years ago, the natural health segments were approaching nearly $1.4 billion in sales in the drug channel alone and still growing in the high double digits.

"But that was then," the shortsighted argue these days. These days, they will tell you, sales in the category--which include vitamins, minerals, herbal and non-herbal/specialty supplements--are slipping, down 6.5 percent last year in drug stores, according to data from Information Resources Inc. These days, they say, consumers are exiting the category faster than new users are entering it, turned off by products that are either entirely ineffective or at least perceived to be so. These days, retailers need to think about cutting back space in the dietary supplement aisles, some suggest.

Of course, these days the business is also still worth about $1.3 billion in drug stores, according to IRI, making it the single biggest piece of the self-care industry to the pharmacy channel. To put it in perspective, OTC pain relief--that is, internal and external analgesics--generated less than $1.1 billion during the same 52 weeks. Moreover, internal analgesics, which account for more than 89 percent of all sales in OTC pain relief, were down 6.6 percent in dollars. Yet this editor can't remember the last time anyone talked seriously about scaling back the pain relief set.

The natural health business has always been driven by science, the consumer media and the interplay of those two forces. Certainly, the media has not always--or even usually--done a very good job of accurately communicating to the consumer the actual health benefits of most dietary supplement products.

A classic example comes by way of the recent press coverage of a Pfizer/National Institutes of Mental Health-funded study that measured the effects of St. John's Wort in managing severe depression. The study found St. John's Wort no more effective than placebo. And while those familiar with the original German monographs understand that St. John's Wort was never intended to treat anything more than mild to moderate symptoms of depression, the news media's coverage of the study was at least in one way a practice in responsible journalism. After all, it was the consumer press that confused the issue in the first place, creating unachievable expectations by dubbing St. John's Wort "nature's Prozac."

To be sure, the herbal business is down but not out. Herb sales were down 12.5 percent last year in drug stores. But, for most companies whose products are backed by hard clinical evidence, business is holding steady. With $37 million in sales through the drug channel alone last year, obviously a good deal of people are still buying gingko. The same goes for ginseng and St. John's Wort. Collectively, more than $43 million was spent on these two herbal compounds in drug stores last year.

Dean DiMaria, vice president of sales for Pharmaton, insists that despite the overall dips in the category, a core group of loyal users continues to drive a steady stream of business for its Ginsana and Ginkoba brands. "Every time a retailer sells a box of Ginsana, they make $5," he explained. "Do you know how much toothpaste you have to sell to make $5?"

Indeed, the dynamic in the category has shifted dramatically. Now is not the time to cut back natural health, but rather a critical juncture, at which retailers must find a way to make that spatial commitment more productive. Seven herbs generated almost 75 percent of the $232 million drug stores generated in that segment last year. Certainly, less productive SKUs can make way for new delivery forms for existing segments that continue to demonstrate solid growth, such as new wrinkles on glucosamine-chondroitin, including several bars and chews that debuted at Marketplace, which are likely to bring a new group of pill-phobic users into the category.

And in the end, what else should the retailer put in that space that would be more productive--the automotive and hardware offerings that natural health originally replaced?