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Analysis: Just how big is the VMS market?

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SHELTON, Conn. — There has been a long-standing debate over the size of the vitamins, minerals and supplements (VMS) category.

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Kurt Jetta, TABS Analytics

We started our Vitamin Study in 2005 with a simple goal: to get a more accurate measurement of the category size. With our 2016 study, we offered a broader and more robust set of data to corroborate our estimate.

Another business-to-business publication has its own estimate with multiple data sources. But we see some issues with it, and there hasn’t been data presented to us that would prove us to be wrong in the areas of disagreement.

Based on our consistent methodology across all channels, we determined the size of the category to be approximately $13 billion in 2016. The other estimate for the category size is around $39 billion as of 2016, over three times higher.

How can this be? In digging into it further, the differences lie in the other’s inclusion of sports nutrition and meal supplements (SNMS) products and its non-tracked channel estimates that are over $15 billion higher than TABS Analytics’ estimate.

But why does this matter to the industry? First, an inflated figure makes tasks like assessing asset value and evaluating the impact of mergers and acquisitions, at least with any degree of accuracy, very difficult.

Second, an inflated category size valuation makes a profound difference in terms of regulatory oversight. A $39 billion dollar-per-year industry is going to face much more scrutiny than one that’s worth one-third of that value, especially if there are products being grouped together that don’t belong ­together.

cdr-filler-opinion-750Third, a larger category size leads to overcapacity, as producing to support a $39 billion business leads to bigger capital investment.

Fourth, mass market retailers will have a hard time determining the true opportunity in this category. We have seen many retailers over the years dramatically expand their assortment of specialty brands under the mistaken notion that these brands are doing huge numbers in the non-tracked channels. With just a few exceptions, such as Nature’s Way, these brands are usually way smaller than initially assumed, and sales invariably disappoint.

Finally, lack of industry credibility manifests itself in a number of ways, including projections off of inaccurate base numbers that were way too large. For example, the Council for Responsible Nutrition (CRN) recently proclaimed the huge economic impact of the dietary supplement industry in terms of total output ($122 billion) and direct jobs (383,230). CRN will have a very difficult time now trying to walk these numbers back once it is confirmed that the category size estimates are wrong.

The most recent alternative information we have for the market comes from a 2014 report, which pegs the category size at $36.7 billion. It attributes $10.1 billion of these sales to the two segments we are excluding: sports nutrition and meal replacements (see our 2016 VMS Report for more details). This then brings us to a $26.6 billion estimate for VMS, and we will compare this to TABS’ 2015 estimate of around $12 billion. We are almost $15 billion apart on the two estimates, with the alternative estimate’s sales being 125% higher than ours.

TABS’ methodology is straightforward: Take what is known to be true, then project that outward. We make our projection by benchmarking purchase dynamics in the known universe with what we can measure in the non-tracked universe.

So what is known to be true? The standard industry estimate of $6.5 billion from 2015 put forward by IRI and Nielsen are not in question. This estimate covers food (major grocers), drug (CVS Pharmacy, Walgreens, etc.), mass (Walmart, Target), and several other major outlets such as Dollar General and Sam’s Club.

TABS then added in sporadically tracked channels (e.g., tracked with household panels) such as e-commerce and Costco. Combining these two estimates (known + sporadic) gets us to $9.6 billion. We will call this FDMCD+e (food/drug/mass/club/dollar + e-commerce). This figure is very close to the alternative estimate of $9 billion, with ours being approximately 7% higher.

We disagree on specialty. Their estimate of $17.6 is eight times higher than our $2.2. Yet our survey continually shows that the percentage of people purchasing in FDMCD+e is four to five times higher than specialty. So a channel with 20% of the buyer base does two times more sales than mass market overall?

We can see the difference in both penetration and regular purchase (three-plus times) between mass market and specialty. There are four or five times more actual buyers and regular buyers in FDMCD+e than in specialty outlets such as GNC, Whole Foods and Multi-Level Marketing.

Just applying some basic math — two times sales with only 20% to 25% of the buyer base — translates into unrealistically high transactions sizes (over $150 per purchase) in the specialty channels for the alternative numbers to be accurate.

Let’s look at multilevel marketing (MLM) outlets such as Amway, Herbalife and Shaklee. The alternative estimate is $4.3 billion, ours is $0.3 billion. Again let’s look at what is known about MLM. Herbalife is the No. 2 MLM supplier, and the No. 3 MLM supplier of vitamins is only 10% of the size of Herbalife based on trade association estimates. Based on their own annual report, they only imply about $100 million is vitamin sales after we back out non-U.S. (82% of sales) and non-vitamin sales (73% of sales) from their corporate numbers.

The percentage of consumers purchasing vitamins from MLM has never topped 3% of category buyers in any of our nine studies. It is hard to find a path where such a small percentage can generate $4.3 billion in retail sales, or more than 10% of the total.

If one of the top two MLM vendors of VMS products only registers $100 million in U.S.-based annual sales, where is the rest of the estimated $4.3 billion in MLM revenue coming from? Even if we were to assume that Amway sales triple, or even quadruple, those of Herbalife, we’re still not even close to $4.3 billion.

Does an accurate estimate of VMS category size matter? We believe it does. Any illusory benefits derived from an overhyped category size are far outweighed by the negatives of this overestimation, which adversely impacts suppliers, retailers and consumers.

Kurt Jetta is the founder and chief executive officer of TABS Analytics.


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