Inside This Issue - Opinion
Confluence of factors rein in sales of vitamins
June 16th, 2014
by Kurt Jetta
A question heard repeatedly at the National Association of Chain Drug Stores Annual Meeting in April was, “What is wrong with vitamins?”
After four or five years of high-single-digit annual growth, with only minimal disruptions during that time, most retailers are seeing sales that are flat and even declining. Being that vitamins and nutritional supplements are the largest health and beauty care category, this is a matter of some concern for the industry.
Unfortunately there is not one straightforward answer. Rather there are is confluence of negative factors — with very few positive factors to offset them — that are suppressing category sales. In rough order of importance they are:
• Lack of space and SKU expansion in most, but not all, major retailers. Vitamins have always been what we call highly space elastic. That is, the more assortment you add, the more you will sell. This relationship was particularly pronounced in the food channel, where we saw 5% to 10% annual gains in SKU count for the last four years. Now, however, most retailers have pulled back on this expansion, and this has taken the positive momentum out of the category. There is one notable national retailer that actually expanded its SKU count quite a bit, yet sales did not respond as expected. It is difficult to tell whether this lack of response is a bellwether of deeper, more problematic, shifts in consumer preferences or just bad decisions in terms of the new items chosen.
• Reduction in promotional depth and frequency. More than a few national retailers have pulled back on their promotional activity in this category. Vitamins are highly promotion sensitive, so a reduction in support by multiple national retailers would have a noticeable and material adverse effect on sales. In particular, we have tracked numerous retailers that hurt their sales due to their singular focus on their loyalty card program as their only promotional platform. This reduction in support has not been consistent, however. The TABS Group 7th Annual Vitamin Study that was just completed was able to flag a major uptick in Walgreens’ share among heavy category buyers due to some retooling of its promotional strategy. Walgreens, however, has been the exception to the broader trend of less promotional quantity and quality in vitamins.
• No major innovation driving growth. The TABS Group study, corroborated by market data, shows that the growth in the gummy vitamin form has decelerated quite a bit. While this saturation occurred faster than we projected, it is not uncommon for this category, where innovation has a fairly short life cycle. Unfortunately there have been no innovations or major new product areas to take its place. Our annual study showed probiotics and vitamin B are still sources of major gains in penetration, but these are outweighed by declines in larger types, such as joint relief and calcium.
• Migration to online sales. Whereas our study last year showed both brick-and-mortar and online sales showing significant growth (up 8% for food/drug/mass/club/dollar), this year the growth seems limited to online. Importantly, this is the first year in which we saw online growth driven by marginal category users. Online has always been a channel that has derived a disproportionate amount of its sales from heavy, deal-sensitive category users. The pickup of marginal users, while retaining share of heavy users, presents a potential threat to established FDMCD outlets in this important and profitable category. In our estimation, the gains are likely related to the reduction in promotional support in the major chains. As mentioned earlier, online shoppers are much more deal sensitive than shoppers in all other outlets.
These factors are not mutually exclusive, and without more in-depth analysis it is difficult to determine the relative importance of each one in the recent soft trends in vitamins. It is conceivable — maybe even likely — that some retailers refused to increase space in vitamins in response to a reduction in trade promotion investment from the major manufacturers. Also, they may have seen that with no meaningful innovation in the pipeline it did not make sense to carve out more space for the category.
Whatever the reason for this short-term hiccup in VMS sales, there is no reason to think that trends will stay this way. After all, vitamins are aligned with the macro trends of an aging consumer who is becoming more reliant on self-care. In addition, a larger investment in price promotion can have an immediate and meaningful effect on sales and profits.
Finally, we can never underestimate the ability of the participants in this category to develop true innovation in product or merchandising that will jump-start the category for longer-term growth. As we look across the panorama of HBC categories, very few of them have been as reliable as vitamins for generating growth.
KURT JETTA is the founder and chief executive officer of TABS Group Inc., a technology-enabled analytics firm in the CPG industry since 1998. He is the author of the 7th Annual TABS Group Vitamin Study.