In the past ten years, with the rapid development of China’s economy, China’s dietary supplement industry has also undergone dramatic changes. This article will briefly introduce this from two aspects: the development foundation of the industry and the current situation of the industry.
1. Development Foundation
The basic internal driving force for the development of the industry is the continuous growth of demand, and the most important external factor is economic development. Secondly, there are factors such as changes in population size and structure, changes in consumption structure, improvement in health awareness, and changes in disease spectrum. There are three foundations for the development of the dietary supplement industry: one is the rapid economic growth and the increase in per capita income; the second is the change in the population structure that triggers health needs; the third is the consumption concept that changes the consumption structure and the formation of a healthy and rational consumption consciousness.
1.1 The rapid economic growth and the increase in per capita income
The development of the nutrition and health industry is inseparable from the external environment, and the overall economic situation has laid the foundation for the development of an industry. Since the reform and opening-up, China’s rapid economic growth has laid the foundation for the development of the dietary supplement industry. According to the National Bureau of Statistics, the gross domestic product in 2018 was 90 trillion yuan, an increase of 6.6% over 2017. In 2018, the contribution rate of final consumption expenditure to GDP growth was 76.2%, and the contribution rate of total capital formation was 32.4%. In 2018, the per capita GDP was 64,644 yuan, an increase of 6.1% over 2017. The gross national income was 896915 trillion yuan, an increase of 6.5% over 2017.
Studies have shown that there is a positive correlation between per capita income and total consumption in the health food industry. With the increase in per capita income, the scale of the nutrition and health industry is also expanding. In 2018, the national per capita disposable income of residents was 28,228 yuan, an increase of 8.7% over 2017. After deducting price factors, the actual increase was 6.5%. In 2018, the national per capita consumption expenditure of residents was 19,853 yuan, an increase of 8.4% over 2017. After deducting price factors, the actual increase was 6.2%. According to the national per capita consumption expenditure and its composition in 2018, the people’s expenditure on medical care was 1,685 yuan, an increase of 8.5% over 2017.
1.2 The change in the population structure triggers health needs
According to the general international view, when a country or region is older than 60 years old accounted for 10% of the total population, or older than 65 years old accounted for 7% of the total population, which means that the country or region is in an aging society. At the end of 2018, China’s total population was nearly 1.4 billion, and the population of 60 years old and above reached 250 million, accounting for 17.9% of the total population.
From 2011 to 2018, the proportion of China’s population ≥ 60 years old was 13.7%-17.9%, more than 10%, and Chinese society has entered an aging society. China’s aging has two major characteristics: one is a large number of an aging population; the other is the rapid growth of aging. The aging of society brings more market space to the dietary supplement industry. As people’s desire for health becomes stronger and the average life expectancy is getting higher and higher, the elderly hope to achieve health and longevity under the health benefits of nutrition and health products. According to the relevant analysis of consumer psychology, the elderly are generally keen on the consumption of nutrition and health products, and consumer psychology has more prominent characteristics of individual homogeneity, susceptibility to infection, and personality correspondence.
In recent years, under the influence of factors such as industrialization, urbanization, population aging, and unhealthy lifestyles, the incidence of chronic diseases in China has been on a rapid rise. Chronic diseases such as cardiovascular and cerebrovascular diseases and malignant tumors have become the main causes of death. The number of deaths caused by chronic diseases has accounted for 86.6% of the total deaths in the country, and the burden of disease caused by it accounts for nearly 70% of the total disease burden.
Personal health problems are not only related to personal and family life, but also have a great impact on society and the economy. More and more studies and clinical cases support the role of dietary supplements in preventing or adjuvant treatment of diseases and improving physical condition. The dietary supplement industry is a sub-industry of the health industry, and the shift in disease spectrum is also an important factor affecting the development of the dietary supplement industry.
1.3 The consumption concept changes the consumption structure, and a healthy and rational consumption consciousness is formed
With consumption upgrades and supply-side reforms, China’s consumption structure has also changed. In recent years, consumer demand has gradually evolved from satisfying the necessities of life to improving the quality of life. Consumers’ “yearning for a better life” is embodied in the three categories of “love beauty”, “love health” and “love family”.
Among them, “love health” refers to the attention and consumption of nutrition and health products. Taking health products is becoming a trend in the international arena, especially the middle class, which has laid a broad market space for the development of the health industry. Middle-class and affluent consumers, new-age consumers, and online shopping will lead the new consumer economy in China. According to statistics, the ratio of the number of people buying imported goods to the number of online shoppers has rapidly increased from 1.6% in 2014 to 10.2% in 2017. According to a report released by Alibaba Research, medical and health care products are prominent among imported consumer goods in 2017, and they are the key areas for consumers to buy.
As the overall consumption structure changes, there are also new changes in the food consumption structure. One is that the proportion of grains has fallen sharply; the second is that the proportions of animal protein, vegetables and fruits, dairy products, and alcoholic beverages are increasing; the third is to focus on the nutrition and function of food.
This structural change trend of food consumption will continue, which will bring huge space to the development of the dietary supplement industry. The rapid economic development has turned material supply from shortage to surplus, and the growth of residents’ per capita disposable income has increased purchasing power. The result of both is the expansion of consumer demand and the market. The improvement of China’s overall education level has also prompted changes in consumer consumption concepts and concepts, paying more attention to the scientific nature of consumption, paying more attention to food safety, nutrition, and function, and consumption appears more rational.
2. Current Situation
2.1 Changes in relevant policies and regulations
According to the “2017 Food and Drug Supervision Statistical Annual Report” issued by the former State Administration for Market Regulation, in 2017, there were 149,000 food production companies in China, 3,685 food additive manufacturers, and 12.84 million food business licenses. In 2017, the sales of the food industry reached 10.5 trillion yuan, the total profit was 701.56 billion yuan, and there were 2,317 health food production licenses nationwide.
The top 5 functions of approved health foods are to enhance immunity, relieve physical fatigue, assist in lowering blood fat, anti-oxidant, and laxative. Immunity enhancement is the highest proportion of approved health food functions, accounting for 31.9%. The second is to relieve physical fatigue and assist in lowering blood lipids. There are relatively few products approved for other functions. In terms of countries or regions that have approved imported health food products, the most approved products from the United States are 263; followed by Hong Kong, Japan, and South Korea.
Since the promulgation and implementation of the new “Health Food Registration and Filing Management Measures” on July 1, 2016, the health food filing system has attracted attention from the industry. Subject to factors such as policy adjustments and the lag in the introduction of related supporting policies, it was not until December 2017 that the first imported product was approved, and the number of subsequent records was in a stage of rapid growth. Among them, 243 products were filed in 2017, and 1,144 products were filed in 2018, a year-on-year increase of 371%.
Compared with registration, the filing of vitamin and mineral health foods is relatively easy, and many products are currently in the process of declaration. Successfully filed products can be imported into China in general trade, and distributed to hundreds of thousands of pharmacies, supermarkets and other offline channels, further enriching the market line of the nutrition and health industry.
2018 is a year of both opportunities and challenges for the dietary supplement industry. The opportunity is the clarity of national policies, regulations, and management systems, which has given many companies peace of mind. With the promulgation and implementation of the Food Safety Law in 2016 and the implementation of a series of supporting laws and regulations, the dual-track system of registration and filing has given the nutrition and health industry a clear development path and management direction. On the other hand, the continuation and improvement of the cross-border e-commerce retail import policy, the expansion of the scope of application, and the expansion of the open policy are major good news for many overseas brands.
According to statistics from the China Chamber of Commerce for Import and Export of Medicines and Health Products, the annual growth rate of China’s dietary supplement industry from 2016 to 2018 is 10%-15%. Among them, the market size in 2018 exceeded 460 billion yuan, plus functional foods (QS/SC), special medical foods and other special foods, the total market size in 2018 exceeded 750 billion yuan.
2.2 China’s dietary supplements sales channels
The traditional sales channels of dietary supplements are mainly direct sales, pharmacies, and supermarkets. According to data from the China Chamber of Commerce for Import and Export of Medicines and Health Products, the growth rate of pharmacy channels has slowed down, and e-commerce has developed rapidly. From the perspective of sales trends, the leading trend of direct sales scale is weakening, and the rise of e-commerce to seize the share of pharmacies/supermarkets.
In 2018, the sales channels of dietary nutritional supplements are still dominated by direct sales channels, accounting for about 50% of all channels; on the other hand, e-commerce has sprung up and grown rapidly, and currently accounts for nearly 30% of the market. The offline channel is still dominated by pharmacies, and the channel is sinking. The growth rate of county-level cities and towns below is over 8%, which is significantly higher than that of other cities at all levels.
Judging from the sales of direct selling companies in 2018, the market share of direct selling brands is gradually decreasing. The main reason for the slowdown of the trend is that direct selling brands have completed the dividend development stage, and the brand power and product power are not enough to support higher growth; second, with the increase of consumer awareness, coupled with the opening of cross-border e-commerce, consumption People have more consumer choices.
Companies with relatively high recognition in the domestic market include Infinitus, By-Health, Amway, Swisse, Fitness Health, Reckittmann, Perfect, Wyeth, New Era Health, H&H International Holdings, Aojiabao, Nestlé, etc. Except for Infinitus and New Era, which will belong to Chinese herbal health products, the main products of other companies are mostly dietary supplements. Infinitus, Amway, Perfect, etc. are all sold in China through direct sales. As a representative company of China’s dietary supplements, By-Health’s distribution channels are mainly pharmacies and e-commerce. Swisse and Aojiabao from Australia have captured the new models emerging in China, such as cross-border e-commerce, social e-commerce, and online channels to quickly occupy the market.
2.3 Grafting overseas brands in the Chinese market
In recent years, many Chinese companies have adopted the model of grafting overseas brands in the Chinese market to expand. Overseas mergers and acquisitions of high-quality brands and their introduction into China have become a rapid expansion model for many nutrition and health companies or new entrants. One of the main motivations behind this is that domestic brands hope to acquire a rich and leading product line through the acquisition of overseas excellent health care products companies, to quickly expand and leapfrog product categories.
Cross-border mergers and acquisitions of enterprises have enhanced their financial strength and R&D capabilities, and fundamentally realized the integration and exchange of resources from the production and marketing models. In terms of scale, large-scale mergers and acquisitions include H&H International Holdings (formerly Biostime) acquiring Swisse, By-Health’s acquisition of Australian probiotic company LSG, Xiwang Foods’ acquisition of Canadian sports nutrition and weight management health food company Kerr, Harbin Pharmaceutical Group Acquired GNC, a US health care product company, etc.
The good market prospects and development potential of the big health industry have attracted the attention of the capital market. The development of cross-border e-commerce has released the huge demand of Chinese consumers for foreign dietary supplements and has also allowed the capital market to discover business opportunities. Chinese-funded companies have cross-border mergers and acquisitions of foreign companies with branded products or specialty products. Especially in recent years, Australian products have been selling well in China. Chinese companies have acquired many Australian dietary supplement companies.
