Key Themes from the NBJ Summit
Baird's Global Consumer team virtually attended the NBJ Summit, hosted by the Nutrition Business Journal. This event brought together CEOs and executives from the nutrition and supplements industry, focusing on the importance of agility in an age of uncertainty in the current market.
Below we highlight several recurring themes from the summit. Here’s what we heard:
Market Update
VMS continues to grow in 2022 and show resilience despite a broader slowdown in consumer spending
- Although sales slowed to growth of 1.9% in 2022, the US supplement industry is now a $61B industry with forecasted 4-5% long-term growth.
Despite inflationary pressures, consumers intend to maintain their supplement usage, although some consumers seem open to trading down to less expensive alternatives
- 61% of consumers report that recent cost increases have not impacted their supplement consumption.
- 57% of consumers said they would spend more time on their health and wellbeing in the coming year.
- If cost becomes a factor for them, consumers say they will either elect to switch to lower priced products (60%) or buy more store brand supplements (59%).
Burgeoning categories addressing various functions and utility continue to drive growth across the industry
- Women’s health is at the forefront of growth, with greater awareness and advocacy, particularly in previously stigmatized categories: for example, menopause supplements are expected to post a CAGR of 5.3% from 2022-2026.
- Mushroom / nootropics (support a myriad of functions including brain health and memory) are here to stay: mushroom-based supplements are expected to grow 6x from 2018-2026.
- Ashwagandha (supports mood / sleep) continues to surge, posting nearly 20% growth as consumers become more familiar and educated with its main benefits.
- Synbiotics represent the largest opportunity in microbiome health: this segment has doubled in size since 2019.
- Active lifestyle, especially within sports nutrition / hydration, and weight management will continue to dominate, as these segments remain key growth categories within VMS, spiking to 9.7% and 8.0% growth, respectively, in 2022.
Consumer preferences with regard to delivery format continues to evolve – as combined pill formats remain the most common delivery, however, gummies serve as the primary gateway for consumers to adopt supplements into their lifestyle
- Combined pill formats garner 29% share as ~45% of consumers think that pills are less expensive.
- Gummies served as the primary gateway for consumers to enter the supplement industry with ~50% of consumers agreeing that gummies were the first supplements they purchased – as gummies typically have better palatability / taste profiles.
Boomers pioneered the VMS industry, but Gen Z and Gen Alpha are expected to drive innovation and marketing moving forward
- Future generations demand supply chain and ingredients to be transparent, with products to be efficacious, natural and sustainable.
- 3rd party certification has become increasingly important in validating product claims.
- Personalization is increasingly important.
- DTC grows with consumers preferring convenience, tailored experiences and relatable marketing.
- According to surveys, 52% of consumers expect their offers to be personalized, driving the need for VMS offerings to evolve from a “one-size-fits-all” approach to a highly individualized model (or targeted marketing for specific end-consumers).
- 66% of consumers expect companies to understand their unique needs.
M&A and Investment Appetite
The M&A activity within the VMS industry normalizes after an increase in activity from 2017-2021
- There was more VMA M&A activity from 2017 - 2021 than at any point in history.
- VMA M&A bottomed out in Q1 2023 (not dissimilar to the broader consumer market); however, VMA M&A activity is expected to pick up during 2H 2023.
- Business issues pressuring the VMS industry such as supply chain challenges have dissipated, which should favorably impact the outlook for VMS M&A activity.
- The larger global consumer companies who initially steered away from the VMS industry have recently, heavily, invested in the category – we expect strategics to continue to look for young, innovative brands.
- Nestle and Unilever have made a slew of investments in disruptive brands across the last 3-4 years.
- Unilever: Olly, LiqudIV, Smartypants, Welly, Onnit, Nutrafol
- Nestle: Persona, Before Brands, Vital Proteins, The Bountiful Company, nuun, Orgain, Better Health
Profitability, sustainability and credible science have taken priority in the mindset of investors
- To attract investors, companies generally need to have strong operational cadence, strong leadership, a path to omnichannel distribution and ideally, be EBITDA positive.
- Investors are prioritizing product efficacy that is backed by science (which should lead to more sustainable growth over time) as opposed to simply a good marketing story.
