September 29, 2020 PAP-Q3-20-CL-026
In 2020, DS are proving their value as an area of growth among bearish economic headlines. It is now up to the major retailers, manufacturers, and brands to differentiate themselves along the value chain to compete for a larger piece of the proverbial pie. Long before COVID-19, supplement retailers and big brands were scrambling to identify new customers for conversion while working to build loyalty with existing customers. As an industry, major players are accomplishing these goals through large targeted marketing campaigns and a strengthened online presence. The pandemic has only stressed the importance of these activities, as new customers continue to flood into the DS market, most of whom are interacting through e-commerce platforms. Consumers are visiting e-commerce sites for DSs 27% more in 2020 than the previous year and purchasing 15% more online than in 2019. During the 12-week stockpiling period ending May 17, 2020, brick-and-mortar vitamin sales grew 30% while e-commerce more than doubled that growth rate at 62%. Other sales channels outside of e-commerce grew at significantly slower rates.
Manufacturers, on the other hand, are focused on delivering production quality and consistency to their clients. The DS industry has faced past challenges with inconsistency of supply. Differing regulatory requirements and the commoditization of most natural products drove DS manufacturers in the past to compete by cutting costs — arguably at the expense of operating margins and quality of finished goods. As the modern consumer has evolved to become a steward of high-quality ingredients, sustainable sourcing, and good manufacturing practices, the industry as a whole has evolved to keep pace. For manufacturers, this means a focus on transparency in their supply chain, extensive internal controls, and capital investment in technology.
Adjacent to the dietary supplement industry, cannabis products are playing an increasing role in the health and well-being of consumers. Sales of cannabis products in key U.S. states, including California and Colorado, were up 50% between March 16 and 22 as consumers stockpiled. North of the border, where recreational and medical cannabis is federally and provincially legalized, cannabis products have also seen impressive sales growth during COVID-19. Canadian sales of regulated cannabis products grew 4.2% from April to May 2020, for a total of $185.9 million CAD (138.1M USD) for the month. The Canadian market is expected to exceed $2.4 billion in sales for 2020 — an industry that only became federally legalized in October of 2018.
What are the implications of increased cannabis sales for brands and manufacturers? Cannabis products in traditional pharmaceutical dosage forms like OSD, liquids/semi-solids and topicals must be met with high-quality manufacturing — including packaging. In a nascent industry that garners heightened regulatory scrutiny like cannabis, there is little room for error. Considering the brand-agnostic consumer in this category and the relative absence of consumer loyalty, a poor-quality production run can be devastating to both a manufacturer and a brand.
As the modern consumer has evolved to become a steward of high-quality ingredients, sustainable sourcing, and good manufacturing practices, the industry as a whole has evolved to keep pace.
Understanding the significant opportunities presented by both the dietary supplement and cannabis industries in North America, it is critical for firms to adopt effective long-term strategies to tap into this market potential. As a going concern, a brand or manufacturing firm should be particularly cognizant of:
Erica Sosnowski is the President of Sosna & Co. She founded Sosna & Co. in 2017, bringing more than a decade of multi-industry leadership, and business and corporate development expertise to life science companies globally. Erica is a motivated executive with multi-cultural business acumen developed through extensive international business experience throughout Asia-Pacific, Europe, and the Americas regions. Educated in Canada, Erica holds a BSc and an MBA.