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China consumed over CNY 109 billion (US$16.3 billion) of vitamins and dietary supplements (VDS) in 2015, and is projected to record a CAGR of 6% over this year, thanks to increasing disposable incomes and health awareness of almost every segment of the rising Chinese urban class. The end of the controversial one child policy brought a wave of second time pregnant moms and small children, who drove up demand for VDS for women and children. Not to mention, 16% of China’s population is over 60, and the 222 million can become a target market for traditional medicine VDS.
The VDS companies are further segmenting their products to meet the growing specific demands of their Chinese consumers. Not only are they segmenting by conditions such as memory boosting or immunity enhancement, but also they are adjusting their ingredients and foreign branding to mesh with local Chinese preferences.
Vitamins and Dietary Supplements in China
A CNY 149 billion market by 2020
By 2020, the market of vitamin and dietary supplements in China is expected to reach CNY 149 billion (US$22.3 billion), with a CAGR of 6.4% in the 2015-2020 period. Demand was shaky previously due to poor product quality, marketing scandals, and frequently changing regulation. Currently, VDS already have a strong presence in first-tier cities. About half of urban consumers purchase some type of VDS regularly to enhance their health. Rapid growth is expected in lower-tier cities within the next five years.
The health care market accounted for 5.4% of China’s GDP in 2013, while in most developed countries it is around 15%. With increasing disposable incomes, better medical insurance policies, and better consumer education, Chinese consumers are spending more on health care. The annual growth rate of health care expenditures in large Chinese cities is 30%, and half of that for smaller cities.
Market for maternal and pediatric VDS rise with Second Child Policy
The second child policy, an aging population, and rising health awareness second and third tier cities signal a prime opportunity for new players to enter the vitamin and dietary supplements in China. The average Chinese spends 28 times less on VDS compared to Americans, but the difference is diminishing. VDS for the immune system and bone health accounted for 23.0% and 22.1% of dietary supplement sales by value in 2015. Other popular features include general health at 13.8% and women’s health at 8.8%.
Sales of multivitamins for pregnant women posted strong value growth in 2015, with Bayer’s Elevit, Pfizer’s Materna, and Beijing Scrianen’s Golden Scrianen boasting the highest sales. Meanwhile, pediatric VDS had over CNY 7.9 billion (US$ 1.18 billion) in sales and claimed a 10.9% CAGR in the 2010-2015 period. Parents are also more willing to pay a premium price for quality, preferably foreign, VDS. Following the 2008 scandal of toxic melamine in a Chinese company’s infant formula and like incidents, parents are especially wary of product safety. However, the growth of pediatric vitamins was slightly slower than that of vitamins as a whole. Chinese parents would rather feed their children more fresh fruits and vegetables for vitamin intake, making marketing for producers more difficult.
New Trend in Traditional Chinese Medicine
While the vitamin and dietary supplements in China are projected to reach CNY 149 billion (US$22.3 billion) by 2020, the market for traditional Chinese medicine is expected to grow to almost double that, CNY 268 billion (US$40 billion). Combinations of herbal/traditional dietary supplements achieved an 18.6% value growth from 2014 to 2015. Chinese consumers were drawn to the combined functions and lack of side effects, not to mention the traditional Chinese twist to foreign or modern VDS.
Now both foreign and domestic companies are looking to traditional cures like ginseng and deer antlers for new medicines and VDS. Amway markets a ginseng and licorice medicine for liver and memory health, in addition to investing CNY 87 million (US$13 million) in a traditional Chinese medicine research lab in Wuxi. Guangzhou By-health Biological Engineering, the maker of popular By-Health brand that held 4.3% of sales by value in 2015, is also riding this trend. It hired martial arts star Jet Li as the spokesperson for its new premium brand Naturone, which features ingredients from traditional Chinese medicine.
Prime time for Foreign VDS to enter China
Foreign VDS are perceived to be safer and higher quality, while domestic brands are viewed with skepticism from Chinese consumers. Multinational brands, such as Amway’s Nutrilite and Pfizer’s Centrum, are particularly popular. But the VDS category is still highly fragmented, with the top five players accounting for merely 35% value share in 2015. Amway’s Nutrilite and Infinitus’s brands accounted for 10.7% and 10.2% of sales by value in 2015. Tianjin Tianshi Biological Development’s Tien brand followed with 5.1%.
Recently the sales of the Australian vitamin brand Swisse Wellness boomed in China, partly thanks to Chinese demand for safe and quality vitamins. While the company does not sell directly into China, it sells its vitamins via e-commerce on Tmall and Taobao. Entering China via e-commerce rather than physical retailers could prove to be inexpensive and efficient for many VDS brands.
Many domestic pharmaceutical companies have increased investment in VDS in the past few years, due to the government’s “blue hat” registration policy that favored domestic companies. The registration process required two to three years of administration procedures and clinical trails and cost upwards of $ 100,000 per product. The government finally relaxed regulation in October 2015, easing up a market entry for many foreign pharmaceuticals.
Furthermore, health insurances extended coverage for VDS products forms 2 to 12 in the last five years. Although there are still restrictions on the purchase amount and designated pharmacies, these policy changes signal government support of this industry.
$1 USD = CNY6.69
Case Study – Food and Beverage Industry
One of Daxue Consulting’s clients was growing but facing strong competition in China. The client was indeed starting to lose some market share and there were in need of a new structure to support the growth of some product categories. Daxue Consulting provided them a market analysis, based on several methodologies to understand better the client’s consumers. The expertise went through a benchmark of the direct competitors in China and a mystery shopping analysis in order to evaluate the visibility of the client’s product’s category. The report helped the client to define a sharper strategy in order to gain market share in China.