Paul Altaffer and Grant Washington-Smith07.01.12
While the economic uncertainty of Europe and the social unrest in the Middle East occupies most of our international news these days, the countries of Southeast Asia have been quietly growing and developing nicely. The Philippines posted impressive growth in the first quarter of 2012, its strongest quarter in two years, and recent elections in Myanmar suggest signs of emergence after decades of isolation.
While the rest of the developed world is struggling, the question is what is driving growth in this region? Southeast Asia has a combined population of about 600 million people, the region is rich in natural resources, and it has benefited from the continuing commodity boom. Furthermore, greater foreign investment and increased trade with China have lifted consumer spending and this is driving a rapidly expanding middle class throughout the region.
Of particular interest is the country of Indonesia. It has the largest economy in the region, posting good growth in the first quarter of 2012, although at a slower pace than its previous six quarters. As a sign of future growth, foreign direct investment surged 30% in the first quarter of 2012, as the Indonesian government regained its coveted investment grade credit status.
The country has a relatively heavy reliance on domestic consumption, which is a significant driver of its economic growth. This in turn is fuelling the prosperity of the growing middle class.
Indonesia’s Nutraceutical Market
From the perspective of the nutraceutical market, Indonesia is showing good growth. The size of the market in 2012 is estimated to be worth a little more than $1 billion and growing at just under 10%. Much of this growth is linked to the country’s economic prosperity and the emerging wealth of its middle class. Of particular note is the growth in children’s nutritional products (vitamins and dietary supplements), which is growing at 18%. In fact, this is the leading market segment for growth for the 2011-2012 period.
The Indonesian nutraceutical market nearly doubled between 2006-2011, with the growth of children’s vitamins and dietary supplements tripling during the same period. This segment now represents just under one-third of the total dietary supplements sold. A majority of this growth has occurred within just the last two years.
Another sign that the Indonesian nutraceutical market is developing is the change in structure of its retail channels. Traditionally dietary supplements are sold in small grocery stores, however, in the past few years there has been a migration away from small grocery retailers to modern retail outlets such as hypermarkets and large format convenience stores within many of Indonesia’s cities. Many more domestically manufactured and internationally sourced products are featured in these outlets, offering easier access to a broader range of products, which seems to be driving sales. In 2011, large format mass food and drug retailers accounted for a 32% market share of vitamins and dietary supplements.
Unfortunately this growth in the large format mass food and drug retailer channel has not helped the direct selling industry, as it has seen little growth in its market share over the past 12 months. The suspected reason is the broader array of choice and international brands that are now being offered through the retail channel. Regardless, the direct selling industry still represents a large proportion of the overall nutraceutical market at around 31%.
Driving Consumer Demand
Concerns around immune health have helped drive sales in vitamins and dietary supplements, with vitamin C (Ester-C in particular) witnessing the fastest growth in the vitamin category in 2011, up 17% over the previous year.
Lower priced, domestically manufactured products have characterized the market for dietary supplements in Indonesia, however, this is starting to change. Demand for premium-priced international brands is starting to increase. Many U.S. and European brand manufacturers have benefited from the increased demand of middle and upper income consumers who are becoming more knowledgeable on issues of personal health and nutrition as well as more consumer savvy. These middle and upper income consumers are demanding improvements in terms of product quality and effectiveness, and are prepared to pay for it.
Largely dominated by vitamin sales, the market is witnessing a proliferation of botanical and non-traditional extracts. Another sign that the market is evolving has been the successful introduction of niche and condition-specific products.
While vitamin C led the growth within the vitamin category in 2011, omega 3 fish oil also emerged as a growth leader in the “dietary supplements” category during the same period.
Dietary supplements for “general health” remain at the top of the list within the Indonesian nutraceutical market for 2011, as most consumers understand the value of maintaining well-being through diet and nutrition. The second biggest category includes those products promoting bone heath, followed by products for sexual health and performance.
The traditional dietary supplement sector faced some strong competition from fortified and functional foods and drinks. A good example is calcium supplements, which faced competition from calcium-fortified powder milk brands such as Anlene. Other examples: Probiotic supplements face stiff competition from probiotic yogurts, while ginseng continues to feel the heat of ginseng-fortified coffee. Notably, these products are advertised by food manufacturers as substitutes for dietary supplements, which could affect the performance of the segment over the long-term.
Premium brands of vitamins and dietary supplements are typically imported, such as Sea-Quill, Nutrimax, Nature’s Plus, Nature’s Bounty and many more. These brands, however, are largely targeted toward upper-income consumers due to their high price and they are only available in a limited number of retail outlets, mainly in modern chain retail pharmacies such as Guardian.
Meanwhile, the majority of lower priced “high volume” brands come from a combination of multinational and domestic manufacturers. These brands are widely available from retailers throughout Indonesia, including the small grocery retailers.
2013 & Beyond
Provided that the current strength in the Indonesian economy remains robust over the next few years, it is expected that Indonesians’ current preference for prevention over treatment will continue to grow. This attitude of health prevention will benefit both vitamins and dietary supplements, a market expected to sustain sales growth of around 9%, according to a recent 2012 report from Euromonitor.
Competition from functional food and beverage manufactures is likely to be one of the potential threats to growth in the vitamin and dietary supplement segments, but this will remain limited to fortification opportunities in commonly consumed beverages such as dairy, tea and coffee. That said, Indonesian consumers still largely prefer the convenience of tablets and capsules as opposed to tonic-based drinks, so the widespread adoption of tonics and elixirs, like that seen in Japan and Korea, is unlikely for the time being.
The good news for companies already in the Indonesian market, or those planning to be there in the near term, is that the unit prices of vitamins and dietary supplements are likely to climb over the next few years as middle- to upper-income consumers trade up to more premium products with sophisticated formulations.
There were several new products launched in 2011 and these appear to be performing well. This activity is likely to attract other manufacturers into the category to build on these successes and launch similar products over the next 12-24 months. Examples of what might be expected include competition for the recently launched Fatigon C-Plus, a sustained release vitamin C product, and Cor-Q, the first domestic brand of CoQ10 in Indonesia.
Manufacturers such as Bayer, who is a leader in the Indonesian vitamin sector, are expected to continue their investment in promotion, education and new product development in order to boost sales, and this will likely ensure solid performance of vitamins and dietary supplements as a whole.
Editor’s note: We would like to acknowledge and thank Euromonitor for their support in writing this article.
Paul Altaffer is on the product and business development team at RFI Ingredients, Blauvelt, NY, a manufacturer of innovative natural ingredients and custom formulations for the functional food and dietary supplement industries. He was previously the founder and president of Nat-Trop, an ingredient company now operated by RFI that develops and trades primarily in South American products. He can be reached at 510-337-0300; E-mail: paulo@rfiingredients.com
Grant Washington-Smith has over 17 years of experience across a variety of businesses in the natural products industry. He previously worked in business development and brand management for Alticor Inc. Prior to arriving in the U.S., Grant was involved in marketing and business development throughout New Zealand, Australia and the Asia/Pacific region. His focus has been on the commercial development of the novel and the innovative. He can be reached at gwashin@me.com
While the rest of the developed world is struggling, the question is what is driving growth in this region? Southeast Asia has a combined population of about 600 million people, the region is rich in natural resources, and it has benefited from the continuing commodity boom. Furthermore, greater foreign investment and increased trade with China have lifted consumer spending and this is driving a rapidly expanding middle class throughout the region.
Of particular interest is the country of Indonesia. It has the largest economy in the region, posting good growth in the first quarter of 2012, although at a slower pace than its previous six quarters. As a sign of future growth, foreign direct investment surged 30% in the first quarter of 2012, as the Indonesian government regained its coveted investment grade credit status.
The country has a relatively heavy reliance on domestic consumption, which is a significant driver of its economic growth. This in turn is fuelling the prosperity of the growing middle class.
Indonesia’s Nutraceutical Market
From the perspective of the nutraceutical market, Indonesia is showing good growth. The size of the market in 2012 is estimated to be worth a little more than $1 billion and growing at just under 10%. Much of this growth is linked to the country’s economic prosperity and the emerging wealth of its middle class. Of particular note is the growth in children’s nutritional products (vitamins and dietary supplements), which is growing at 18%. In fact, this is the leading market segment for growth for the 2011-2012 period.
The Indonesian nutraceutical market nearly doubled between 2006-2011, with the growth of children’s vitamins and dietary supplements tripling during the same period. This segment now represents just under one-third of the total dietary supplements sold. A majority of this growth has occurred within just the last two years.
Another sign that the Indonesian nutraceutical market is developing is the change in structure of its retail channels. Traditionally dietary supplements are sold in small grocery stores, however, in the past few years there has been a migration away from small grocery retailers to modern retail outlets such as hypermarkets and large format convenience stores within many of Indonesia’s cities. Many more domestically manufactured and internationally sourced products are featured in these outlets, offering easier access to a broader range of products, which seems to be driving sales. In 2011, large format mass food and drug retailers accounted for a 32% market share of vitamins and dietary supplements.
Unfortunately this growth in the large format mass food and drug retailer channel has not helped the direct selling industry, as it has seen little growth in its market share over the past 12 months. The suspected reason is the broader array of choice and international brands that are now being offered through the retail channel. Regardless, the direct selling industry still represents a large proportion of the overall nutraceutical market at around 31%.
Driving Consumer Demand
Concerns around immune health have helped drive sales in vitamins and dietary supplements, with vitamin C (Ester-C in particular) witnessing the fastest growth in the vitamin category in 2011, up 17% over the previous year.
Lower priced, domestically manufactured products have characterized the market for dietary supplements in Indonesia, however, this is starting to change. Demand for premium-priced international brands is starting to increase. Many U.S. and European brand manufacturers have benefited from the increased demand of middle and upper income consumers who are becoming more knowledgeable on issues of personal health and nutrition as well as more consumer savvy. These middle and upper income consumers are demanding improvements in terms of product quality and effectiveness, and are prepared to pay for it.
Largely dominated by vitamin sales, the market is witnessing a proliferation of botanical and non-traditional extracts. Another sign that the market is evolving has been the successful introduction of niche and condition-specific products.
While vitamin C led the growth within the vitamin category in 2011, omega 3 fish oil also emerged as a growth leader in the “dietary supplements” category during the same period.
Dietary supplements for “general health” remain at the top of the list within the Indonesian nutraceutical market for 2011, as most consumers understand the value of maintaining well-being through diet and nutrition. The second biggest category includes those products promoting bone heath, followed by products for sexual health and performance.
The traditional dietary supplement sector faced some strong competition from fortified and functional foods and drinks. A good example is calcium supplements, which faced competition from calcium-fortified powder milk brands such as Anlene. Other examples: Probiotic supplements face stiff competition from probiotic yogurts, while ginseng continues to feel the heat of ginseng-fortified coffee. Notably, these products are advertised by food manufacturers as substitutes for dietary supplements, which could affect the performance of the segment over the long-term.
Premium brands of vitamins and dietary supplements are typically imported, such as Sea-Quill, Nutrimax, Nature’s Plus, Nature’s Bounty and many more. These brands, however, are largely targeted toward upper-income consumers due to their high price and they are only available in a limited number of retail outlets, mainly in modern chain retail pharmacies such as Guardian.
Meanwhile, the majority of lower priced “high volume” brands come from a combination of multinational and domestic manufacturers. These brands are widely available from retailers throughout Indonesia, including the small grocery retailers.
2013 & Beyond
Provided that the current strength in the Indonesian economy remains robust over the next few years, it is expected that Indonesians’ current preference for prevention over treatment will continue to grow. This attitude of health prevention will benefit both vitamins and dietary supplements, a market expected to sustain sales growth of around 9%, according to a recent 2012 report from Euromonitor.
Competition from functional food and beverage manufactures is likely to be one of the potential threats to growth in the vitamin and dietary supplement segments, but this will remain limited to fortification opportunities in commonly consumed beverages such as dairy, tea and coffee. That said, Indonesian consumers still largely prefer the convenience of tablets and capsules as opposed to tonic-based drinks, so the widespread adoption of tonics and elixirs, like that seen in Japan and Korea, is unlikely for the time being.
The good news for companies already in the Indonesian market, or those planning to be there in the near term, is that the unit prices of vitamins and dietary supplements are likely to climb over the next few years as middle- to upper-income consumers trade up to more premium products with sophisticated formulations.
There were several new products launched in 2011 and these appear to be performing well. This activity is likely to attract other manufacturers into the category to build on these successes and launch similar products over the next 12-24 months. Examples of what might be expected include competition for the recently launched Fatigon C-Plus, a sustained release vitamin C product, and Cor-Q, the first domestic brand of CoQ10 in Indonesia.
Manufacturers such as Bayer, who is a leader in the Indonesian vitamin sector, are expected to continue their investment in promotion, education and new product development in order to boost sales, and this will likely ensure solid performance of vitamins and dietary supplements as a whole.
Editor’s note: We would like to acknowledge and thank Euromonitor for their support in writing this article.
Paul Altaffer is on the product and business development team at RFI Ingredients, Blauvelt, NY, a manufacturer of innovative natural ingredients and custom formulations for the functional food and dietary supplement industries. He was previously the founder and president of Nat-Trop, an ingredient company now operated by RFI that develops and trades primarily in South American products. He can be reached at 510-337-0300; E-mail: paulo@rfiingredients.com
Grant Washington-Smith has over 17 years of experience across a variety of businesses in the natural products industry. He previously worked in business development and brand management for Alticor Inc. Prior to arriving in the U.S., Grant was involved in marketing and business development throughout New Zealand, Australia and the Asia/Pacific region. His focus has been on the commercial development of the novel and the innovative. He can be reached at gwashin@me.com
