Insights

The State of the Natural Products Industry in a Digital World

State_of_Natural

Take a walk down the aisles of your local supermarket, and you’ll notice things look significantly different than they did even five years ago. The dairy section is now wrestling with a growing selection of dairy-free options, from soy and almond to cashew and hemp. Products boast non-GMO, organic, and gluten-free like never before. The vitamins and supplements section gives shoppers a plethora of choices, satisfying a wide demographic of preferences through clear, transparent labeling. In 2019, more customers than ever are passionate about what they put in their bodies.

At the same time, more people are doing their shopping and product research online than ever before. In fact, 89% of CPG product growth was from online sales between 2016 and 2017, while 87% of holiday shoppers visit Amazon for product research, citing product reviews, ratings, and price comparison as their top reasons. This even happens when customers are browsing the aisles of their local market — Retail Dive claims that 58% look up product information on their smartphones while shopping in-store.

Despite this, operating in the natural products space is not all sunshine and rainbows. The industry faces a host of distinct challenges and opportunities regarding digital disruption, presenting brands with their own unique, contrasting, and often surprising e-commerce landscape.

Know your audience

Natural products customers are smart, savvy, and passionate about their purchase decisions. Slice Intelligence found that the vitamin and supplement category is growing online 12% faster than e-commerce overall, and is up 40% in the last year alone. And while many natural products brands put heavy focus on their DTC operations, the Amazon marketplace has a stronghold on the industry, commanding 77% of all online sales in the category. Although online sales are certainly a big deal, the influence e-commerce has expands well beyond the computer screen, as natural products shoppers are masters of cross-referencing. 75% of grocery buyers use physical stores to evaluate products before buying them online, while 79% of all product purchases and searches, including brick-and-mortar, are influenced by e-commerce.

Natural products shoppers might be influenced by what’s in vogue, but it’s important to distinguish between trends and fundamental industry shifts. Each year, publications identify top trends from the major natural products trade shows, like Snacknation analyzing Expo West last March. Their blog post identified recurring themes in the industry, like puffs (think Cheetos Puffs) and snack bites, and they are clearly aware of the impermanence of these trends, referring to tumeric as still being popular on the tradeshow floor. However, the increased desire for transparent labels, for instance, isn’t going to vanish in the next couple of years. The same is true for certain dietary shifts such as veganism, which increased by 600% in the past three years. Plant-based diets have even been described by Nestlé, the largest food company in the world, as “a trend that we believe is here to stay and amplify.” Brands can benefit in the short term from jumping on the most recent natural products fads, but will find longevity by identifying and gravitating toward larger shifts in consumer preferences.

The rise of digitally native brands

The natural products industry surpassed $200 billion in 2017, and shows no sign of slowing down. However, as with many booming industries, everyone wants a piece of the pie — including brand new, e-commerce savvy startups. New Hope Network found that over half of new brands in the natural products space launched online, taking advantage of low barriers to entry and rapidly growing channels. “Digitally native brands — ones that were born on Amazon, grew up quickly, and are now thriving — are adept at maximizing all aspects of the platform, and you’ll be competing with a lot more of them too,” says Raj Sapru, Director of Strategy at Netrush. “Your new competitors are savvy about imagery, content, digital marketing tools, e-commerce packaging, and how digital consumers shop — and are appropriately resourcing these digital tools for the marketing fight ahead.”

Private labels

The advantage digitally native brands have is their expertise and laser focus on e-commerce — and nobody knows the digital landscape better than Amazon. With an estimated 76 private label brands, the retail giant has put an incredible amount of focus into building their private label business, with a current emphasis on apparel and CPG products. With endless troves of consumer data paired with a seemingly bottomless budget for experimentation, Amazon is able to appeal to the psyche of shoppers while making calculated financial risks.

Amazon Elements, for example, sells vitamins and supplements that aggressively appeal to consumer preferences in the natural products space. Their supplements “use only pure organic ingredients” and share “the whole story” of the product, including all ingredients, date of manufacture, the lab where the product was tested, purity levels, production process, and much more. It’s no joke — just look at the certificate of analysis on this Amazon Elements B12 listing.

How brands can compete

With competition fiercer than ever, existing brands are facing an uphill battle — but hope is far from lost. By taking a page from the competition’s playbook and pairing it with industry expertise and humanism, brands can take advantage of the growing natural products industry.

Rise to their level, and then some

Shoppers generally choose private label brands because they’re inexpensive and from a trusted retailer — but not usually because of their superb quality or reputation. While Amazon Elements offers quality and transparency that might satisfy the average consumer, some brands go above and beyond. MegaFood, a whole food supplement brand, not only has advanced transparency initiatives in place — the company is constantly livestreaming their production process to assure 100% trust from their customers. Natural Factors takes a somewhat different approach — the supplement brand leverages their uniquely integrated supply chain, in which they own their own farms, facilities, and testing labs, in order to deliver quality and trust to their customers. It’s hard for a private label to compete with that.

Balance industry experience

Brands that have been around the block a few times tend to know more about their customers and the industry than their startup competitors. This can be both an advantage and a disadvantage — while mature brands are able to harness their veteran knowledge to appeal to their audiences more effectively, some don’t adapt to changing markets or utilize modern digital resources, and suffer from stagnation as a result. Startups are more likely to be bold, take risks, and focus on specific market opportunities, and as a result, will often come out ahead. It’s important for brands to strike a balance between experience and the willingness to adapt and innovate.

Tell your story

Private label brands simply make carbon copies of original products — without a market leader, no alternatives can exist. As a result, they don’t have a story, don’t have a founder, and are ultimately void of personality. As consumers become more conscious of their dollar votes, brands born out of necessity, rather than to simply sell products, can leverage their unique upbringings in order to gain trust from their ideal customer base.

Regulations

The world of consumables, particularly natural products, revolves around changing and evolving regulations. FDA Commissioner Scott Gottlieb has recently made statements regarding reviewing the standards of product claims, such as labeling a product as “organic” or “non-GMO.” There’s heated debate, for example, around the use of the words like “milk” and “mayo,” and whether or not they can be used for things like almond milk and eggless mayo-esque spread. More importantly, regulations seem to be leaning toward requiring specific health claims on labels to be quantified, or removed altogether. Nature Valley was even forced to drop the word “natural” from its packaging after a legal battle.

With all this uncertainty, brands face an upcoming challenge, and have already felt the pressure to reimagine how they present themselves. “The increased scrutiny around regulatory claims and cleaning up labels will help push transparency and make products understandable to the general consumer,” says John Willkom, Director of CPG at Netrush. “While we’ve experienced some typical challenges with our natural products partners around claims and what can actually be said, this may end up as an overall win, as it eliminates bad actors and forces companies to think about avoiding erroneous claims.”

International expansion

Unlike many other product categories, natural products and supplements face regulations when expanding from the U.S. into international marketplaces. Let’s take Canada, for instance. Health Canada enforces strict regulations on natural health products (NHPs), requiring each NHP to gain a product license number issued by Health Canada after being assessed for safety, efficacy, and quality. The importer of the licensed product must also hold a Health Canada approved site license to ensure they comply with the Good Manufacturing Practices (GMP) outlined in Canada’s regulations. These requirements, for obvious reasons, make the sale of natural health products more challenging in Canada. We experienced these hurdles first-hand: Netrush invested in the resources necessary to obtain a Health Canada approved site license for our facility in Mississauga, Ontario in late 2017, allowing us to import, represent, and sell non-Canadian NHPs on Canadian marketplaces.

Moving forward

The natural products industry, while presenting brands with unique challenges, is ultimately a space filled with innovation and opportunity. As consumer preferences shift and interest in natural products increases, brands can take advantage of the industry’s growth by focusing on their roots, leveraging their creativity, and making investments in the rapidly-growing world of digital commerce.