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Washington, the Coronavirus and the Natural Products Industry

Albion Minerals®
Washington, the Coronavirus and the Natural Industry Washington, the Coronavirus and the Natural Industry

Business in a (temporarily) dystopian world.

The Participants Are:

Jim Emme, CEO, NOW Health Group, Bloomingdale, IL, www.nowfoods.com

Dan Fabricant, PhD, President and CEO, Natural Products Association (NPA), Washington, D.C., www.npanational.org

Loren Israelsen, President, United Natural Products Alliance (UNPA), Salt Lake City, UT, www.unpa.com

Jay Jacobowitz, President & Founder, Retail Insights, Brattleboro, VT, www.retailinsights.com

Mark LeDoux, CEO and Chairman, Natural Alternatives International (NAI), Carlsbad, CA, www.nai-online.com

Dan Lifton, CEO, Quality of Life Labs, Purchase, NY, https://qualityoflife.net

Michael McGuffin, President, American Herbal Products Association (AHPA), Silver Spring, MD, www.ahpa.org

Steve Mister, President and CEO, Council for Responsible Nutrition (CRN), Washington, D.C., www.crnusa.org

Len Monheit, CEO, Trust Transparency Center (TTC), Spring, TX, https://trusttransparency.com

Joe Weiss, President, Nutrition 21, Purchase, NY, https://nutrition21.com

Based on the market effects of the COVID-19 pandemic, dietary supplement behemoth GNC announced the closure of between 800 and 1,200 of its 7,300 stores.

In a statement, GNC said it had been “under financial pressure for the past several years,” but that the COVID-19 pandemic “created a situation where we were unable to accomplish our refinancing and the abrupt change in the operating environment had a dramatic negative impact on our business.”

While it had leveraged its online component recently, it still was and is heavily reliant on brick-and-mortar sales. It might be speculated that consumers have been much more focused on immune-boosting than on sports nutrition, which has been a signature umbrella category and mainstay for GNC.

Needless to say, the pandemic has opened up opportunities for some market players and exposed vulnerabilities for others.

In March, the U.S. DHS (Department of Homeland Security) Cybersecurity & Infrastructure Security Agency (CISA) had issued an updated advisory memo listing dietary supplement manufacturing and health-food retail as critical businesses during the COVID-19 pandemic.

While some states were late to the table regarding recognition of the essentiality of health-food stores, the dietary supplement industry, in general, has been basking in a greater level of respect during this difficult time.

And although dietary supplements have been flying off the shelves, some shady marketers of intravenous (IV) “pandemic kits” and other illegal products, in most cases not even originating with the nutrients’ manufacturers, have correctly drawn the ire of the FDA (U.S. Food and Drug Administration), the FTC (Federal Trade Commission) and of the natural products industry at large.

All things being equal, it is a time of opportunity for natural products manufacturers to ride the wave of soaring sales and growing interest by gaining the trust of a wider consumer base, one that includes many new consumers.

Our expert panel takes a look at all of these issues, and more.

NIE: What percent of the supply chain for dietary supplements was interrupted by the COVID-19 pandemic, and how is the supply chain doing today? Recommendations?

Israelsen: Difficult to say, given the size and complexity of our global supply chain. Raw materials that are often “tight” hit the red zone (out of stocks, long back orders). The ongoing problem is the the continuing disruptions of COVID-19. We are now seeing India and other important natural product supply sources struggling with lockdowns and logistics issues. As we get into harvest and collecting seasons on both hemispheres we may see greater shortages in botanicals. It is not lost on us that many of the valued plants, like astragulus, echinacea and elderberry, will be under tremendous supply pressure.

Emme: For us, it was no more than 20 percent supply chain disruption during the time the overseas manufacturers were shut down. The largest interruption has been getting a quality supply of many ingredients to meet the incredible, unprecedented demand for many of our products. The suppliers have struggled to keep up with even the most basic of materials.

The good news is that we are beginning to see some relief in raw material availability. We have seen incidences of possible counterfeiting and economic adulteration of materials, yet only from samples received from new suppliers. This will always happen when certain products are in high demand with short material supplies. We, as an industry, need to be vigilant in making sure we are supplying the best quality products. This is always important, but especially so in order to gain the trust of the new many consumers who have recently sought out supplements for support in meeting their health goals.

LeDoux: With the confluence of events transpiring late in 2019 and early 2020, and the corresponding late January Chinese New Year celebration, a number of importer-wholesalers had secured substantial stock of essential nutrients such as vitamin C and B vitamins. The fact that inventory was already landed in U.S. based warehouses was essential in keeping a supply for the U.S. consumer of goods.

However, recently, with the continued surge in interest in all things associated with benefitting human immune system function, there are some compounds that are in limited supply such as vitamin C and several other B-family vitamins. A lot of stores and companies are running behind on stocking products such as echinacea, elderberry, zinc and other compounds.

Mister: In early March, the United States Department of Agriculture (USDA) reached out to CRN seeking information from our members about potential disruptions in the supply chain due to COVID-19. After surveying our membership, we found reoccurring concerns regarding: ingredients and supplies from China; disruptions and delays in transportation due to the shutdown in India; transportation delays in Australia and New Zealand; and an overall increased consumer demand for dietary supplements, as the supply chain was not equipped to handle the surge in demand.

More currently, CRN has been hearing positive reports from members regarding the supply chain. Looking at some of the supply chain issues members experienced in the beginning of the crisis, there are lessons learned for companies to consider in the case of a second wave or in the case of a different crisis.

Companies should consider securing alternative suppliers in different countries, and in the long term consider the possibility of procuring a domestic producer if feasible. While a domestic producer doesn’t ensure that your supply chain will not be interrupted, it does minimize the risk of international trade disruption during a global crisis.

NIE: It is reported that supplement sales have been surging during the pandemic. Have the biggest industry sales mainly been in the area of immunity boosters (like vitamin C, zinc, echinacea and elderberry) or across the board?

Emme: Our catalog has over 1,500 finished good products; that include supplements, personal care, sports nutrition items and foods, so we have seen changes in many areas. Certainly, the largest growth area has been in the immune support category. Some brands may have a few of these items, yet we have over 200.

How many of us would have predicted six months ago that vitamin C products would be a top seller again? There have been some interesting high-demand areas in our foods category, with strong growth in the sales of baking items like flours and sweeteners.

Our aromatherapy products, like essential oils and diffusers, along with other personal care items that have been used for stay-at-home spa days, are in high demand. None of these increases were anticipated by us before we entered into the pandemic environment.

Israelsen: The immunity category is the major growth sector, with a halo effect in other categories, with mushrooms and probiotics as examples. Sports nutrition has been slow, which is understandable as gyms and many athletic activities were put on hold. This should rebound as the economy opens up, at whatever pace.

LeDoux: As one would expect, the sales of scientifically validated nutrients that support proper human immune function have been extraordinary, and there is no sign that the demand is subsiding. For example, vitamins C, D and zinc with other compounds, such as beta glucan and herbal extracts, have been flying off shelves—and our prediction is that this will continue to be the case for the balance of 2020.

Mister: Recent data demonstrate how dietary supplement sales have increased during the COVID-19 pandemic. As consumers continue to confront this global health crisis, many are re-evaluating their health and wellness regimens and rethinking their overall lifestyle habits.

Undeniably, the immune support supplement category has seen the largest spike in supplement sales with vitamin C, elderberry, vitamin D, probiotics and zinc all showing significant levels of growth.

However, other ingredients and categories have also experienced the surge. More consumers appear to be turning to multivitamins to support their overall health and wellness, and to sleep support ingredients, like melatonin, during the health crisis.

McGuffin: It’s clear that when Americans believe their health and the health of their families is at risk, they turn to natural products. We’re hearing reports of sales increases across the board, with significant increases in demand for products associated with immune health, and also for vitamins C and D, and multivitamins. We’ve heard reports of up to 30 percent increases. One member-company reported that they sold a year’s worth of one of their product lines in March.

It is also clear that Americans want these products, they’re comfortable with them. We’ve already known for years of very high consumer confidence in the whole supplement class, and of course herbs have been at the forefront of product growth for several years.

Financial analyses also report that this increase in sales reflects both current customers stocking up and many thousands of new customers. One analyst made a point of saying that these customers are going to stay. These customers came in, they’re satisfied with the products, they’re going to stay, and we will, at the end of all of this, have expanded the consumer base for herbal products, natural products and supplement products.

Monheit: There has certainly been a halo effect across multiple supplement categories, but the immediate pandemic impact was felt across immunity, then spreading into general wellness, but also manifesting in stress, sleep, adaptogens and energy—not in a sports sense, but in a restorative sense.

NIE: Is the number of irresponsible and illegal COVID-19-related bogus claims finally decreasing for shady dietary supplement products?

McGuffin: AHPA guidance always directs the industry to follow the law, and don’t make what we call SDCs (stupid drug claims). It’s really just not wise to make a “cures COVID-19” or “prevents COVID-19” claim. AHPA joined other trade associations in expressing strong support for active enforcement by these federal agencies. It is important that there are controls in place to protect against taking advantage of public health fears.

At the same time, AHPA has analyzed the warning letters and found that, of the first 133 warning letters issues by FDA and FTC, just over 25 percent of those are addressed to companies selling products labeled as dietary supplements. The largest single category has been for intravenous treatment with vitamin C, for example. At least 20 percent of warning letters have been issued to practitioner clinics.

We appreciate that FDA and FTC are paying attention, but we find very few instances where it’s a brand of herbal products advertising their herbal product treats, cures, or prevents COVID-19. It’s much more likely to be downstream by a practitioner, sometimes by a direct selling marketer, but we see very few claims made by the company that made the product.

Mister: We support FDA in taking swift action against companies making deceptive claims and urge prosecution of companies marketing products being promoted with illegal and unsubstantiated prevention or treatment COVID-19 claims.

Monheit: We applaud FDA’s efforts to crack down on this and encourage the industry to exercise self-policing. We at TTC monitor for these and try to call them out through blog posts and social media, and through behind the scenes efforts to notify regulating bodies.

Lifton: It’s hard to say with certainty, however we do know that the FDA and FTC have been aggressively going after some of these operators. It’s also reassuring that all responsible health-food retailers wouldn’t even stock these products to begin with.

LeDoux: This is hard to quantify. Unless the government agencies tasked with protection of consumer health are willing to seize products, or assets of miscreant serial offenders, I fear the temptation to make a “quick buck” by selling products with false hopes or illegal marketing statements will continue.

We’ve also counseled all of our trade association members to steer clear of any COVID-19 claims and other responsible groups such as the big trade associations have been supportive of FDA efforts to cull this behavior. Unfortunately, but it is still an ongoing behavior for too many seeking to take advantage of consumer nervousness and fears.

NIE: Briefly, give one or two examples of how the natural products industry has been working with U.S. legislators, officials and regulators during the pandemic.

Fabricant: As leaders of the natural products industry, we have a unique responsibility every day to support the health of consumers. We are in this effort together, because we are devoted to making a difference in the lives of Americans. Today, amid the international crisis that is COVID-19, this calling is more amplified than ever. Together as an industry, we need to do our part to continue to support federal agencies when appropriate.

The industry has also been pushing Congress to explore what repatriating manufacturing jobs back to the United States might look like. At a time when the supply chain is heavily reliant on China and the threat of tariffs is always front of mind, we as an industry need to be apart of the solutions that bring American jobs back to the United States.

Israelsen: I would point to two key areas—one, to recognize our industry as critical infrastructure as part of the food industry, which was achieved; and two, working with the FTC to clarify what natural health focused practitioners can communicate to the public with regard to COVID-19 health and prevention strategies—which is an ongoing process.

Monheit: Because of the stimulus packages and discussions around legislation, this is an opportune time for the natural products industry to engage in conversations on climate change. We recently participated in LEAD ON Climate virtual day on the hill to advocate to #BuildBackBetter alongside over 300 other companies, including many in the natural products industry like Nutiva, Megafood, etc.

Lifton: As one example, all of the industry associations called on the DHS, the FDA, the Coronavirus Task Force and members of Congress to ensure that dietary supplement facilities, businesses and workers were classified by the U.S. government as essential. They even reached out to states, and this effort was largely successful.

LeDoux: This pandemic has demonstrated some significant problems associated with global sourcing and just-in-time supply management. Seeing PPE (personal protective equipment) being priced with predatory pricing by foreign entities during a time of national crisis is just indicative of the need to have essential component manufacturing in our own country. We have also been interfacing with Senators and Congress members dealing with these issues as well as seeking to have them urge the FDA and CBP to shut the borders to adulterated goods.

NIE: What specific steps can health-food distributors, manufacturers (and even the transport industry) take now to be better prepared for the next pandemic?

Jacobowitz: This pandemic has been a dry run for any future calamities. Those that survived by adapting to it this time will be better prepared next time. NIE: For more than 20 years, various bills have been introduced calling for nutritional and dietary supplements to be covered under Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). What steps can the natural products industry take to move the ball forward on this?

LeDoux: This really requires the IRS (Internal Revenue Service) to change one sentence in a document. Having discussed this with senior executives at HHS (U.S. Department of Health and Human Services) and Senators, we remain mystified at the recalcitrance in initiating this remedy for the benefit of American consumers.

Israelsen: This is a major goal for UNPA and other dietary supplement organizations, but it’s a tough one. HSA/FSA politics on Capitol Hill are sensitive, and we must do three things to hope for success here: One, and this decision can be taken by the IRS itself—recently four supplement associations joined together to request the commissioner of the IRS to amend current policy to allow the inclusion of supplements as eligible for HSA reimbursement. Two, organize the grassroots to lobby their congressional members for this change—it is our money and we want to use it based on our needs values. Three, build the science case for selected nutrients, such as vitamin D. For example, it appears that vitamin D levels have a useful role in COVID-19—but this will take serious work to support the science in order to make the case, for not just HSA coverage but also as an example of the role of nutrients in the case of this pandemic.

NIE: With thousands of cars lining up at food distribution locations throughout the U.S. during this pandemic, food insecurity has been shown as a deeply serious problem in this country, possibly more widespread than anyone could have predicted. With this in mind, it’s worth noting that the SNAP (Supplemental Nutrition Assistance Program) Vitamin and Mineral Improvement Act of 2019 was introduced. Is there a realistic way forward for dietary supplements and SNAP?

Emme: I am an optimist who believes in never giving up on an important issue, and have personally met with the Senators and House Representatives you have listed. They all have been honest and kept their word in regard to the SNAP program for basic supplements. That said, this is a tough hill to climb during a time in which Capitol Hill is trying to work through many other issues, and the SNAP program will be a tougher entrée than the HAS/FSA efforts. We shouldn’t give up on SNAP.

LeDoux: One has to wonder what the impediment is here. Maybe it is a follow the money issue, but not certain. This should really happen—but if anyone can explain the hold-up based on anything other than politics, we could clearly address this to benefit consumers.

Jacobowitz: Remember 1993, and the run-up to DSHEA (Dietary Supplement health and Education Act of 1994). Blackout netting over the supplements sections of retail stores, with explanatory signage letting customers know why these products were not for sale. Do we have the same industry cohesiveness today as then? Apparently not. But if not, we are missing leveraging the voice of the American consumer.

NIE: Never has online purchasing become more vital and more popular than during the first half of 2020. Have the structure and fabric of the marketplace been forever changed and, if so, in what ways?

Israelsen: I think so. I lament the loss of the local retail and service community. If one dominant retailer ends up creating winners and losers in the marketplace based on algorithms, what becomes of the social and physical aspects of our industry? The health food store was a laboratory of new ideas, experiments and exchange of shared personal knowledge and experiences. The products were the lab equipment to help us discover new ways to heal ourselves. Where in the Amazon world will this exist? And that is just for starters.

Monheit: New consumers have embraced the online channel, and that’s really the most important takeaway. Some will never go back, others will now be multi-channel users, and some will go back to pre-COVID behavior.

It’s essential to have an online strategy even if in-store is your predominant engagement. As a retailer, building online trust and loyalty has never been more important, and there are so many ways to do just that.

It is interesting to note however that in a recent survey we fielded on shopping behavior, 33 percent of U.S. respondents and 32 percent of U.K. respondents reported no change in their shopping behavior.

Emme: Yes, the structure has changed. Online sales will be stronger than ever now that many consumers relied on home delivery of basic goods during the COVID-19 shutdown.

That said, it appears that the opportunity is ripe for traditional retailers to take advantage of the situation by providing convenience services such as curbside pickups and direct-to-home delivery services.

Many new consumers have been introduced to health food stores during the last several weeks, and retailers have a great opportunity to retain these relationship by being adaptive and creative.

LeDoux: Clearly, adoption of online shopping has been significant during this “stay-at-home” scenario playing out across most of the country. That said, there needs to be a more rigorous evaluation of product in commerce—some of which is clearly misbranded, sub-potent or illegal per se. Retail is going to change for sure, but it is too early to tell what the long-term ramifications are other than predictions of much lower rents for strip center space or mall locations. I predict landlords will be much more accommodative in the future to maintain tenant relationships given the multiple bankruptcies of major mall tenants in the past few months.

Jacobowitz: Amazon was several weeks out delivering vitamin C while retailers were mostly in-stock. The online delivery genie is not going back in the bottle. So, retailers need to focus on delivering a live interaction and shopping experience that makes visiting their stores worthwhile. It has something to do with remembering the original mission of improving the health of their communities, and reminding those communities, and store employees, of that mission.

Lifton: While the growth of online is certainly not new, convenience has taken on a whole new level of importance, especially with the great expansion in curbside and contact-less delivery. While brick-and-mortar retail is the lifeblood of the health-food industry, consumers now have a whole new set of expectations in terms of convenience, and, once expectations are created, it is unlikely that they will go away. It seems clear that some of these new or expanded retailer-consumer exchanges are here to stay.

NIE: In a related question, what will the natural products marketplace of 2021 and beyond look like?

Weiss: The pandemic has taken existing retail trends and sped them up by several years. Retail bankruptcies seem to be occurring every week now. The rise of Amazon and e-commerce, home delivery of almost everything, the demise of enclosed shopping malls and the difficulties in specialty retail are trends that are not going to be reversed.

Emme: We believe the current product demand environment will continue into 2021. The impact beyond that will be affected by how the ongoing treatment of COVID-19 is developed. Vaccines or drug therapies to treat the virus could pull back some of the new consumers who sought out immune support supplements during the current period.

But there will always be a core base that will not choose the route of prescription drug solutions, who will likely stay loyal to the use of our products. Overall, we believe that a new generation of consumers will continue to seek alternative solutions to supporting their health goals based on what they have learned during the pandemic. NIE

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