Looking back to the last quarter of 2019, Health Products Association–China (HPA-China) began seeing the impacts of the ongoing U.S.-China trade war. As a result, some supplement and ingredient companies chose to refocus their attention on other markets. Next came Chinese New Year, which is always a slow time for business as the entire population of China heads back home or travels overseas to enjoy the holidays. And finally, the arrival of the coronavirus decimated business across the board. Since HPA-China’s focus is on China, the above situations have been quite a challenge for the association.
U.S.-China Trade Issues
In my opinion, some supplement companies backed away from China based solely on what they saw in the news and not what was actually happening. The fact was the trade war had very little impact on China's potential as a profitable target market. In fact, cross border e-commerce (CBEC) continued to expand during this time. Because it is not a traditional trade channel, it does not fall into the category of tariffed commerce. Any tariff increases by China on U.S. products did not and will not affect dietary supplements being sold through CBEC.
Recent figures show both the leading CBEC platforms Tmall.com and JD.com displayed record increases in overall sales during their "mid-year" June sales extravaganzas, especially in the health food and supplement category. Tmall's mid-year sales of supplements increased by 109 percent and 285 percent for nutritional foods. JD.com's mid-year sales event had supplement companies like By-Health, Swisse, Schiff and others hitting 1 million Yuan (US$141,000) in sales within minutes of the sales going live.
The trade war should not keep U.S. companies from exploring China’s expanding supplement market. For years, the U.S. dominated China’s supplement market. However, in great part due to the pull back, the U.S. has fallen behind. Australian brands now rule China’s e-commerce channels.
Following the trade issues and Chinese New Year, Wuhan, China was struck with a new coronavirus, which causes COVID-19. It's not the association’s place to get into the how or why of the pandemic, but just the impact it has had on the industry and the association itself.
China is the major source of raw materials and ingredients for the global dietary supplement industry, and as such, the arrival of the coronavirus was cause for great concern for the industry. Little did the world know this would become a pandemic and threaten more than just a supply chain of raw materials. It would impact the lives of so many as well as reshape the way we all live.
The virus striking during Chinese New Year was a good and bad thing. The initial “good” aspect was factories in China were already closed and workflow was expected to cease by global purchasers, so the initial outbreak had little effect on the industry. The “bad” was the fact that everyone is traveling around China and abroad during this time of year. Without a doubt, this helped spread the virus throughout China and to other countries.
My first thoughts were of my family, friends and industry colleagues in China and making sure they were all safe. Because the virus hit during Chinese New Year, many of them chose to stay with their parents and relatives back in their hometowns where they remained for weeks. This left many of the large cities like Beijing and Shanghai relatively empty as the bulk of its workforce is from other parts of China. It is said that approximately fifty percent of the population vanishes from these first-tier cities during major holidays.
China’s previous experience with SARS back in 2002, and the fact that it has a command structured government, allowed China to implement strategies quickly to combat the coronavirus. One such decision was to upload QR codes to everyone’s mobile phones to track the phone’s location and show the QR codes as red, yellow or green. These actions let shop owners and others know the following:
Green – the person hasn’t travelled anywhere risky for the past 14 days.
Yellow – the person may be a risk as the government (mobile carrier) does not have their location details for the last 14 days.
Red – the person has travelled to risky places in the past 14 days and should not be visiting public places. They should be in quarantine.
The colored QR codes make it much easier to track people and the virus. Air and train tickets were also tied into the QR code system and would adjust the color based on destinations travelled and days one remained in quarantine. In addition to seeing and scanning your mobile phone, shop owners and supermarkets required temperature checks and the wearing of masks at all times.
Wearing masks was controversial in the U.S. as the government gave mixed messages, and in general, many refused to wear them. Whereas in China, it is actually quite common to wear masks in public due to high pollution days, especially throughout the winter months when cities are burning coal to heat the buildings. I remember clearly during this past January many of my friends in China were asking me to send extra masks. When I checked around, I found masks had already been sold out. Stores told me they were mostly purchased by Chinese to ship back to China. When Americans finally realized masks were probably a good idea, they were unfortunately nowhere to be found.
Impact on the Supplement Industry
In 2019, China produced 349,000 tons of vitamins—77 percent of the total global output. However, due to the restrictions brought on by the coronavirus, many manufacturers of nutritional ingredients were not able to return to work. The result was increased prices and low availability of certain ingredients like ascorbic acid. Below are a few examples of price increases:
Vitamin A (500,000 IU/g) - $43/Kg increased to $55/Kg
Vitamin E (50%) - $7/Kg increased to $9/Kg
Vitamin B1 (98%) - $22/Kg increased to $45/Kg
Vitamin K3 (MSB) - $7/Kg increased to $12/Kg
Biotin - $21/Kg increased to $42/Kg
*prices listed above are averages
Next came the logistics issues as plane routes were cancelled and/or shipping channels cut back, causing backups of expected shipments. Those U.S. manufacturers and distributors that had on hand surpluses were very lucky as I heard many were low or looking to replenish.
As the virus spread to become a pandemic, we next saw the effects of factory closings or lower-staffed facilities across Europe and later North America.
Availability and logistics were the main culprits during the pandemic. Consumer demand across the globe for immune-enhancing supplements and healthy products in general were high, and many brands saw record sales. In fact, Nutrition Business Journal (NBJ) recently reported the expectation of a record 12% growth rate and exceeding US$50 billion in sales for 2020.
Another impact to the industry was the massive cancellation and/or rescheduling of industry expos and conferences. HPA-China had to cancel its annual China Supplement seminar held at Natural Products Expo West in Anaheim. The cancelation was due to flight restrictions, which would not allow three of the event speakers to fly in from China. Next the association had to cancel its Probiotics China Summit and its newly launched Omega-3 China Summit, both scheduled for June 21, 2020, in Shanghai the day before Informa’s FI Asia China Expo also held in Shanghai.
The Probiotics China Summit was kicked off in 2019 with partner International Probiotics Association (IPA) and had a great turnout of close to 300 attendees. This year’s event was looking at closer to 500 attendees.
The Omega-3 China Summit was expected to launch in 2020 with association partner Global Organization for EPA and DHA Omega-3s (GOED).
All three of the above-mentioned events have been rescheduled for 2021.
With the trade issues followed by the pandemic, the past nine months has been a challenge for many, and the association is no exception. Knowing China’s supplement market is still growing strong at a double-digit pace and some global health product companies are for the moment shying away from China, the association has developed a turnkey solution for market entry in order to encourage international supplement companies to explore the potential of the China market.
HPA-China still has its annual membership positions, which are the best way to gain full access to all the association’s services. For those companies that need one-time assistance or require only one service, the association has created a new “Client Level” of membership offering an ala carte menu of its turnkey Market Entry solutions.
The Client Level is broken down into three individual parts as follows:
- Market Entry and Regulatory Consulting
- Matchmaking (Offline and Online)
- Marketing and Public Relations
Companies only pay for the service they need. The association feels the most innovative and helpful service it will now be offering is the FREE Matchmaking introduction. This is the first step of the overall Matchmaking Service. HPA-China will assist companies to showcase their finished dietary supplement products to the association’s database of e-commerce retailers in China. The retailers will then provide the association with feedback on the products in terms of “interested or not” as well as why. The association will then provide feedback to the brand owner.
HPA-China feels these new services will offer low-risk, low-cost options for global supplement and nutritional ingredient companies wishing to enter the ever-expanding China market with HPA-China as their trusted partner.
The association is also collaborating with a new partner to create its very own CBEC / social sales platform for members to use as a starting point to begin selling directly to Chinese consumers or to add another channel if they are already in country. This is an ongoing mission of the association and will be reported at a later date when the platform goes live.
And finally, the association is currently working on launching its new website, with an updated look, as well as providing information to highlight the above services and as always provide the latest health product market intel from China. The new website is expected to be completed in the coming weeks.
Jeff Crowther is the founder and executive director of Health Products Association-China (HPA-China). The group was established in 2010 with founding members Jarrow Formulas and NSF International.
In 2005, Crowther moved to China, focusing on assisting international supplement and ingredient companies enter the market. His first role in China was that of NBTY’s China business development manager.
Since 1993, Crowther has been working in the dietary supplement industry. During this time, he has worked in various areas of the industry such as retail management, international business development and international regulatory advocacy.