Nutraceuticals Market: The Hidden Gem in the Health & Wellness Space

As a child, I used to love Disney’s cartoon on the Adventures of Gummi Bears. The Gummi Bears had a magic potion which gave them super agility with rapid bouncing skills. I wished that I could have this superpower someday!

Fast forward to 2020, the nutraceutical market is probably the closest approximation to that childhood fantasy. So, what is nutraceuticals and why do I feel that it has an enormous potential in India. Let’s dive right in!

What is the nutraceuticals market?

Nutraceuticals are products derived from herbs, minerals, vitamins and dietary substances consumed to boost immunity, physiological benefits or general wellbeing.

The term was coined by Dr. Stephen Felice in 1989 and is a blend of ‘nutrients’ and ‘pharmaceuticals.

Nutraceuticals are most commonly consumed through functional food (probiotics, omega fatty acid fortified food, branded salt, branded wheat flour), functional beverages (fruit & vegetables juices and drinks, dairy and alternate products), dietary supplements (proteins, vitamin & minerals, herbal) and personal care

It also finds application in pharma and animal feeds additive space besides food and beverage.

Overall nutraceuticals can be used to improve health, prevent chronic diseases, increase life expectancy, delay aging, and support structure or function of the body. They can also improve endurance, energy levels, cognitive performance, behavior, and mood.

Global market size and main players

According to a study, the global market for nutraceuticals is valued at $250B in 2019. The market is expected to record an 8% CAGR to reach $314B by 2023. Overall US, Japan, and Europe hold the lion’s share of the market at ~90%. But as these economies face maturing demand, developing economies in APAC are attracting attention. The US for instance is expected to record a ~5% CAGR to reach $138B by 2027.

What is catalyzing the shift?

According to UN World Cities Report 2018, 55% of the world’s population lives in urban settlements. By 2030, urban areas will house 60% of the people globally and 1/3rd people will live in cities with at least half a million inhabitants. (CoVID will slow but not reverse this trend)

Coupled with this is a rising awareness of healthier products. Consumers world over are actively seeking out innovative food and drinks that supply their nutritional needs for holistic wellness (exercise, digestive health, weight management, and general well-being)

Why does it make sense in India? Context and Timing

I think there are three major drivers which I detail out- CoVID induced structural shift, country-specific (macro) and consumer-specific (micro) factors

A. Pandemic induced acceleration

Preventive approach accelerated by CoVID: The biggest seismic shift has been driven by the current pandemic where health and immunity have taken center stage. As mentioned by Kaustav (MD at A&M) on how he tackled CoVID, adoption of healthy habits and exercise ritual right from childhood helped him to recover quickly

This shift from a ‘reactive’ to ‘preventive’ approach to healthcare will only be accelerated. Sales for immunity-boosting foods has risen by 20–40% with online searches on ‘ayurvedic home remedies’, ‘giloy’ and ‘Vitamin C’ up 6x since March according to a report from Google

The most comforting immunity boosting product for Indians has been Chyawanprash. Sales for them has grown ~300%% in June with the most famous Chyawanprash brand Dabur selling 7x during Apr-Jun 20 period as compared to the same period last year

The fear and anxiety have also meant that consumer demand for dietary supplements that assist with sleep and stress relief and support strong immune function has shot up

B. Country-Specific (Macro Trends)

Growing congestion in urban areas: Delhi will overtake Tokyo as the world’s largest city by 2030 (a feat we best wanted it to avoid!). Urbanization will put tremendous pressure on the food systems, threaten food security and add to the nutrition challenges among the major metro cities in India

Undernutrition remains a big challenge: According to FAO estimates, ~190M people are undernourished in India which is 14% of the total population. A whopping 51% of women aged between 15–49 years are anemic

India is a prime example of the paradoxical situation, popularly known as the Double Burden of Malnutrition (DBM). Nearly 50% of the world’s micronutrient deficient population lives in India (shocking!). India’s latest National Health Survey (NFHS-4, 2015–2016) results indicate that at the national level ~60% of children are anemic, the Food and Agriculture Organization (FAO) estimates that approximately 74% are at risk of anemia because of iron deficiency. Many studies have reported 80–90% of the Indian population to be Vitamin D deficient!

Consumers, as well as investors, are becoming more aware of these challenges and to look at innovative solutions cropping up in this space

More people becoming unfit: To top the undernutrition issues, the hectic sedentary urban lifestyle has led to irregular food habits, junk food preference (fueled by food delivery available at the click of a button!), and limited exposure to the sun. All this has led to obesity with a shortfall in essential nutrient requirements.

Diseases like diabetes, hypertension, high cholesterol, heart disease, indigestion, osteoporosis, arthritis have become increasingly common.

Let me add some statistics here. According to the National Family Health Survey approximately 21% of women and 19% of men are now overweight or obese. This is an alarming increase from 12% for women and 9% for men from the previous survey. In addition, a recent World Bank study estimates foodborne diseases cost India approximately $28B (Rs1,78,100 crore) every year.

Stress has triggered a rise in mental health issues like anxiety, depression, and sleep disturbances (aggravated by the pandemic)

Rich Resource of Raw Material: India is one of the largest producers of raw materials for Ayurveda products. With a rise in demand for herbal medicines in many developed countries, India can emerge as a strong market leader for herb-derived drugs and dietary supplements.

This is already happening as you read this. India’s spices saw a 34% rise in exports in Jun 20 where the country’s overall merchandise basket dipped 12.5%

Going back to the Origins!

C. Consumer Specific (Micro Trends)

Income Transition: According to a Bain report, by 2030 India will move from an economy led by BoP to MoP. 80% of households will be middle income (from 50% today) and will drive 75% of consumer spending. These income groups will likely be the primary consumers of dietary supplements. 56% of consumers will increase spend on healthy, organic foods, medical needs, fitness, and medical insurance as per a Nielsen report. Indian consumers are also among the highest group to seek out responsible products whenever possible (95%).

Shift to a plant-based diet: Demand for poultry, meat, and seafood products has fallen globally during the pandemic. The poultry industry in India is losing an astounding Rs. 1,500–2,000cr daily while chicken prices have fallen by as much as 70%. CoVID has boosted the demand for plant and animal-based protein supplements. Recently Bollywood stars Genelia & Ritesh Deshmukh launched Imagine Meats (India’s Impossible Foods?!), a new plant-based meat venture

As an aside a Netflix docu ‘What the Health’ is a great watch on this topic

Easy to consume: According to an NSSO report, India’s working hours are the longest among global peers. ‘Thakna mana hai’ (You cannot get tired :p) is a popular advert for a player in this space. As nutraceuticals are easy to carry and can be consumed on the go, they perfectly cater to millennials.

Mainstreaming of Ayurveda infused nutraceutical products: Several Ayurveda-infused products such as ready-to-drink juices, capsules, and nutrition powders are entering the traditional F&B segment.

As digitally native vertically integrated consumer brands rise, they can build on the three core pillars of Product, Brand, and Distribution to differentiate from the legacy incumbents

Many D2C consumer startups which build Ayurveda as a brand are emerging and are covered in the next few sections

Indian Market Size & Growth

India holds a 2% market share of the global nutraceuticals market at around $5B in 2019. That is expected to accelerate rapidly with a CAGR of 21% (even higher due to COVID?) to reach $11B by 2023 and capture 3.5% of the global market share.

At present, the demand is highly concentrated in South India with AP, Tamil Nadu, and West Bengal (no kidding!) being the top three states. Rural areas are slowly picking due to growing awareness coupled with the emergence of lifestyle diseases

Opportunity spells competition and the market has crowded. There are 500 players in the dietary supplement market with 100 players in the vitamin and mineral supplements space which is the most hotly contested space.

Breakdown of the Supplements Market

Major large Indian players in the space include Dabur, Emami, Himalaya, and Patanjali. 100% FDI has provided a booster shot (pun intended) to the market with global players such as Pfizer, Merk, Bayer, Abbott, Amway (33.5% market share) investing to grow the market

Interesting Themes & Startups

Investors are uniquely placed to influence company behavior and drive innovation in the still-nascent space. Increased R&D and subsequent portfolio expansion will help improve the serviceable market.

Some of the well-known ones include HealthKart which is an online store for health, sport and nutritional supplements and Kapiva Ayurveda which focuses on traditional Indian foods which include Herbal Juices

Personalization of medicine based on genomic and DNA history is an early trend but scalability could remain a challenge. Use of AI to offer subscription-based models that target specific health disorders are cropping up. Bhookha Haathi (Hungry Elephant!) through its AI software offers subscription-based personalized health solutions to consumers. Nuova is a brand that offers products for skin and hair health. It uses an evidence-based clinical research-centered approach to create products that offer healthier skin.

From medicine to nutraceuticals, the future is Personalized!

The use of blockchain has fascinating implications as the supply chain for global dietary supplements remains complex. Coupled with that is a strong need for transparency from both the consumers and regulators

For instance, Baidyanath is already investing in blockchain technologies to help authenticate herbs and streamline research by securing incorruptible data. Startups that help discover the origins, the ingredient used and the impact of herbal and Ayurvedic products have a big opportunity.

Various startups are also coming in to create brands in the white spaces. Players focused on specific target segments such as women, children, or the aged population are emerging.

Pure Nutrition started by Sushil and Luke (who published ‘The Great Indian Diet’ with Shilpa Shetty) manufactures and markets herbal nutritional supplements, cold-pressed oils, protein powders, and herbal teas for people aged 40+

Startups can also focus on specific industries such as sports where professionals have high nutritional requirements or on specific ailments such as reducing body fat or kidney stones. Bhookha Haathi offers daily health boosters for sports & fitness enthusiasts and health booster packs for gym, yoga and bicycling experts.

Innovative alternatives such as gummies, lozenges, delicious chewable are looking to replace the plain old boring pills. Gummies (shaped like bears, fruits, flowers) initially focused on kids are entering the adult VMS category. One of the interesting players is Power Gummies (Aesthetics Nutrition) which retails a range of vitamin and mineral supplements through best-in-class ingredients and a vegan base. In a year it has sold 1M gummy packs and raised a round from DSGCP earlier this year. Its first product is a hair vitamin supplement.

To eat or to play?!

A heartening fact is that India is also witnessing the use of traditional herb ingredients (mostly ayurvedic) into their nutraceutical portfolio. Green Cure Wellness combines German technology with the wisdom of Ayurveda to offer herbal products. It focuses on categories such as skincare, asthma, allergy care, and infant care. It raised a round from Venture Catalyst last month.

Another emerging space is cosmaceuticals in which personal care products infuse vitamins and antioxidants to keep the skin infection free and healthy.

Challenges associated with the market

High investment in R&D coupled with the high cost of specific raw materials are the major challenge. Venture funding has historically been restrained in the space as the lab-to-market pipeline for such products is time-consuming which adds to the cost of production. A Himalaya product for instance can take anywhere between 14–15 years before it is launched.

New players have also found it tough to establish their manufacturing presence due to a lack of regularized systems for nutraceutical products. Due to this, India exports under $250M of nutraceuticals while it imports active ingredients and formulated nutraceuticals of $2.3B

Setting up of nutraceutical parks (as being done in Mysore), moderating import duties to allow local ingredient manufacturers to develop, lowering tax rates are some measures which the Govt. can take to tackle this

In Jul 2017, the new GST structure also pushed up tax rates on nutraceuticals and health supplements from 12% to 18% (with a few categories at the highest end of 28%). There has been a push from the industry to bring it back to 12% with fears that higher rates limit the entry of new players, stifle competition and impact affordability for consumers

The problem of fake nutraceuticals flooding the Indian market is also a big challenge. With consumers often unable to differentiate, these products contain toxic chemicals and substandard ingredients that harm consumer health and tarnish the industry reputation. Few nutraceutical/ Ayurveda companies have made deviated claims and practices bringing a loss of trust and disrespect to the industry (remember Coronil!)

FSSAI has brought new standards in supplements and nutraceuticals to tackle the deluge of fake products. It also recently directed States to ensure that nutraceuticals comply with the RDA (Recommended Dietary Allowance) norms. This will attract investors (both domestic and foreign) and bring clarity for new and existing players.

There is also a need to smartly educate the market who is waking up to the benefits of nutraceuticals. The fundamental problem is that the market is not well understood even among health professionals.

Breaking down benefits for a typical consumer

Companies that help consumers understand and de jargonize the compounds used and their purpose will have an upper hand. Price, efficacy, and safety of products will be paramount to consumers

Summing Up

India with its rich heritage and ancestry knowledge in ayurvedic and herbal products can become a global leader and a torchbearer in the space. High consumer interest with rising disposable income, manufacturing capabilities with low-cost labor, growing raw material availability through the rise of herbal extract manufacturers, and strong export market provides a strong advantage to India.

As your immunity decides your place in the new normal, I expect the nutraceutical industry to hugely benefit and will be rooting for this space to win big time!

Image Credits: Sunday Guardian, Crown Bio, Inventiva, Power Gummies

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of any institute or organization he is associated with.

Venture Capital, Blogger, Travel Enthusiast, Ex- Goldman Sachs