Update: Impact of Coronavirus on Supplement Industry

Conceptual illustration of the coronavirus as if it were observed from a microscope. Recently it was discovered in china and its outbreak is feared by the authorities.

Twenty-one days after the first COVID-19 case was confirmed in the United States, the WholeFoods Magazine staff posted an article titled Impact of Coronavirus on Supplement Industry “Very, Very Serious.” Little did we know how prophetic the message would become. On the date the article was posted, February 11, 2020, the reported number of COVID-19 cases globally was 43,101 and the reported number of global COVID-19 related deaths just surpassed 1,100. While most of the article focused on the supply chain disruption possibilities impacting the dietary supplement industry, warnings of irresponsible advertising were also mentioned.

The most immediate negative impact of the pandemic to the supplement industry became the impact at retail. With consumer fear and lockdowns becoming the new normal, the brick and mortar retailers suffered first. Prosper Insights and Analytics surveyed 7,762 U.S. consumers from June 1 through June 9, 2020:

  • When asked if they felt the COVID-19 crisis would impact the economy, 77% said yes. This result was an improvement from previous surveys in May and April that indicated a concern of 84% and 86% of respondents, respectively.
  • 37% of adults surveyed expressed confidence in the economy in June 2020 versus a 52% confidence rating in June 2019.
  • 64% of respondents said they were shopping less in brick and mortar stores.

 

GNC, once the highest grossing brick and mortar natural retailer, has been suffering for years without a pandemic. GNC was hit especially hard by the COVID-19 crisis. On the date of the 2/11 WFM article, GNC was trading at $2.17 per share. GNC subsequently filed bankruptcy and was delisted from the NYSE. It’s current trading is near $.20/share. Earth Fare, another retailer, declared bankruptcy in February and closed its 50 stores early on as the pandemic began. Earth Fare began emerging from bankruptcy and reopening some stores in June.

GNC Stock Price Feb 1 – Aug 1, 2020. Image courtesy of Trust Transparency Center.

Bright news has emerged in the natural grocery space, most notably the news from Sprouts Farmers Market as reported on its most recent Earning Report Second Quarter Highlights:

  • Net sales of $1.6 billion; a 16% increase from the same period in 2019
  • Comparable store sales growth of 9.1% and two-year comparable store sales growth of 9.2%
  • Net income of $67 million and adjusted net income of $70 million; compared to net income and adjusted net income of $35 million from the same period in 2019
  • Diluted earnings per share of $0.57 and adjusted diluted earnings per share of $0.59; compared to $0.30 diluted and adjusted diluted earnings per share from the same period in 2019

Trust Transparency Center called 25 Natural Retailers in various areas of the country on July 31, 2020. We were able to speak with 22 store managers, asking the question “What level of consumer traffic has returned to your store since pre-COVID-19?” This survey indicated an estimated average return to pre-COVID-19 store traffic at 73%. While this is a small survey, it is supported by a more extensive review by SafeGraph of foot traffic in big box and grocery stores in April. The report indicated the last day of “normal” in the retail world was February 26. Grocery stores remained somewhat consistent while big box stores dipped considerably. Panic shopping peaked around March 17-19. This was the point at which Americans were realizing life was going to be very different very soon.

Another immediate bright spot for the natural health retailers is the surge of attention to immune health supplements. Legacy brands of supplements are reporting significant increases in sales. NOW Foods reported record March sales primarily amongst immune health products. A “halo” effect has bumped some other categories such as cognitive and heart health categories as well.

Nutrition Business Journal (NBJ) has reported a significant increase in e-commerce sales. While Amazon has experienced significant growth across most retail sectors, health supplements have experienced significant increases.

We are now months into the pandemic with no end in sight. We are, though, learning how to deal with this “new normal.” Retailers of all types have had to adapt to the rapidly changed, and changing, consumer environment. All business models are having to adapt and the one clear path emerging as most effective to this adaptation is omnichannel marketing, which can accommodate the consumer shopping experience no matter how they engage with the retailer. Two of the most effective tools to assist with the omnichannel transition are Buy Online/Pick up In Store (BOPIS) and Buy Online/Pick up At Curbside (BOPAC). Both require technology advancements to the website and retail infrastructure, but the reported ROI of the expenses indicate a positive return. A recent Total Retail survey of 2,000 US shoppers indicate:

  • 68% of shoppers have tried a BOPIS/BOPAC sales experience with 50% indicating they made purchase decisions based upon where they could utilize BOPIS/BOPAC convenience.

A July 7-12 McKinsey & Company Survey of 1,923 consumers indicate the use of online is increasing ~15-40 percent across a variety of categories with top three being over-the-counter medicine experiencing a 65% growth, household supplies seeing 47% growth and groceries 42% growth.

This same survey indicates the expected maintaining of BOPIS/BOPAC shopping habits post COVID-19:

Image courtesy of Trust Transparency Center.

WholeFoods Magazine’s staff could not have imagined how right they were on Feb 11, 2020 when they called the upcoming pandemic’s effect on the Supplement Industry “Very, Very Serious.” While the pandemic is impactful, we will get through it just like we have in the past. The lessons we learn will likely affect us and our future for years to come. The lessons we learn at retail are necessary and important. We are evolving as a society and as a commerce and it is up to all of us to accommodate the necessary changes to benefit us all, together.

 

References:

  1. https://seekingalpha.com/pr/17950853-sprouts-farmers-market-inc-reports-second-quarter-2020-results-and-july-update
  2. https://www.supermarketnews.com/retail-financial/eight-earth-fare-stores-reopen-under-new-ownership
  3. http://f9e7d91e313f8622e557-24a29c251add4cb0f3d45e39c18c202f.r83.cf1.rackcdn.com/RTP_RT267_SR_BOPIS_June_2020_Final.pdf
  4. https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-us-consumer-sentiment-during-the-coronavirus-crisis#
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Scott Steinford, Founder, Trust Transparency Center
Scott Steinford has built a career of leading, learning and mentoring. Through immersion in many aspects of the supplement and pharmaceutical industry Scott has worked to redefine and improve business practices within the healthcare industry with an emphasis on transparency. His experience ranges from entry level to CEO and positions include organizations representing ingredient supplier, ingredient manufacturer, retail brand, private equity, M&A due diligence expert and trade organizations. Scott has a Pre-Law Bachelor’s Degree from the University of Texas at Arlington and a Master’s of Science Degree in Law from Champlain College. Scott currently is Executive Director for the CoQ10 Association and President of the Natural Algae Astaxanthin Association (NAXA) and Founder of Trust Transparency Center, a boutique consulting organization dedicated to assisting companies seeking to improve both their internal and external trust transparency. Scott’s prior experience includes CEO of Doctor’s Best and maintained a pivotal role with a variety of ingredient manufacturers including Eisai, Kaneka and was a founder of ZMC-USA.

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