That’s a wrap on 2018, and what a year it’s been. A flurry of activity on the Farm Bill and the tariff situation in December set the stage for big changes in 2019. So where do we currently stand, and where are we heading? Let’s take a look…
Yay or nay on the 116th Congress?
If we had a crystal ball that could show us what the future holds, many of us would peer into it hoping for insights into whether the influx of new faces governing our country will be a positive or a negative for the industry. “The 116th Congress, which begins in early January 2019, will be interesting to watch,” says Mike Greene, senior vice president,
government relations, Council for Responsible Nutrition (CRN). “With Republicans retaining control of the Senate, and the House of Representatives being controlled by the Democrats, many believe gridlock will continue. But there are opportunities where bipartisanship can thrive.” Case in point: The Dietary Supplement Caucus (DSC). “It has been in operation for the last 12 years, and it has remained bipartisan, as well as bicameral,” Greene says. “As we encourage legislators to join, what we learn is that whether you are a right-wing conservative, a left-leaning liberal or a moderate, what all caucus members have in common is their interest in health and wellness. That shared interest will continue going into 2019, which is the 25th Anniversary of the Dietary Supplement Health and Education Act (DSHEA).”
Speaking of DSHEA, Michael McGuffin, president of the American Herbal Products Association (AHPA) brings up the point that has many feeling a bit on edge: For the first time in decades, the industry is without its long-standing champions, as Senator Orrin Hatch joins Senator Tom Harkin in the ranks of the retired. “The industry has really relied on these two lawmakers because of their position of authority and because they are true believers in these products and use herbal and dietary supplements themselves,” McGuffin says. “They have been there for the industry a very real way.”
Everyone knew this day would come, though, so it’s not as bleak as some may fear. “The supplement industry has been preparing for years for the retirement of our key Senatorial champions by building relationships with incoming lawmakers and educating them and their staff about supplements and how they are regulated,” McGuffin assures. He adds that though the industry lost some other supporters, some outspoken critics also won’t be returning. “Notably,” he says, “Claire McCaskill from Missouri, who often nitpicked the industry about small issues in an effort to make them seem like bigger issues.”
While the changing guard leaves major questions marks, Greene sees a bright side. “The good news is that we have many friends in the Senate and in the House of Representatives, and this will grow when we begin meeting with new legislators.”
The notion that change brings opportunity is shared by Karen Howard, CEO/executive
director of Organic & Natural Association. “Over the years I have watched Congress’ favorability rating diminish to as low as 10%,” she reflects. “Despite scoring lower than the IRS, constituents consistently re-elected their own Member of Congress, expressing a willingness to throw out everyone but their own. This year we witnessed a cultural shift that offers a chance to educate new Members in unique ways.”
We shouldn’t get too bogged down in how the election swung in terms of political parties, Howard adds. “It’s not just about the advantage or disadvantage of Democrats taking back the House of Representatives.” Instead, it’s about the advantage of being able to start new conversations. “Retailers need to grab the opportunity to meet their Members, new and old, and assert themselves as subject matter experts. Congress is your customer. Identify ways that keep them coming back to you for more…more information, expertise, insight on the health needs of their constituents and the services retailers provide their communities.”
The more voices we have advocating for us the better, so Daniel Fabricant, Ph.D., president and CEO of the Natural Products Association (NPA), urges, “To those in the industry, I say get involved.” The event Fabricant wants on everyone’s radar: The 22nd Annual Natural Products Day in Washington, D.C.—a day-long advocacy conference hosted by NPA to give retailers, suppliers and all industry stakeholders the opportunity to become lobbyists. This year’s event will take place on September 10, 2019. For those who can’t make it, there’s still opportunity to be heard. “If you can’t come to D.C. to work with us, then work through us,” Fabricant says. “Contact NPA for help in getting a representative to come to you—to your company, to your store.”
A greater understanding of the industry by legislators is the goal, which is why the plan for 2019 from CRN, Greene shares, is to reach out to every one of the nearly 100 new legislators coming to Capitol Hill. “This [is] a perfect opportunity to engage freshman representatives and senators about dietary supplements, functional foods and nutrition. And that’s what we intend to do! In the first quarter of 2019, CRN and the other trade associations plan to meet with each office to educate them about the natural product industry, dietary supplement regulations, and build relationships quickly. We’ve done this for the last six years, and it has been revealing. We’ve learned that many use our products, and rely on healthy habits like eating well, exercising regularly, and taking dietary supplements.”
The increased diversity of the 116th Congress also presents opportunity to spark change. Howard notes, “Women will occupy 155 seats in the House and 25 Senate seats come January. We’ve elected the first Muslim, the first Native American, and we have a total of 75 veterans who will be serving. Imagine the health issues that occupy their hearts and the needs of their constituencies. New Members of Congress, new constituencies and new attention to problems that can be better served through health and wellness practices. What a great way to bring nutrition to the table.”
Some of the issues the industry will work with Congress on: DSHEA as always, though McGuffin expresses confidence on that front. “On the House side, control will shift to the Democrats who have historically pushed for more industry regulation, so we’ll be watching this closely and will continue to educate lawmakers and their staff about DSHEA. Because this law has been so successful in ensuring product safety and quality while giving informed consumers access to innovative products, there seems to be little motivation by lawmakers to change the law.”
Access for all will also be a focus. “CRN plans to continue advocating for the multivitamin, and how it fills nutrient gaps in low-income and special populations, whether it is senior citizens, residents of urban food deserts or our service men and women. We want to do whatever we can to ensure Americans have access to the benefits of a multivitamin,” Greene asserts.
Another pressing topic: medical savings accounts, like Health Savings and Flexible Spending Accounts (HSAs and FSAs). “[We will be] underscoring how important it is that consumers be able to self-select health products and use their HSA or FSA to purchase a dietary supplement, meal replacement or other nutritional products,” Greene says. To that, Fabricant adds that the Department of Health and Human Services (HHS) released a report in December suggesting reforms to the health care system that would bring about greater choice for the American people. “It’s nice to see the department saying we can give consumers choices,” Fabricant says. “There’s real science behind folate, real science behind calcium, real science behind fish oil. We should be rewarding people for taking steps to stay healthy.”
The farm bill & the future of CBD
At press time, Congress had passed the Farm Bill; It was expected that the Bill would soon be signed by President Trump.
For many, the next question is: How will this impact the future of CBD? “The DEA has stated that it considers CBD derived from low-level cultivars—not leaves and flowers—to be a controlled substance,” says McGuffin. “AHPA disagrees with this assessment, but it shouldn’t be an issue. He points to a provision that specifically excludes hemp from the definition of marijuana and effectively removes DEA oversight. “This will really free up resources by allowing companies to sell CBD products from legal sources derived from the right parts of the plant.”
From there, expect the category to continue to soar. Rend Al-Mondhiry, senior counsel with
Amin Talati Upadhye, notes, “Over the past few years we’ve seen CBD sales grow significantly, and we expect this trend to continue into 2019 and beyond. The passage of the Hemp Farming Act, as part of the 2018 Farm Bill, will likely fuel even stronger growth by establishing hemp as an agricultural commodity rather than a controlled substance.
“By legalizing the hemp plant and taking it out of the federal Controlled Substances Act, passage of the Hemp Farming Act will not only increase hemp production but also allow for more research into the benefits of the hemp-derived products,” Al-Mondhiry continues. “For the supplement and food industry, it will not change FDA’s current position regarding CBD, but removing the hemp plant from the list of controlled substances will provide more opportunity to research the safety and benefits of this ingredient as used in food and supplements, as well as cosmetic products. It may also take some pressure off of regulators—both state and federal—by clarifying that hemp-derived CBD is not controlled substance, so long as it meets the THC concentration limit of 0.3% and other relevant state and federal requirements. “
The future looks bright—but we shouldn’t get giddy. Al-Mondhiry explains, “The industry must understand the FDA regulatory landscape surrounding CBD and that passage of the Hemp Farming Act will not change FDA’s position on CBD concerning its use in food or supplements.”
Industry groups are hoping to change that position in 2019, though. “The industry has to tackle FDA oversight,” acknowledges McGuffin, who notes that AHPA has been active in the emerging CBD market since 2010, with the founding of AHPA’s Cannabis Committee. “FDA has stated that CBD is not a dietary ingredient that can be sold in dietary supplements and foods. We understand their rationale and we can dispute some of the details they’ve used to reach this conclusion, but there is also a clause in the law that allows the Secretary of Health and Human Services (HHS) to simply declare an exemption to allow these products to be sold. AHPA has adopted a position to advocate FDA to encourage the HHS secretary to provide this exemption.”
If successful, this could change the CBD landscape in 2019. “This would allow the industry to discuss issues with regulators like possible label warnings, dosage, possible NDI status,” McGuffin explains. “It is in the interest of consumers, FDA and the industry to have these products regulated and it makes sense to regulate them as dietary supplements, which are defined in the law to include ‘herbs and other botanicals.’ It ought to fit neatly into this class of goods. If FDA regulated these products as dietary supplements, then requirements like cGMP, serious adverse event reporting, drug claim limits all apply to these goods. It is an excellent regulatory model to fit hemp and CBD products.”
The industry really can’t be too careful when it comes to CBD, suggests Len Monheit, managing partner, Trust Transparency Center. “Many have reflected on the current state of CBD as a Wild West, and I agree with that and also think of it as a bit of a feeding frenzy. Both occurrences have the potential of extinction or tapering off and stabilizing. The industry has control of the outcome and we hope CBD is here to stay.”
For retailers, Monheit adds, “As of today, legality and enforcement priority are based regionally or by the individual state, so retailers need to hold any companies they choose to do business with accountable for these two aspects—at minimum.” He stresses that “even as we move forward to what we believe should be a healthy supplement-side regulatory environment, the tendency will be to open the floodgates with regard to products and claims. We would urge responsible retailers to leverage and translate years of botanicals experience and expertise to help consumers in store make good decisions and buy efficacious products. There will be outliers and there will those committed to doing it right. If it sounds too good to be true – it is. Verify and have your supply chain transparent and provide substantiation of safety for the products you are selling specifically. This will pave the high road.”
It’s also essential to keep following the industry news for changes. As Al-Mondhiry explains, “Because the Hemp Farming Act will give states the ability to regulate hemp, it will be important to continue to monitor state activity and legislation impacting CBD and hemp extracts. For example, some states have a zero THC policy, meaning that even trace amounts of THC could cause a product to be a controlled substance, so sourcing and testing is an important consideration for these states.”
If the government does crack down on CBD, Jay Jacobowitz, president and founder of
Retail Insights, and WholeFoods Magazine Merchandising editor, hopes the industry unites to respond in a big way. “I’m reminded of the lead-up to the 1994 DSHEA legislation,” he muses. “Independent natural products retailers at that time held a coordinated national ‘blackout’ day, during which they covered their entire dietary supplement inventories with black netting, and told shoppers they couldn’t buy supplements due to FDA’s intention to restrict the ability of marketers to give consumers truthful information about the health benefits of these products. Consumers responded by flooding Congress with hundreds of thousands of letters, faxes (remember, this was 1994!) and phone calls, demanding their Representatives and Senators support the DSHEA legislation.
“Is there enough consumer support for CBD in 2019?” Jacobowitz wonders. “In 1994, DSHEA was addressing the entire dietary supplement category, not just a single product such as CBD. However, the overwhelming health benefits consumers have been enjoying from CBD products suggest that the industry—if it can mount another coordinated national informational campaign—could alert the consuming public to the enforcement action FDA intends to take. At the time of DSHEA in 1994, many independent natural products retailers left their stores to travel around the country alerting their fellow retailers about the pending DSHEA legislation, which resulted in the coordinated ‘blackout’ effort. My hope is that we can accomplish this kind of successful grass roots campaign again.”
Tariffs on pause
On December 1, it was announced that 25% tariff proposed on thousands of Chinese products would be delayed for 90 days. “An expiration in March gives us some relaxation, but it’s really not much time,” says Fabricant. “Can they get a deal done in 90 days? I think yes. But it may not be the whole deal. It may get done slice by slice.”
If the 25% tariff is enacted, says Frank Lampe, VP, communications & industry relations,
United Natural Products Alliance, “it will have a sizeable impact on the price of raw ingredients and thus the price of many final supplement products on retail shelves. The reality is that the threat of tariffs has already impacted both ingredient buying cycles and inventory concerns as companies try to determine if they should buy in large quantities now to ensure lower-priced ingredients. Ingredient prices have already increased as demand has risen. This uncertainty is disruptive and not productive for the dietary supplement industry.”
It’s also disruptive for those manning the registers, Lampe acknowledges. “Being on the front line and the direct conduit to consumers, retailers will be the ones taking the heat for any price increases that occur due to a tariff implementation. They face the same inventory dilemmas as the brand holders and contract manufacturers. The only good news here is that any tariffs will impact a large range of consumer goods outside of supplements, so any price increases will not be a shock to consumers.”
To ease the sting for consumers: “At this time, the only real advice we can offer is for retailers to be very proactive by communicating with their consumers about price increases—as a result of trade in dietary ingredients sourced from China—so they are seen as partners with their customer base,” Lampe suggests. “Also be ready to offer alternatives to impacted ingredients and products, where feasible, to provide choices to their consumers.”
Speaking of sticker shock: Amazon
A “look ahead” forecast was also published in the January 2018 issue of WholeFoods Magazine, and it’s interesting to look back to see how some predictions panned out. Not surprisingly, there was speculation about the impact of Amazon’s acquisition of Whole Foods Market. John Foraker, CEO of Once Upon a Farm in San Diego, wasn’t buying the doom and gloom, saying at the time: “A lot of people think the combination of Amazon and Whole Foods Market will be the beginning of the end of all other retail. I don’t believe that at all…The world is not going to end.” Foraker also predicted that the organic industry would continue to grow in single digits and that plant-based dairy would accelerate. He was right on all counts—the Organic Trade Association’s 2018 Industry Survey revealed that organic sales in the U.S. were up 6.4% over the previous year; Nielsen data compiled for the Plant Based Food Association revealed that sales of plant-based dairy was up 9%; and the world did not end.
That said, Amazon presents challenges for the industry. “With Amazon.com/Whole Foods Market, it is becoming clear that CEO Jeff Bezos intends to keep adding benefits to membership in Amazon Prime—from extra discounts, to free 2-hour delivery, to streaming video services and other perks—to entice consumers to join,” notes Jacobowitz. “In this sense, natural organic products are just collateral damage, as the Amazon juggernaut continues to crush all competition in as many industries as possible, including health care, health insurance, pharmaceuticals, medical devices and electronic medical records. Retailers need to carefully evaluate what they can and can’t do.”
Forget trying to beat them at their game; focus on competing on a personal level that such a retail giant can’t easily achieve. To that end, Jacobowitz says, “While retailers do not need to engage in e-commerce—which is a huge ongoing investment in time, money, and human resources—retailers should use social media and email to regularly communicate with their customers. A daily photo or short video of what’s new in-store plays directly into the expectations and lifestyles of millennials and Gen Z. Facebook allows you to string together a set of still photos in a faux-video presentation, fading out of and into a series of snapshots to give the effect of video, for example. Being spontaneous, informal and humorous are signals of authenticity millennials seek as they choose which companies to support. This is not expensive, it just takes a little thought, and some time.” The payoff: “Independents that utilize social media and regular emails are reporting an increase in traffic from millennials.”
Continuing to focus on trust and transparency will also drive success. That’s where Amazon may be falling short, opening the door for truly authentic products to shine and draw consumers to retail stores. As Monheit explains, “Amazon introduced Elements, its private label line a few years ago, with intentions to be more transparent with quality, source/origin and manufacturing information and a move to transparency including a QR code. This past year, Amazon, after expanding the Elements line to over 50 SKUs, they seemingly backtracked on this commitment with their launch of their Solimo brand which is lower-priced and lacks the transparency innovations that Elements was lauded for. With Amazon this means to the industry is that pricing is going to continue to be a factor.”
Consumers care about price, of course, but Jacobowitz stresses, “You still cannot compete on price, but you can negotiate with your vendors for periodic deals and perhaps EDLPs (everyday low price). The most important thing to do when you secure special pricing from your vendors is to pass it on to the customer. Overall, Amazon.com is transferring profits from brands and retailers to itself, dramatically compressing gross profit margins. The traditional SRP (suggested retail price) has been supplanted by the Amazon.com retail price. Pay attention, and hold your suppliers responsible for enforcing Minimum Advertised Price (MAP) policies. Even if you are a small store, you have leverage with your vendors. And many independents together have great influence over vendor pricing practices.”
Quality will also help retailers rise above. “Many of the Amazon listed brands have no industry experience, often use contract manufacturers of questionable reputation and quality, and there are really no barriers to entry in the channel, which, as we know, is a lot more complicated than making and listing ‘widget’s for sale,” Monheit maintains. “While not always a product safety issue per se, this does mean that the retailer vetting process in store and through distribution adds accountability that is absent in the online environment. That’s a huge advantage for the brick and mortar stores to talk about. Trust Transparency Center, in concert with the Natural Algae Astaxanthin Association (NAXA), the CoQ10 Association and the Global Curcumin Association (GCA) have begun a testing program of finished supplement products sold on Amazon, as well as opened dialogue with several of these new industry entries, in many cases, finding that they don’t even know what they don’t know about this industry.”
On the trust front, retailers also have an opportunity. “Some reports have found that up to 70% of online reviews are fake and to combat that Amazon has revised its review criteria in recent months, eliminating as many as half of the product reviews for some brands,” Monheit says. “Brands can’t offer incentives for reviews anymore.” Since consumers increasingly look at online reviews to make their purchase decisions, Monheit feels retailers need to enhance their education efforts, perhaps implementing their own in-store rating systems. “When you combine [the revised review criteria] with Amazon increasing the visibility and promotion of its own brands, we think it ultimately means less reach for online only brands through Amazon,” Monheit says. “As a retailer, I’m again playing the long game, knowing the brand stories, and capitalizing on what is sure to be increasing distrust.”
Standards + strong science = sales
What trends will capture consumer interest. “We are confident that 2019 will continue the worldwide trend of consumers moving more toward healthy food, beverage and nutrition offerings and healthier lifestyle choices,” says Lampe. “A couple of drivers of this include the broadened awareness and utilization of personalized nutrition analysis and the greater accessibility by consumers of nutrition research. The move toward expanded types of dosage forms should expand market share for innovative companies, and of course, we can’t discount the impact of hemp-extract products in both the supplement and personal care aisles on the viability of bricks-and-mortar retail operations.”
Howard points to a cultural shift driving interest. “Regenerative agriculture is capturing hearts today, and most likely wallets tomorrow,” she predicts. “I could go to a conference on regenerative agriculture every week. Young men and women are stepping into the ranching and farming community to make a difference. It’s inspiring to watch them learn from their elders and assume the risks of farming and ranching, carefully tending to the limited resources we have for the sake of our food supply and the generations to come. And their work is being noticed. Discussions are underway on how federal policy changes can support small farms and farmers, along with their rural communities.”
Educating members on ways to effectively source and support ingredients derived through organic and regenerative means is a focus for At Organic & Natural Health Association, Howard continues. “Consumer demand will continue to grow for these products, as will their call for honest disclosure on what animals are fed, where they are housed and where they are from.” To that end, she sees grassfed as a growing trend. “Grassfed sales have doubled every year since 2012. Collagen sales increase 20% to 25% each year, whey powder remains a big seller, and bone broth sales have tripled since 2016. Demand will only continue to grow. The question for retailers is how, and where, is product being sourced. Have you articulated a set of standards to your vendors so that you can boost customer confidence?”
Increased consumer concern about the nutritional quality—or lack thereof—of the foods in the standard American diet will also drive supplement sales, Howard suggests. “Basic nutrition issues remain high on consumers radar, including nutrient deficiencies in vitamin D, omega-3, magnesium, selenium and the list goes on. Our savvy consumers understand that soil depletion, the risk of pesticide residue and environmental contaminants threaten the nutritional value of the foods they eat. I see them turning to supplementation, derived from quality, regenerative and organic sources, as a way to support and improve health status. Consumers rely on retailers to have all of this information at their fingertips, so continued investment in both nutrition education and environmental concerns is a must.”
Educate on and promote these products, she adds, and it will be a win-win for all.
That’s a sentiment that McGuffin seconds. “The consumer demand for high-quality, sustainably produced herbal and dietary supplements produced by socially responsible companies continues to grow as more people learn how these products can help improve their quality of life and maintain wellness. There is every indication that the supplement industry will continue to benefit from this trend. The industry is also very in tune with its customers and continues to innovate ways to ensure quality and sustainability and communicate these attributes to consumers.”
Emerging research will also be a driver. As Monheit predicts, “The rise of new categories with strong science like prebiotics will help drive innovation and category growth, built upon a greater understanding of our microbiome and how it works.
Also pointing to science is George Paraskevakos, executive director, International Probiotics Association (IPA). “In a report commissioned by IPA, confidence for probiotic users are key—over 70% of probiotic users were concerned about false claims being made, and clinical proof and substantiation were the purchase driver for over 60% of probiotic users,” he shares. “The strategic denominator to this is available information coming from the web, key influencers and health care professionals; hence education will be important in understanding probiotics and help drive long term usage and engagement from consumers.” And top sellers will go beyond GI health and immune support, Paraskevakos contends. “With the bolstering of science and research we are starting to see how these efforts are attempting to take the knowledge and turn them into viable opportunities. Metabolic disorder type of ailments, brain gut health and age and gender related issues will probably be the top areas addressed by probiotics in upcoming years.”
“The recent positive science on omega-3 benefits for heart health should help fuel growth into 2019. The science around omega-3s now supports a reduction in the risk of myocardial infarction (heart attacks) as well as coronary heart disease and cardiac death. Retailers should be sure to highlight these findings.”
Following all the landmark studies published on omega-3s in 2018 (including the REDUCE-IT and VITAL trials, as well as an updated Cochrane Review), William S. Harris, Ph.D., founder, OmegaQuant, says more good news is in store. “As we enter 2019, it is a great time for omega-3s EPA and DHA. And evidence will further build as we await publication of the STRENGTH trial, which will include both EPA and DHA omega-3s in its formulation. A new study of DHA supplementation in pregnancy is also expected soon from Australia.” (For a more detailed report on the latest research from Harris, see his article on WholeFoodsMagazine.com.)
Also of note, Schutt says, are diverse product offerings. “Whether a consumer is looking for a higher concentrate product with more EPA and DHA per pill, a virgin oil product, or a vegetarian option, there is now an omega-3 option for everyone.”
Looking on the bright side
We asked the experts what is making them feel most optimistic, and it turns out there’s a lot to smile about. “For me it’s about the opportunity to collaborate with like-minded people and organizations in the simple act of being proactive,” says Howard. “Whether it’s practitioners, suppliers, distributors or retailers, we are too small and myopic in our world views to affect change in meaningful ways. The very real trend of consumers driving industry is one we at O&N embrace. It enables us to work with all of the stakeholders in, and around, the industry. Retailers sit at the core of our education and outreach efforts. I relish the opportunity to hold an event on Capitol Hill that features retailers and supplement companies, practitioners of all types and researchers, consumer organizations and special health interests.”
Such efforts are having a positive effect. “The industry is seeing the FDA’s rhetoric and attitude toward herbal and dietary supplements evolve,” McGuffin says. “Recent FDA communications indicate that agency recognizes that the majority of the industry is responsible and commits significant resources to comply with all relevant laws and regulations. FDA seems to be working to help these companies understand and comply while increasing enforcement efforts against the few trying to skirt the law. AHPA is eager to collaborate with FDA in the shared goal of a well-regulated dietary supplement market because it will benefit consumers, regulators and the industry.”
In an industry filled with people who dedicate themselves to helping others live their best lives, a negative can be turned into a positive. Take it from Jacobowitz. “Ironically, the recent pessimistic report from the Centers for Disease Control on life expectancy—which has declined to 78.6 years, down three-tenths-years since 2014, and places the U.S. 29th in the world—has a silver lining for natural products retailers. While suicides and opioid deaths were a major driver of the decline, pneumonia, influenza and diabetes also played significant roles. These last three causes are preventable and treatable through diet and lifestyle changes, which natural products retailers can discuss with their communities. Raising awareness about the risks and providing hope and guidance to those who want support is a primary way independent natural products retailers can stand out in today’s hypercompetitive marketplace.”
Motivated consumers are indeed a reason to smile. “I remain optimistic about the natural products and dietary supplement consumer, who, in my mind continues, to want access to and information about safe and high-quality dietary supplement products,” says Greene. “We must remember that DSHEA was responding to what consumers wanted, and because government was interfering with consumers’ access to these products. This led to one of the largest grassroots campaigns, which eventually led to the passage of DSHEA; 25 years later, this remains true. Consumers continue to demand a greater variety and more information about our products. However, instead of huge grassroots campaigns, they are speaking with their purchasing power.” WF