By: Maciej Majszyk
Annual sales of supplements in Eastern Europe have grown more than 300% during the past year, according to Euromonitor. The dramatic growth in sales has been fueled by a 50% increase in per capita expenditure in the last four years, as the region’s open capitalist markets have matured and prospered. Coupled with this growth has been an increasing level of enthusiasm and excitement that has fueled innovation in product development, merchandising and marketing. Major category trends include the “tried-and-true” products, such as minerals, fish oils, CoQ10 and glucosamine. Weight management products and nutricosmetics from the Western world are also gaining popularity. While marked increases in education, marketing and promotion have pushed the sales pedal, pharmacies, as the dominant distribution channel, have put the brakes on the speed of growth. This is because supplements are often perceived to be in competition with established drug regimens. The regulatory environment is made up of a “hodge podge” of rules that make it easier for domestic products and harder on imports, and sometime vice versa. The region’s prospects and challenges come into better focus through snapshots of stand-out markets. Russia and Ukraine are among the fastest growing markets, posting 25% and 20% average annual growth, respectively, between 2001 and 2006, according to Euromonitor. Poland’s average annual growth rate has been markedly smaller at 8%. Although Romania is only the region’s sixth largest market, it merits attention because it has seen a 25% average annual growth this past year.
Total sales reached $676 million in 2006, which is an astonishing feat considering sales were only $78 million less than 10 years earlier. The market is fertile because of a confluence of cultural health issues, Western influences and somewhat agreeable regulation and distribution conditions.
One key sales driver is the hope that supplements can help blunt the ill health effects of tough living conditions and detrimental consumption habits. Life expectancy is low-65 for women, 59 for men. Nutrient deficiency and obesity are common due to diets high in dairy and meat, and low in fruits and vegetables. Struggles with alcoholism are historical. Another significant driver is marketing and advertising, which have shaped a mindset to believe in supplements’ benefits.
Two very popular product categories have risen out of these circumstances: supplements for liver health and hangover relief. In fact, one of the most copied products in Russia today is Essentiale, a formulation that combines essential phospholipids (EPL) with vitamins B and E, and which addresses these maladies. Weight management products also offer increased appeal to both the general population, which has concerns about obesity, as well as the “rich and beautiful,” who are striving to be fashionably thin.
Both local and premium imported products have fueled the supplement boom. Domestic companies draw on indigenous raw materials to create natural therapies, similar in concept to that of traditional Chinese medicine. These mass-market products sell high volume at low prices. A prime example is ground velvet from Siberian deer antlers, whose reported health claims are extensive. Products imported via Western Europe and the U.S. have driven new trends such as weight management, cognitive health and cardiovascular health. When distribution is focused on Moscow and St. Petersburg, these products command higher prices. An example is a Danish weight management product containing conjugated linoleic acid (CLA) and green tea from Pharma Nord.
The regulatory environment in Russia is easier for homegrown products. Formally classified as a “bioactive additive,” local supplements undergo just one screening from the Ministry of Health. Further, authorities are encouraged to speed up the bureaucratic procedure for domestic suppliers. Importers, on the other hand, slug through two registration processes. First, companies must obtain an import license to deliver products to a Russian customer. Second, they must register the finished product under the customer’s brand name.
Two distribution channels dominate: pharmacies, making up 50% of the market, and multilevel marketing, comprising 40%. A third channel is comprised of kiosks, supermarkets and metro stations.
It is difficult to predict whether Russia will continue to be a huge bonanza or turn into a big bust. The bulk of current sales are in Moscow and St. Petersburg, where people are informed, exposed to Western influences, and enjoy more wealth driven by rising global demand and prices for oil and gas. But these centers constitute only 10% of Russia’s population of 140 million. Imagine the power of this market if products were distributed and marketed more evenly throughout the country. On the other hand, the market can just as easily turn downward because of volatility of both the political environment, as well as gas and oil prices.
Poland
This market reported supplement sales of nearly $271 million in 2006, a 198% jump from about $91 million in 1997, according to Euromonitor. Sales have soared because of a newfound interest in healthy lifestyles, driven by government support and Western European influences.
The traditional Polish diet is not the healthiest-it is dominated by pork and fat, with few fresh vegetables and fruit. But as more people have worked abroad or have been exposed to Western European imports, being healthy is now the rage. Diet, beauty and weight management are current topics of everyday interest. The government has even stepped in to sway habits and taste by sponsoring promotions to drink milk and eat fish.
Within this climate, top supplements categories are fish oil, weight management (i.e., CLA plus green tea) and skin hydration (i.e., combination product of borage oil and vitamins A and E). The sports nutrition category also shows promise. A few Polish companies with their own manufacturing plants, such as Olimp Laboratories and Trek Nutrition, hold the sector’s majority share. Imported products are often sold via the Internet to cut marketing costs. In addition, importers frequently face differences in regulatory requirements, impacting the use of raw materials or active substances.
Despite this trend, dietary supplements are far from reaching market saturation. As a percentage of total over-the-counter (OTC) sales in Poland, supplements account for 17%, compared to 30-40% in developed countries. Unfortunately, regulatory and distribution issues have stymied availability.
Because 80% of distribution is through pharmacies, dietary supplements are competing with pharmaceutical products and have to face that industry’s strong anti-dietary-supplement lobby. Supplement firms are seen as cowboy outfits without controls, standards or quality. Recently, traditional dietary supplement ingredients, such as ginkgo biloba, have been recast and registered as pharmaceuticals only for OTC sales.
Ukraine
Sales for 2006 were $90 million, representing a 439% leap ahead of 1997 sales of $17 million, according to Euromonitor.
Although the health and standard-of-living issues are similar to those in Russia, these circumstances have not impacted particular product demand. No one product category appears to sell dramatically better than another. Whatever is promoted and advertised seems to get snapped up by local consumers.
A fractured regulatory environment is often cited as hindering the manufacturing and sales of domestic products. Local manufacturers-a limited number of approximately 10 companies-must supply an overwhelming amount of documentation to meet registration requirements. Roadblocks are partly due to the medical community’s negative perceptions of dietary supplements, which are often slammed as “good for nothing.”
To work around these issues, pharmaceutical companies that manufacture dietary supplements register them in the OTC category. These include ginkgo biloba, garlic extract, fish oil and low-dose vitamin E.
Nevertheless, imported products present growth opportunities. If a product has been successfully marketed in the U.S. or EU, where quality and safety controls are considered more advanced, getting approval is easier because Ukrainian authorities believe such supplements pose less risk. Consequently, EU countries have been busy introducing weight management, nutricosmetic and sophisticated multivitamin and mineral products. Ukrainians also continue to embrace top Russian products based on traditional natural therapies that are familiar from their Soviet Union days.
Romania
Sales for 2006 reached $61 million, growing from almost $6 million in 1997. Despite this astounding growth spurt, Romania is still considered a modest, middle-of-the-road market with only 4% of the Eastern European share. This is primarily because Romania is a late-comer to the open market-it’s almost 10 years behind Poland and the Czech Republic.
Because disposable income is low in Romania (30% below Poland’s), the dietary supplements promoted and sold are simple and inexpensive-low doses of CoQ10, beta-carotene and combination products. The top category is children’s vitamins, which logged more than $10 million in sales in 2006. Royal jelly, a processed form of bee pollen that supports immune health, is popular here as well as in the Balkans.
Romania has plenty of room to grow. It should continue to flourish with the rise in disposable income, product promotion and dietary supplement education. A regulatory environment that is becoming more stable will also aid expansion. Further, as a new member of the EU, Romania is now following EU guidelines.
Eastern Europe’s Future
The pace of future growth in Eastern Europe hinges on four factors: the regulatory environment’s stability, the population’s increasing embrace of healthy lifestyles, the improvement in living standards and the rise in disposable income.
As new members of the EU, Poland, Romania, Czech Republic and Hungary are seeing an increase in disposable income and easier access to imports as they adapt to unified EU regulatory standards. Product demand is expected to accelerate based on ongoing exposure to Western culture, coupled with product marketing and advertising.
Growth opportunities in Russia and the Ukraine far exceed those of any other Eastern European country. Russia’s potential is huge, especially if the country’s economy continues to skyrocket. Growth, however, will largely depend on a clear and friendlier regulatory environment, a predictable political situation and infrastructure development.
