Long before Shi Yuzhu made billions selling online games, he earned his first fortune flogging health supplements. The founder and chairman of gaming firm Giant Interactive, who is reportedly worth $3.5 billion, founded Goldpartner, still one of the leading supplement makers in China, back in 1994.
Shi said he used to travel the country pushing his multivitamins and other boosters under the Brain Platinum brand. In 2002, he sold part of his stake in the business for Rmb700 million ($114 million), which he later used to fund Giant Interactive.
Not everyone is as successful as Shi. The dietary supplement business is a surprisingly small market, worth about $13.4 billion in 2013, says Euromonitor. To put that in perspective, America’s market is reckoned to be worth $37 billion.
That’s a challenge that has become plain to American firm Nature’s Bounty, which has US revenues of about $2 billion. The company, which is owned by private equity giant Carlyle, has been operating in China since 2008. But according to Xia Junbo, the head of Nature’s Bounty China, its Chinese revenues are Rmb400 million annually (about $65 million). By comparison, Amway, the largest player, had sales of Rmb27.1 billion last year.
To drum up interest in Nature’s Bounty’s offering of vitamins, slimming aids, protein powders and wellness pills, it has invested heavily in advertising, hiring the actress Tang Wei – to promote its collagen-based natural beauty tablet – as well as South Korea’s Kim Soo-hyun from My Love Who Came From the Stars.
In an interview with Global Entrepreneur, Nature’s Bounty’s Xia says the biggest challenge with China’s supplement market is distribution. In markets like the US and Europe, there are plenty of outlets for people to buy dietary pills, including supermarkets, food and health product stores, or pharmacies. In China, the choice is more restricted, primarily to pharmacies. And worse, the pharmacy market is fragmented. Most large drug store chains are regional players and have limited reach nationally.
Relying on pharmacies may also give people the wrong impression: “Pharmacies are really not an ideal place to sell dietary supplements right now. The pharmacies are the places to buy medicines. And I think that’s one of the big education problems as to why Chinese people will typically see dietary supplements more like a medicine and as something that can cure and treat diseases. And that’s not what they are for,” says Jeff Crowther, executive director of the US-China Health Products Association.
As a result, supplement firms like Brain Platinum and Amway rely on direct sales forces to do most of the selling, accounting for about 60% of supplements sales in China. Xia says this business model is more costly, which pushes up the price of the supplements. Perhaps that explains why supplements are viewed as luxury items by many Chinese consumers. In other markets, customers take supplements more regularly as a habit, he says. In China clients more usually buy them as gifts for friends and relatives.
Moreover, obtaining approvals from the State Food and Drug Administration is a time-consuming process for the supplement firms. “In China, it’s not that simple and it takes over two years to get the registrations and can cost up to $60,000. And all the testing has to be done on your product to get the registration. So that’s kept a lot of companies out of the market and kept domestic companies from investing in the sector because it is quite expensive,” Crowther complained to China Radio International.
Still, for supplement makers, there is bright spot in sales terms. Jing Daily has reported that sales of supplements for children have been expanding rapidly. As income rises, more Chinese are showing willingness to spend larger amounts on their children, and supplements sales are reaping a dividend.
“I think my investment is worthwhile if my child is able to achieve his academic goals while maintaining good health. I think many parents are of the same opinion,” one parent told China Radio International of their decision to buy such supplements.
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