Sales Surges & Supply Shortages: Supplement Brands Navigate Choppy Post-COVID Seas

Dietary supplement sales soared to unprecedented heights this year, owing to the coronavirus pandemic.

But as consumer interest spiked, major disruptions to the ingredient supply chain limited the accessibility of many botanical and nutraceutical raw materials, excipients, and packaging materials, creating major sourcing challenges for supplement companies.

Peak, Then Plateau

A Nutrition Business Journal analysis posted in July projected that sales of cold, flu, and immunity supplements would hit $5.2 billion by the end of 2020, a category growth of 51.2% over 2019. Immune health products will likely comprise nearly 10% of all US supplement sales this year.

“It’s as if Americans woke up to the fact that they have a thing called an immune system.”

Mark Blumenthal, Executive Director, American Botanical Council
Comparison of estimated consumer spending on supplements for cold- or flu-related benefits, 2017-2020 (Source: Nutrition Business Journal)

In an earlier survey, 36% of consumers reported using more supplements now than prior to the pandemic, and 39% said they expect their elevated usage to continue, “signaling a potential halo effect for supplements beyond the immunity category.”

Roughly 20% of respondents who claimed that they “never” used supplements before COVID expect to increase their usage over the coming months.

“It’s as if Americans woke up to the fact that they have a thing called an immune system,” joked Mark Blumenthal, founder and executive director of the American Botanical Council (ABC), an herbal medicine education and advocacy group.

Growth of social media posts on health-related topics Jan-Mar 2020. Note the spike on immunity and inflammation topics beginning in February, as the COVID pandemic began (Source: L.E.K. Consulting)

“And not only that, but if you get enough sleep, and you eat well, and take supplements, you might be able to enhance that immune system’s function in ways you hadn’t done previously. There is a wider bandwidth of people pushing demand on some of these products, whether or not they are legitimately warranted for COVID prevention, treatment, or even mitigation,” Blumenthal told Holistic Primary Care.

By June, sales leveled off as consumers shifted from hoard-buying to cash conservation. But overall, the numbers are higher now than at this time last year.  

Soaring Demand, Short Supply

Like much of our globalized economy, the ingredient supply chain relies on vast international networks. The pandemic revealed just how vulnerable those networks were.

Roughly 70%-80% of all supplement ingredients must be shipped from China and other Asian countries. The total-shutdown of imports and exports early in the COVID pandemic caused major stresses on ingredient supply chains.

Between 70%-80% of all supplement raw materials come from China. For nearly three months, the entire country was shut down. Nothing was entering or leaving, said Loren Israelsen, President of the United Natural Products Alliance (UNPA). The organization, one of the industry’s major trade groups, has an office in Beijing.

When COVID hit, most US brands were reasonably well-supplied for their near-term production runs. They had ordered key raw materials months in advance. But by the summer, many faced shortages on herbs, bulk vitamins, and excipient ingredients such as the alcohol used to make tinctures. Much of the world’s ethanol output has been re-routed for hand sanitizer, reducing availability and raising prices.

“It is very much like speculating in the (stock) market,” says Israelsen. “Which ingredients do you think are going to go short, and how do you price-protect yourself? There’s a lot of financial risk.”

Loren Israelsen, Executive Director, United Natural Products Association

China restarted its industrial engines in May, and industry watchers say ingredient output is nearly back to “BC” (Before COVID) levels. But this is not uniform across all regions of China, nor does it apply to all ingredients.

Shipping Challenges

Then there’s the issue of shipping. Executives who spoke in a recent webinar on supply chain challenges, sponsored by Nutritional Outlook magazine, say they’ve been hit with 3 to 5-fold increases in shipping costs from China, as well as longer wait times.

There are several reasons for this: labor shortages at Chinese ports; reduced numbers of FDA and Customs officers resulting in longer waits for inspection; prioritization of medical equipment and personal protective equipment (PPE) on the shipping rosters.

By summer, trans-Pacific shipping resumed, but disrupted logistics chains and trade-war posturing resulted in chaotic commerce between the US and China.

“There were serious misalignments of assets,” Israelsen says.  

Many common ingredients—echinacea, ginseng, amino acids, vitamins, minerals—were affected. For herbs and specialty ingredients that are somewhat tight in ordinary times, the shortages were aggravated and the costs rose.

Supplement makers have been reluctant to pass their cost increases on to consumers at a time when so many are struggling financially.

Nobody is resting easy. Sales have increased, but so have costs. And employee protection measures require supplement makers to alter the structure and scheduling of their production shifts.

Supply-Demand Mismatches

Barring a major crop failure or sudden hot trend, it used to be fairly easy for procurement managers to match raw materials purchases with expected consumer demand. The major variables were predictable. Not anymore.

By mid-March, companies that had cash reserves faced big questions: Should they buy long? If so, how long? And for which ingredients?

“It is very much like speculating in the (stock) market,” says Israelsen. “Which ingredients do you think are going to go short, and how do you price-protect yourself? There’s a lot of financial risk, and some companies did not have cash reserves to do the longer buys.  They had to put customers on ration orders. That continues in certain categories.”

Requalifying Vendors

Sudbergs
Elan (left) and Sid Sudberg, founders of Alkemist Labs, with members of their team outside the company’s new state-of-the-art analytical testing facility. Alkemist is one of the nation’s leading analytical labs for botanical medicines.

“In all my years, I have never seen a Whole Foods supplement shelf barren until this year’s pandemic. Not a single product was left, not even the no-name knock-off vitamin C,” said Elan Sudberg, CEO of Alkemist Labs, a contract testing laboratory that provides botanical ingredient identification and quantitative analytical services to the industry’s top companies.

“As a result of the early rush to buy all the immune supplements, our clients had to frantically resupply––and in some cases, that meant re-qualify vendors,” he added. As one of the world’s premier analytical testing labs, Alkemist has been at the forefront of these requalification efforts.

Wilson Lau, Vice President of Nuherbs, a botanical ingredients supplier, said the massive swell in sales left some companies unexpectedly “needing to find new suppliers, which is difficult when you can’t send someone [out] to vet them in person.”

Brands that had previously “qualified multiple suppliers before the pandemic were in a stronger position” than those with smaller supply networks.

Shortages Invite Adulteration

Ingredient adulteration—a persistent problem before COVID—has only intensified since the pandemic.

The American Botanical Council issued a memo in early April advising its members that adulterated herbs would inevitably emerge as the coronavirus spread across the globe.

“We didn’t know at that time exactly what they were going to be––but we know when there is short-term dislocation of the supply of almost any botanical, there is almost always an adulteration problem,” Blumenthal said. Fraudulent products invariably “jump in to try to remedy gaps in the supply.”

The ABC advisory cautioned that a reduction in FDA inspections meant “less government oversight of storage and production facilities in the botanical supply chain in the United States and elsewhere.”

“This may entice some companies to loosen up on their testing requirements, thus possibly facilitating the sale of adulterated material,” the notice stated. But given the level of FDA and FTC scrutiny now trained on the industry, this is a bad time to get slack about quality control.

Lau similarly cautioned that “manufacturers must place more scrutiny on material they are buying,” as they make changes in their supply chains. He stressed the need for “exact identity, potency, and purity testing.”

“As a result of the early rush to buy all the immune supplements, our clients had to frantically resupply––and in some cases, that meant re-qualify vendors.”

Elan Sudberg, CEO, Alkemist Labs

“I think that [adulteration] is something we have to be very, very watchful of,” says Israelsen. “The problem of supply chain irregularities is turning into more of a chronic issue––assuming that COVID-19 continues through to 2021.”

Elderberry Blues

Elderberries (Sambucus nigra)

Elderberry has long been one of the most popular herbal cold and flu remedies. This year, demand “shot through the roof because of COVID,” Blumenthal reported. Other immunomodulating botanicals like turmeric, echinacea, and medicinal mushrooms have also sold briskly.

Though there are no COVID-specific clinical trials of elderberry, there is some limited evidence that it can help treat or shorten the duration of common colds and flus. Many people have taken those findings to mean elderberry might reduce COVID susceptibility or severity.

Unfortunately, the world does not contain an endless elderberry supply, Blumenthal said.

Elder––the tree that yields elderberries––is “not something you can just find, or just grow.” Unlike other herbs such as dill or garlic, which are ready for harvest within months of planting, elder trees must grow for years before generating a usable crop.

Elder trees, the source of elderberries, require years of growth and tending before they are productive. Sudden surges in demand for the fruit–as happened this year–strain supply of the valuable berries.

In an ordinary year, most companies build reserves of valued botanicals like elder, based on factors like seasonal availability or growing cycles. Some brands did, therefore, have sufficient elderberry inventory at the start of the pandemic.

However, “nobody could have foreseen the rise in demand that happened starting in the end of February and beginning of March with elder,” Blumenthal said.

Right on cue, as supplies dwindled, cases of botanical fraud started to climb.

“We have seen an increase in reports of material coming in, claiming to be elderberry, but according to various lab reports, it’s adulterated,” Blumenthal noted. “There is a lot of adulterated material on the market.”

Elderberry products derive from one of two varieties: Sambucus canadensis (North American elder) and Sambucus nigra (European elder). To date, most research in the cold and flu context is on the latter.

In the early months of the pandemic, “some companies started looking for alternative sources of supply just to hedge their bets, and found that the material being promoted––primarily from China, but not only from China––was not true European elder, or even North American elderberry,” Blumenthal explained.

Laboratory analyses indicate that some fraudulent products did contain the medicinal herbs they claim to, but in reduced quantity. In others, advertised botanicals are replaced with other ingredients of similar color, odor, and texture.

Anthocyanidins, a broad class of deep purple, red, and blue pigments that give fruits like cranberries, cherries, and blueberries their rich hue, are common elder adulterants.

That’s because elderberries do contain anthocyanins. But Blumenthal explained that adulterated supplements often include the colorful compounds in ratios that differ from those naturally present in the elder plant. Deceitful products may also include pigments from different lower-cost berries or from unrelated plants like black soy or rice.

Added anthocyanidins are harmless, but they may or may not be bioactive. And because they’re added as substitutes for the harder-to-obtain elderberry, they compromise the quality and efficacy of the products.

The PPE Challenge

Supplement ingredients are not the only things subject to alteration and shoddy manufacture these days.

The unprecedented, ongoing, global demand for face masks, gloves, and other PPE has created an open market for poorly made products. It is ironic that Wuhan province, where SARS-CoV-2 first emerged, is also home to the world’s largest PPE factories.

Line workers producing protective masks. In the months following the COVID outbreak, worldwide demand for masks vastly outstripped production, creating a situation ripe for exploitation. Ironically, Wuhan Province in China is home to some of the world’s largest producers of PPE (Image by Pattarapong Chatpattarasill

Israelsen, who’s seen the PPE trade first-hand, described the scene in China as “Kafka-esque.” Buyers for all the world’s national and provincial governments, major private-sector distributors, and independent speculators are all competing for slices of China’s PPE output. Prices swing wildly, and the market is rife with substandard merchandise.

“I’m dubious about a lot of the masks being shipped from China. Many are not up to snuff. Everyone and their grandmothers are in the mask business now, and 99% should not be,” he says, adding that the Chinese government is trying to get a handle on the situation.

“What is disappointing is that the US has not developed a more robust domestic PPE manufacturing capacity.”

A “New Normal”?

Will public demand for immune-strengthening products peak again this winter?

In part, that depends on how many Americans have enough disposable income after bare necessities like food and housing, to continue purchasing them. Given the continued shutdowns in many business sectors, the high unemployment rate, and the fragility of the economy, that’s a big question.

“Manufacturers must place more scrutiny on material they are buying, as they make changes in their supply chains.”

Wilson Lau, Vice President, NuHerbs

ABC’s Mark Blumenthal is bullish: “As COVID moves into our new normal, there will be millions more people using herbs and other supplements for immune and general wellness than ever before. Even if a COVID vaccine comes out, there is always the threat of another pandemic or something else coming along later.”

“People are going to change their lifestyles,” he added. “People are going to take more supplements. And hopefully, there’s also going to be more research on the benefits of those supplements.”

Changing Channels

How people access these products has changed radically since COVID. Online sales had been rising steadily for several years now, thanks largely to the ascent of Amazon. The pandemic turbo-charged that trend.  

The retail sector—especially the local independent stores—was very hard-hit. After an initial flurry of panic-buying, many stores experienced perilous drops in foot traffic, as states issued stay-at-home guidelines, and people were reluctant to shop.

Big chains like Whole Foods and Natural Grocers adjusted operating hours to provide extra time for cleaning and restocking, limited the number of customers in the stores, developed new traffic flow pathways, and required masks. Most scheduled special hours for elderly and vulnerable patrons.

For smaller businesses, overhauls like these are physically or financially infeasible. Many mom-and-pop stores around the country simply closed their doors forever.

But even the big chains are not immune to COVID’s economic fallout. The pandemic was not solely responsible for GNC’s bankruptcy filing in June; the 8,400-store giant had been in dire straits for years. But the sudden drop in floor sales resulted in the closure of 40% of its stores, and likely struck the knockout blow for GNC.

Fullscript saw a 20% rise in new practitioner sign-ups since COVID, and a 30% growth in patients now getting their supplements via the online formulary.

In the clinical sphere, the sudden shift from face-to-face visits to screen-to-screen tele-consults stoked a concurrent surge in sales via Fullscript, Wellevate, and other online dispensaries.

Kyle Bliffert, president of Atrium Innovations, which owns Pure Encapsulations and Douglas Labs, said orders from practitioner-owned clinics dropped from 75% of Atrium’s total in 2017 to 62% by early summer 2020. At the same time, orders via online dispensaries rose from 25% to 38%.

Alex Keller, ND, Fullscript’s medical director, says practitioners are flocking to the company’s dispensing platform, which now integrates with a number of EMR systems. Fullscript saw a 20% rise in new practitioner sign-ups since COVID, and a 30% growth in patients now getting their supplements via the online formulary.

Alex Keller, ND, Medical Director, Fullscript

Fullscript now has 75,000 registered practitioner accounts that represent 1.75 million patients in total. Since the beginning of the year, the company has seen a 66% increase in orders for immune system support products.

How long the increased sales will last is a big question, says Keller. Roughly two-thirds (65%) of Fullscript practitioners say some of their patients are struggling financially, and 43% say existing patients are not booking appointments. Another 38% say they are challenged to find new patients.

UNPA’s Israelsen believes telemedicine and online product dispensing are both here to stay.

“This is existential in nature. It’s a permanent shift. The longer COVID continues, the more embedded the muscle memory is for all these changes. I’d say, for any big change in behavior, the spring-back to previous normal is 90 days. If the change goes on beyond that, habits begin to fundamentally change.

The COVID pandemic is well past it’s 90th day.

“We are now looking at a 12-15 month ‘COVID muscle memory’ process, and we’re just beginning to see the second wave of new changes.”

For the foreseeable future, supplement companies must continue to vector carefully between three conflicting currents

  • Public hunger for products that might improve their resilience and mitigate COVID risk
  • Episodic ingredient shortages
  • Increased need for vigilance, quality assurance, and regulatory compliance.

The post-COVID landscape is challenging. It is forcing the natural products industry –now entering its 27th year as an officially recognized business sector—to mature and evolve. In the long run that’s a very positive trend.

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