NBJ tackles the complex topic of finance & investment in the nutrition industry with our next issue, now on its way to the printer. As we digest all of the research and trending that surfaced in the reporting of that issue, expect some discussion in the coming weeks on the blog about such topics as holistic investing, moving upstream through the murky waters of deal flow, and the modern challenges of being a nutrition entrepreneur. Today, though, let’s talk about the equity markets.

I spoke to Scott Van Winkle of Canaccord Genuity and, on a separate call, Andy Wolf of BB&T Capital Markets to gain some visibility into smart money’s opinion of the road ahead for nutrition stocks. Excerpts from those conversations follow below.

NBJ: Let’s look at the major industry categories in nutrition and talk about year-to-date performance. How about natural & organic foods?

Scott Van Winkle: In general, healthy-living stocks have outperformed the market this year. Natural & organic has the best sector performance, up about 12%. These stocks didn’t start to come back until later in the cycle, but now they are beginning to reflect improved growth in the category.

Andy Wolf: Natural & organic is about 80-90% recovered, in terms of underlying growth trends. It’s really come back as a category. You can see it in the industry numbers and in the company numbers. There’s been a little bit of channel play, and you can still see some slack in demand at conventional stores, but that too is starting to show a rebound. The demand never went away for natural & organic, but in the recession, even dedicated users were worried about finances. Now most of them have made the budget allocation and returned to the category.

NBJ: And supplements?

SVW: Supplements are down about 12%, but the 40% move in NBTY improves that number dramatically. Supplements performed well last year with strong industry trends, and those trends persist, but investors lack faith. Strong category growth brings increased competition, and as we anniversary the jump in sales from swine flu, people expect a slow down. Vitamins were up 18% in October/November 2009. That kind of growth was obviously driven by the cold and flu season, in turn driven by swine flu.

AW: Supplements have had a multi-year run as consumers adopt these healthy lifestyle choices. People want to live better and feel better. Supplements also enjoy a countercyclical demand. As unemployment goes up and consumers lose more health-care benefits, more people use supplements as a substitute for doctor visits—which are down, by the way. It’s a prophylactic approach. Demand looks robust to me across all sales channels for supplements.

NBJ: What are you seeing for multi-level marketers (MLM) and ingredient suppliers?

SVW: Ingredients are up about 3% through the end of July. Last year, the farther down the supply chain you were from the consumer, the likelier you were to see your customers deload or reduce inventory. Ingredient suppliers had a tough time in 2009. There weren’t a lot of new product launches, and customers were cleaning out their inventories. There are signs of more aggressive ordering now, so the fundamental businesses are stronger than they were coming out of last year.

As for MLMs, they’re up about 5%. These stocks outperformed early, because their business was stronger on a relative basis. With weak economics, everybody buys less, but there’s more unemployment and more people looking for part-time work. In a weak economic cycle, more new distributors come online, even though their average sales level drops. Net-net, MLMs were less impacted by global economic issues.

NBJ: What about functional foods?

AW: Functional foods have really lagged. Why? Mix. Most functional products are sold through conventional stores, and demand hasn’t picked up as well in the mass market. I don’t see a real recovery for functional foods until the broader economic recovery is more firmly entrenched sometime in 2011.

NBJ: Looking ahead, where do you see the best performance and the biggest challenges?

AW: The big issue for 2011 is converts. For 20 years now, consumers have been moving, in one way or another, from conventional to organic. The demand curve is still there, but all of the core customers have already come back. Whole Foods Market and other retailers are seeing new customers come into the channel, but for that to continue, well, the economy will have something to say about that as well.

SVW: Retailers are in a very good position in general. They are demanding price concessions from suppliers, and suppliers are giving them. Whole Foods Market and Vitamin Shoppe are in good position, thanks to this competitive advantage over suppliers. Over the next six to 12 months, I think the MLM sector is going to perform quite well. Natural foods will perform well. Supplements will tread water due to Wall Street’s impression of decelerating growth.

Related links:

Quick Take on NBTY Acquisition

2010 Healthy Foods Report

2010 Direct-to-Consumer Selling in the Nutrition Industry Report

You know the United States has reached a new state of litigiousness when a consumer sues Kellogg’s for not putting real fruit in its Froot Loops cereals, as Roy Werbel did in April. The disgruntled cereal eater filed a class-action lawsuit in San Francisco federal court that alleged the cereal company’s marketing “is deceptive and likely to mislead and deceive a ‘reasonable consumer’ such as himself” into believing the company’s popular sugary cereal contains actual fruit—even though the product’s ingredient label clearly communicates the opposite. The suit demands Kellogg’s pay punitive and actual damages to all consumers who were mislead by the Froot Loops name.

Although it certainly sits at the “crazy” end of the legal spectrum, Werbel’s suit is part of a recent spate of consumer lawsuits targeted at U.S. nutrition industry that have cost food and dietary supplement companies tens of millions of dollars and counting.

As Laurie Budgar reports in an upcoming Nutrition Business Journal feature, many of these suits have been high-profile cases challenging the product claims made by the likes of Airborne, Dannon, Bayer, Snapple, General Mills, Coca-Cola and even Biggest Loser star Jillian Michaels. The celebrity trainer, who sells a range of detox and weight-loss products under her name, was sued in February 2010 by three different customers who claimed that the Jillian Michaels Maximum Strength Calorie Control failed to help them lose weight as advertised. One customer, who is seeking class-action status for her suit, took legal action after using the product for about a month.

Other recent actions have blitzed multiple companies simultaneously, such as the March 2010 suit filed in California against six fish oil manufacturers and two retailers, with allegations that their products contained PCBs at levels beyond the established “safe harbor” limit and that they failed to disclose this contamination to consumers.

For companies affected by such suits—even frivolous ones—the financial hit can be significant, according to Ivan Wasserman, a law partner at Washington, D.C-based Manatt, Phelps & Phillips, who specializes in matters involving the marketing of foods and dietary supplements. “The ultimate damage,” he told NBJ, “would be lost sales if the news of the case or settlement damages—rightly or wrongly—the public’s trust in the company and its products.”

Are lawsuits on the rise within the U.S. nutrition industry? What can companies do to protect themselves from becoming the target of consumer legal action? Check out NBJ’s 2010 Nutrition Industry Overview issue to find out. Not a subscriber? Go to the Nutrition Business Journal Website to sign up today.

Related NBJ links:

2010 Healthy Foods Report

‘Pixie-Dust’ Dosing Threatens to Erode Consumer Confidence

European Union’s Health Claims Legislation Sets Nutrition Industry on Edge

Tuna’s Prop 65 Win Could Help Supplement Firms in Their Own Lawsuits

A wide range of nutricosmetics products can be found in the United States—and, although America lags behind Japan and Europe in its embrace of “beauty from within” supplements and beverages, the concept has become mainstream enough for The New York Times to take a swipe at it. “Beauty from within, achieved with a pill, sounds so easy, so short cut, so bold, like those T-shirts that say ‘Spiritual Gangster’ on the front,” wrote Alex Kuczynski in a May 6, 2010, article for NYT’s Style Magazine. “If you can just announce to the world that you are a really cool spiritual person with an open heart chakra, why not just take a pill and believe you are gorgeous?”

Kuczynski’s comment—and the entire gist of her article—hits upon the key question plaguing the nutricosmetics market: Do these products really work?

While some beauty-from-within offerings are more efficacious than others, the inconvenient truth for the entire nutricosmetics industry is that many (but certainly not all) of its products and ingredients lack the science necessary to prove their benefits to consumers. This, of course, is hindering U.S. sales—particularly at a time when consumers are being forced to make more careful spending choices. “Americans are more skeptical of the beauty-from-within concept,” Carrie Mellage, director of consumer products at The Kline Group, told (NBJ’s sister publication) Functional Ingredients magazine. “There is a cultural emphasis on scientific investigation, and Americans also want instant results, which nutricosmetics don’t provide.”

According to Alda Brandao, product manager for PL Thomas’s Cosmeceuticals & Nutricosmetics division, the nutricosmetic ingredient Lipowheat is one exception. The product contains natural ceramides from vegetable origin that have been shown to restore skin barrier functions, thus ensuring healthy hydration and the softness and wellness of the skin.

Lipowheat’s efficacy has been demonstrated in three clinical studies, and the product received NDI (new dietary ingredient) notification without objection from the U.S. Food and Drug Administration (FDA) in April of this year—not an easy feat these days. “The NDI is going to bring a lot of attention to this product,” Brandao said.

Lipowheat is manufactured by Hitex, a subsidiary of Lavipharm Group in Paris; PL Thomas is the exclusive marketer of the ingredient, which won the French Association of Antioxidants’s 2007 prize for best health and beauty ingredient. The association’s prize committee gave Lipowheat the award based, in part, on the quality of its clinical studies. In October 2009, Lipowheat received the award for best innovation in dietary ingredients from Isogone Association in France.

“Lipowheat should set the science standard for the nutricosmetics industry,” Brandao said. “If all nutricosmetics products had such solid science and safety data behind them, the consumer would feel more comfortable embracing the beauty-from-within concept.” Lipowheat is available in oil and water-soluble powder formats and can be used in soft gel, capsule or stick pack products, Brandao said. “The beauty of this ingredient is the flexibility it offers for formulation.”

Genuine Health is the first manufacturer to use Lipowheat in a nutricosmetic product sold in the United States and Canada. The company’s dermalipid line, which features the natural ceramides ingredient, hit the market in April 2010.

Lipowheat and other promising nutricosmetic ingredients and finished products will be the focus of The NutriCosmetic Summit, which will be held Thursday, June 10, at the Renaissance hotel in Las Vegas. Kimberly Stewart, former editorial director of Functional Ingredients magazine, and I will open the event’s business & marketing track by first providing some sales context for the beauty-from-within market and then presenting case studies of five nutricosmetics products, including Nestlé’s Glowelle, Solazyme Health Sciences’ Altruest and Isocell North America’s GliSODin Skin Nutrients. Each case study will explore the consumer and ingredient trends being addressed by the product and discuss the brand’s strengths and weaknesses, as well as the opportunities and threats it faces in the market today.

NBJ’s 2010 Nutrition Industry Overview issue, which publishes in July, will also include an in-depth look at the U.S. nutricosmetics market. Subscribe to the journal at the NBJ website.

Related NBJ links:

Will Glowelle Break Open the Beauty From Within Market in the United States?

2009 Supplement Business Report

Baobab, Natural Preservatives and Other Hot N&OPC Ingredient Trends

Related Functional Ingredients magazine links:

NutriCosmetic Summit Offers Palette of Cutting-Edge Education

Both here and in Europe, dietary supplements and functional foods and beverages are feeling the health-claims heat. While the European Food Safety Authority continues its stringent evaluation of food and supplement health claims (rejecting the vast majority of claims it reviews), the Institute of Medicine (IOM) in the United States is calling for the U.S. Food and Drug Administration (FDA) to begin applying the same health-claims assessment methods for foods and supplements as it does for pharmaceutical drugs. In an IOM report released May 12, an IOM committee concluded “that there is neither rationale nor scientific grounds for basing regulatory decisions on different levels of scientific evidence for different substances—science is science.” The report also noted that Congress “may need to strengthen FDA authority to accomplish this goal.”

Not surprisingly, the report triggered an onslaught of news stories, many of them highly critical of dietary supplements and functional foods and beverages. In its June 7, 2010, issue, Forbes Magazine takes on the $37 billion U.S. functional food and beverage industry in a story titled “Snake Oil in Your Snacks.” The piece argues that food and ingredient companies are getting rich by trying to pass their products off as pharmaceutical-like drugs without backing the health claims made for those products with pharmaceutical-grade research. To support this argument, the article analyzes the studies linked to a handful of functional products, including Lifeway’s ProBugs kefir beverage for kids, POM Wonderful’s pomegranate juice and Danone’s DanActive yogurt.

“[Most of the claims] are completely unsubstantiated,” Steven Nissen, head of cardiology at the Cleveland Clinic, told Forbes. “Medical attention does not come from a Cheerios box.”

My biggest issue with both the IOM report and articles like the Forbes “snake oil” piece is that dietary supplements and functional foods and beverages are NOT drugs and consumers typically use these products to support their health over the long haul. A person isn’t likely to replace his cholesterol-lowering medications with Cheerios but might choose this cereal over another for its heart-healthy soluble fiber content. Similarly, I don’t give my sons ProBugs thinking that the fun kefir drinks will strengthen their immune systems so much that we no longer need to worry about eating fresh fruits and vegetables or regularly washing our hands. I do, however, appreciate that ProBugs are organic, contain no artificial colors or flavors, and are rich in calcium, vitamin D and, yes, probiotics.

As Stephen Daniells, the science editor for NutraIngredients, eloquently argued in an editorial published last week, “The regulation of food and drugs may come under the auspice of one agency in the U.S.—FDA—but foods and drugs are different. Just because Hippocrates said food should be our medicine, doesn’t mean we should regulate them as the same thing.”

That said, the dietary supplement and functional food and beverage industries have been home to companies that borrow science, use less-than-efficacious amounts of functional ingredients and/or make outrageous, unsubstantiated claims for their products. These are the companies drawing the ire of practitioners, lawmakers, regulators and the media and bringing about the very real possibility of tougher regulations for both the supplement and functional product industries.

Furthermore, even though supplements and functional foods are not drugs, companies would be wise to take a conservative approach to their product claims and invest in quality research to support the claims they choose to make for their products. This is already the reality in Europe, but the tougher stance on claims substantiation is obviously crossing over the pond to the United States. In the end, raising the level of scientific investment in both the supplement and functional industries will benefit responsible companies and consumers alike.

Nutrition Business Journal’s 2010 Healthy Foods Report, which publishes later this month, provides an in-depth look at the U.S. functional food market. NBJ subscribers receive a 10% discount when they use the code nbjsub10 to purchase this report.

Related NBJ links:

February 2010: Functional Foods and Beverages

European Union’s Health Claims Legislation Sets Nutrition Industry on Edge

2009 Supplement Business Report

Despite good intentions and a deepening understanding of nutrition and wellness, I know I’m not as healthy as I could be. As it turns out, I’m not alone. According to a new report published by Delicious Living and iVillage, most women in the United States see themselves as being only “somewhat” healthy—or worse.

“Although it may not be literally true that these women are ‘unhealthy,’ it is certain that the vast majority see room for improvement,” write the authors of the report, For Women, Healthy Is Not What You Think. “Thus, healthy food is not only intended to help maintain health; it needs to move them ‘in the right direction’ relative to their current states. This is true of younger women as well as older women.”

Published in April, the report is based on the findings from a survey of nearly 5,000 U.S. consumers—91% of them women—conducted in February 2010. The survey was designed to gauge the health attitudes, beliefs, priorities and purchasing behavior of U.S. women of all ages. From this research emerged many interesting findings about how female consumers define health and wellness; what drives them to pursue healthier choices at different points in their lives; and how these definitions and motivations affect their interpretations of label claims and ingredient attributes and purchases of specific products and brands.

Not surprisingly, U.S. women view consuming healthy food as the most important way they can support their own health and the health of their families. As a result, the majority of women say they avoid food products that contain trans fats, saturated fats, high fructose corn syrup and MSG. A smaller, but still significant, percentage of women say they avoid genetically modified foods. When evaluating label claims, the survey found that products labeled as “high fiber” are most sought out by women, followed by “reduced fat or fat free” and “low sodium.” These three claims and numerous others were ranked higher than both “organic” and “natural” by women of all ages in the survey.

Although I learned a great deal about how age and health conditions affect the beliefs, attitudes and behaviors of U.S. women from reading For Women, Healthy Is Not What You Think, perhaps the most eye-opening findings from the report had to do with perceptions surrounding natural and organic. For example, 67% of the survey respondents said they believe “natural foods are better for me,” while only 57% reported believing that “organic foods are better for me.” That said, those women who purchase organic products are more active and informed consumers and generally feel better about their health than other consumers.

Nutrition Business Journal will present a deeper dive into this and other consumer research related to nutrition, health and wellness, natural & organic products, and dietary supplements in our September 2010 issue. If you’re not yet an NBJ subscriber, visit our website to learn more.

You can also purchase or read the table of contents and executive summary of For Women, Healthy Is Not What You Think via the NBJ site.

Related NBJ links:

March 2010: Organic Foods, Beverages and Personal Care

2009 Healthy Kids’ Market Report: Breaking the Entry Barrier

Marketing to Busy Moms Requires an Integrated Approach