Nutrition Business Journal

Organic agriculture is growing around the globe, thanks to government backing and increased consumer demand. That was the finding from a new study by the International Federation of Organic Agriculture Movements (IFOAM) and the Research Institute of Organic Agriculture (FiBL). Although the amount of land dedicated to organic agriculture has increased in the United States, it hasn’t grown as quickly as U.S. consumer demand, Mark Lipson, senior policy analyst for the Organic Farming Research Foundation (OFRF) told Nutrition Business Journal on February 20.

“A lot of the increase globally has been driven by government goals and support,” Lipson said. “In the United States, that has not been the case. The [2008] Farm Bill has started to change that, but we are still not at the point where the government is saying, ‘More organic agriculture is a good thing for America.’”

Winner of NBJ’s 2008 Organic Excellence Award, Lipson has been recognized by us and others for his tireless efforts to get important organic research funding into the 2008 Farm Bill, which is being touted as an important first step toward bringing U.S. organic farmers their fair share of government money.

Even though the bill has been signed into law, Lipson said the organic community must still do everything it can to “hold on to its Farm Bill money.” As he explained, $78 million in the bill was earmarked for organic agriculture research and education. However, should the agriculture department start running short on money for food stamps or other nutritional support programs—which is increasingly likely given the growing numbers of people losing their jobs and ability to pay for food—Uncle Sam could potentially use dedicated research money to shore up the deficit. “Fortunately, the stimulus bill addressed some of those concerns—but only for the current fiscal year.”

Part of the OFRF’s and the organic industry’s plan for defending against losing its hard-won research funding is to continue educating legislators about the public benefits of organic agriculture. But, as Lipson explained, the flagging economy is making even this more difficult. “The economy does just dominate all of the policy discussions, so any given goal or objective has to be framed in terms of what it will do for jobs and trade,” he said. “That is pushing other considerations like health and the environment to the side.”

While the economy is certainly posing many challenges for organic producers, Lipson said he is hopeful about what the next few years could mean for organic agriculture—particularly from a policy perspective. “For the last decade, the government has basically been very cautious not to say organic is better but rather that it is just a marketing choice or a lifestyle choice,” he said. “But I think the new administration will be more open to saying, ‘Organic is good for the environment and the economy, and there are good reasons for us to support growing the organic footprint in American agriculture.’”

NBJ’s March issue will be dedicated to the organic food and beverage industry, and will feature insights from leading organic “insiders,” such as Lipson. To order your copy of the issue, subscribe to NBJ or download a free sample issue of the journal, go to www.nutritionbusinessjournal.com.

Following a recent blog post from NBJ Editor Carlotta Mast that detailed strong 2008 sales in the supplement industry, NBJ received a number of inquires regarding supplement sales performance in the 4th quarter of 2008.

Though a complete analysis of supplement industry sales channels (natural/specialty retail, mass market and direct to consumer) is still in the works and will be published in NBJ’s Nutrition Industry Overview Issue soon, we have had a chance to look at a few data sources so far.

In particular, we’ve had a chance to look at calendar year 2008 and Q4 2008 data from Information Resources Inc., a leading provider of scanner-based retail sales and trending data in the mass market (food, drug, mass).

IRI data shows mixed results across the leading supplement products when one compares the first three quarters versus the final quarter of 2008.

Great News:

Multivitamin sales were up 3.4% in Q1-3 and up 4% in Q4.

Calcium sales were up 4.8% in Q1-3 and up 7.7% in Q4.

Vitamin A&D were up 91.9% in Q1-3 and up 97.6% in Q4.

Good News

Total herbal supplement sales were up 7.4% in Q1-3, but up only 6.2% in Q4.

Total non-herbal or specialty supplement sales were up 14.3% in Q1-3, but in Q4 only up 11.6%.

Glucosamine & chondroitins were up 5.3% in Q1-3 and up only 0.3% in Q4.

EFAs were up 28.5% in Q1-3 and up only 25.7% in Q4.

Bad News:

Most supplements tracked by IRI showed softness in the 4th quarter of 2008. This tells us that the supplement industry is not immune to the effects of the sour economy. Consumers may be turning to dietary supplements and self-care efforts in lieu of rushing to the doctor, but as a rising tide lifts all boats, a falling tide moves them just the same.

2009 will be a year to closely track supplement industry trends and Nutrition Business Journal will be there to report on every subtlety and nuance in the market. Stay tuned to The NBJ Blog for more on the supplement industry as 2009 unfolds.

-Patrick

Some believe one gauge of telling just how far the economy has fallen is the “lipstick index.” This economic term—which was coined after sales of Estee Lauder’s lipsticks surged following the September 11 terrorist attacks—is based on the dual idea that people care about their appearance as much, if not more, during troubled economic times, but that they will trade expensive luxuries for less-expensive ones when their purses are pinched. “When people are feeling bad about the economy, they don’t want to compound things by looking bad, too,” said Denise DeBaun, president and CEO of Sustainable Youth Technologies, a new company that makes organic and natural nutricosmetics and cosmeceuticals. “And more and more, people are looking for natural and organic alternatives to conventional cosmetic and skincare products, especially if they can get the same level of performance and efficacy without the synthetic ingredients.”

DeBaun appears to be onto something. According to Nutrition Business Journal’s latest market estimates, sales of natural & organic personal care (N&OPC) products continued to grow in 2008—even though these goods represent what Hain Celestial Group Executive Vice President and CEO John Carroll calls “down the drain products.” U.S. consumer sales of N&OPC products—which NBJ classifies as including everything from cosmetics and hair-care items to deodorants and shaving supplies—grew 8.4% to $7.9 billion in 2008. Growth did slow considerably last year compared to 2007, when N&OPC sales shot up 16.8% to $7.3 billion. But it wasn’t just the economy that dragged down the category’s sales expansion. In fact, NBJ attributes much of this category’s slower growth in 2008 to simple maturation. N&OPC sales soared by double digits between 2004 and 2007, and their slowdown reflects what has occurred in other nutrition industry categories, including natural & organic foods and beverages.

“Personal care is not yet seeing a downward trend,” agreed Lynea Schultz-Ela, owner of natural products consulting firm A Natural Resource. “These products are still considered affordable luxuries, and consumers are not trading out of natural and organic. They are, however, becoming more selective about and demanding of the products they do buy.”

Nutrition Business Journal’s Natural & Organic Personal Care issue, which publishes this month, provides an in-depth look at the U.S. N&OPC and household product market. Along with detailing NBJ’s 2008 N&OPC sales estimates by category and channel, this issue includes an overview and analysis of the most significant mergers & acquisitions and investments in the N&OPC sector in 2008; discussion of the efforts by the Natural Products Association and others to create standards for natural and organic personal care products; an overview of the green cleaning market in the wake of the launch of Clorox’s Green Works line in early 2008; profiles of Yes to Carrots, BeeCeuticals and Nestle’s Glowelle “beauty from within” drink; and much more.

To order a copy of the issue, subscribe to NBJ or download a free sample issue of the journal, go to www.nutritionbusinessjournal.com.

NBJ subscribers can read more of our coverage of the N&OPC market:

Undefined “Natural”: NPA, Personal Care Firms Tackle Standards Issue

Direct Channels Clean Up with N&OPC Sales

Consumer Interest in Dermacia is More Than Skin Deep

NBTY announced an increase in net sales for January 2009, despite a weak performance from its European retail division, which saw sales fall 18%. The direct response/e-commerce division also fell 2% for the month, after posting 32% growth for the fiscal ‘09 first quarter ended December 31, 2008. Total sales for the month were up 9% to $193 million, including 31% growth in its wholesale/U.S. nutrition division.

Sales appear to be trending downward for NBTY in 2009, though the decline is slower than it would have been without the Julian Graves and Leiner acquisitions. Without Leiner sales of $26 million, U.S. nutrition division sales would have declined 1% for the month. Clearly, the acquisition is helping sustain positive growth domestically, as North American retail sales were up 1% to $17 million. When including the $8 million in sales tied to the Julian Graves acquisition, the European retail division declined 18%. When excluding Julian Graves sales, the division would have declined a staggering 32% compared to January 2008.

As a point of comparison, net sales were up 29% for the quarter ended December 31, 2008. That growth has slowed to just 9% for the month of January, and all divisions would have experienced losses for the month were it not for growth fueled by the 2008 acquisitions. If NBTY’s direct and retail divisions continue to perform poorly, it appears likely that prior acquisitions will not be enough to sustain positive sales growth throughout the year.

Related Links:

NBTY Revenues Up, Profit Margin Down for Fiscal ‘09 Q1

NBTY Reports Strong October and November Sales Growth

NBTY Reports Strong 3rd Quarter Sales

Sales were up but profit was way down for The Hain Celestial Group during the company’s 2009 fiscal second quarter, the company reported February 4. Sales for the quarter, which ended December 31, 2008, increased 14.2% to $315.6 million. Net income slipped significantly, however, with the company reporting a 48% decline from $16 million to $8 million for the quarter.

Hain cites inventory reductions, high grain costs associated with the Hain Pure Protein division and the lag in fully realizing price increases implemented in August as reasons for the loss of profit. Gross profit margin also took a dive, from 28.7% for the fiscal 2008 second quarter to 23.4% for the 2009 fiscal second quarter. Cost of sales and administrative expenses cut into the company’s margin, as did a disappointing performance in the United Kingdom. Net sales for the six months ended December 31, 2008, grew 16.8% to $605 million, while gross profit margin was down four percentage points to 24%.

Analysts with Argus Research, an independent research firm, downgraded Hain’s stock rating from a buy status, to a hold, upon the release of the Q2 earnings. “We downgraded Hain to hold as we expect the weak economy to catch up with Hain’s sales and earnings,” Argus noted in a release. “Thus far in the recession, Hain has reported strong sales growth, while earnings have only been hit by cost inflation. However, Hain’s recent price increases and the slowdown in consumer spending may ultimately lead consumers shifting to lower-priced alternative products, hurting the company’s sales.”

I view the downgrade of Hain’s stock as a clear indicator that the effects of the consumer downturn are finally impacting the nutrition industry and the natural & organic segment. Last week, NBTY, the largest supplement manufacturer in the United States, announced that its profit margins were down 8% for its 2009 fiscal Q1. Now Hain, one of the largest manufacturers in the natural & organic food and personal care markets, has seen a hit in its profit and is beginning to lower its 2009 earnings guidance ($1.38 to $1.42 per share). The extent to which Hain’s earnings are affected over the next two fiscal quarters should be a good indicator as to how much consumers are willing to pay price premiums for natural & organic products in the face of an extended recession. Just as Whole Foods is a bellwether retailer for the industry as a whole, and NBTY acts as a gauge for supplement manufacturers, so too does Hain for manufacturers in the natural & organic space. Stay tuned for Q3 and Q4 updates.

Related Links:

SunOpta and Hain Celestial Keep the Acquisitions Coming

Hain Announces Sales Windfall, Decline in Profits

Organics, Acquisitions Fuel Strong Growth for Hain Celestial