This is a highly fragmented market, ripe with opportunity. Large multi-national companies and private label programs (i.e. GNC, Wal-Mart) dominate traditional brick and mortar distribution. Internet sales are disrupting the industry creating opportunity for smaller players.
Trends in the VMS World
Financial metrics in the approximately $5M plus revenue companies varies. COGS range from approximately 51% to 42% of revenue yielding gross profit of 49% to 58%. Normalized or recast EBITDA has ranged approximately 11% to 21% of revenue.
Larger companies may have a competitive advantage leveraging multiple sales channels, attracting digital marketing talent and achieving economies of scale. The recent surge in internet sales has opened the door for all companies to seize market share via digital marketing and branding initiatives.
In the next five years,
the industry will continue to enjoy
new opportunities marketing to niche markets
like diabetes, weight control, sleep aids and ADHD supplements.
As consumers look to improve health, performance, or mitigate the high cost of health care, there is a growing trend looking to supplements for adults and pediatrics to help. Further, Millennials have a noted distrust of large pharmaceutical corporations and a positive view of VMS alternatives. Their preference to purchase online will dramatically shift the industry moving forward.
It is expected that the FDA will increase regulatory oversight and activity in the industry moving forward. This will add complexity and mandate increased investment in quality, regulatory and academic studies to support marketing claims moving forward .
Reputation for Quality and Value
As 50% of Class 1 Product recalls were related to Dietary Supplements, continued consumer acceptance and increased future FDA scrutiny will reward companies with high integrity and quality.
Online Marketing Expertise
There is currently little brand loyalty for VMS products due to the historical approach of showcasing ingredients over brands. The recent growth in online sales represents an unprecedented opportunity for companies to establish brand equity and loyalty moving forward. Companies with superior marketing departments will take market share.
FDA Expertise
Companies with solid quality and regulatory systems will fare better under increased FDA surveillance moving forward. Also, those willing to invest in studies and lab tests to back up marketing claims will be rewarded.
Operational Expertise
Transactional, Logistical and Financial systems that facilitate business while allowing for analysis will allow companies to make smart decisions while providing positive customer service that is scalable and leveraged with online sales volumes.
As the industry becomes more digitized, the technical requirements for companies will change especially as CPG companies enter the market bringing their expertise.
Additionally, increased scrutiny by the FDA will motivate companies to increase regulatory expertise and clinical data much like the medical products industry.
The revenue increases derived from online sales have recently attracted more buyers to the industry as they view opportunities to diversify in a market with low levels of current brand loyalty. The synergistic effect of applying marketing and distribution expertise with sufficient working capital is a formula for success.
Transaction value in the VMS market over the last 12 months has exploded with over $10 Billion globally in deal value.
We have data on 37 closed transactions in the VMS industry since 2012.
Buyers vary from:
- CPG companies looking to diversify their marketing expertise in a faster growing market segment
- Strategic industry partners looking to diversify product lines
- Private Equity consolidating companies to create a large player
- Retailers expanding a private label program
Our existing Buyer List for VMS companies includes Buyers for the 37 closed transactions since 2012 plus 178 international strategic buyers, plus 104 Private Equity Groups that own VMS companies already.
The industry will continue to consolidate as companies look to acquire digital marketing expertise, expand product portfolios and leverage increased QA/RA assets.
In the beginning of an industry consolidation sellers will get more for their companies than those who wait.
- Product Spread
- Vitamins/Minerals 38%
- Herbal 18%
- Protein 15%
- Weight Loss 10%
- Specialty/Sports 10%
- Other 9%
- Revenue % of
- Size Companies
- 5% $50M+
- 13% $5M to $50M
- 82% $0 to $5M
- Approx. 80% of Revenue
- From Top 50 Companies:
- 45% Tier 1
- 33% Tier 2
- 22% Tier 3
- Revenue Channels— Stable
- but Shifting Quickly
- 61% Non-Specialty Retail (+4%)
- 22% Specialty Retail (+2%)
- 17% Online (+20%)