China: Market & Economic Conditions and How Channels Impact the Future of Supplements

China remains among the biggest and most puzzling markets for brands navigating the global supplements trade. Boasting both a rich ingredients industry and an unfathomably deep consumer base, nothing in the supplement business goes untouched by China. We asked Health Product Association-China Executive Director Jeff Crowther for his take on market conditions, economic conditions and how channels impact the future of supplements in a market forever pinging on every supplement executive’s radar.

NBJ: China got their worst COVID-19 experiences long after most of the world. How has that shaped the current supple- ment market?

Crowther: Industry events were cancelled and/or rescheduled while North America and the rest of the world were opening back up. Initially, like all other markets, products with immune function grew quickly. This is one of the reasons for the probiotic category to basically explode in China. Growth of probiotics grew exponentially during COVID, as consumers understood them to be helpful with immune health.

NBJ: Are economic conditions affecting consumption?

Crowther: Most definitely. China’s economy isn’t doing too well, and consumption is down, especially on large household purchases, like furniture and appliances. Housing market, China’s largest investment vehicle, is really down, and last I checked, autos were also down for international brands but up for domestic brands. However, the supplement industry, especially on the cross-border side of the business, is still growing at double digits (17.6% value and 12.2% volume). This is the last information the association presented back in February of 2023. Later this month, HPA-China is planning to release the latest figures on the association’s YouTube channel, HPA Global Insights. Latest Figures CLICK HERE

NBJ: Are economic conditions affecting ingredient exports?

Crowther: I haven’t heard of any issues with this. I spoke with a large U.S. manufacturer, and they said, in some cases, there were excess ingredients coming out of China, which caused some prices to fall. However, that was only one company’s view of the situation.

NBJ: Tension has been high between the U.S. and China on multiple fronts. Do you see that impacting trade?

Crowther: Again, most definitely. Because of the Ukraine-Russia war, the airspace over Russia is closed, so it makes air travel to China from the North American West much longer, with no direct flights. Ticket prices have gone up to over $3,000 for economy, round trip. As a comparison, I used to pay about $800 to $1,200 for a round-trip ticket from LAX to Shanghai. Also, the U.S. State Department recently escalated its travel warning to China as “Reconsider Travel,” which is level 3 on a scale of 4, where 4 is “Do Not Travel.” So, with the time, costs and uncertainty of the geopolitical situation, I feel it’s deterring some from traveling to China and taking a more active role in their China business.

NBJ: What is the state of cross-border e-commerce right now, and do you anticipate any change in the short- to mid-term situation?

Crowther: As I mentioned earlier, cross-border is growing at double digits, so still going well, especially for those companies that have already established their business in China prior to COVID. With that said, there are still opportunities for new business. In fact, HPA-China is currently working on getting a U.S. based supplement company matched up with a partner in China that is keen to sell the company’s supplements. So, working through the association and its vast network of partners in China, it’s still viable to start new business without traveling to China. In the near future, I don’t see any major changes to cross-border e-commerce.

NBJ: Do you have a sense of how the MLM channel is faring in the China market in 2023?

Crowther: The Chinese government never really liked the MLM (direct sales) model. In fact, MLM is illegal in China, but direct sales is legal. All the MLM companies operating in China are doing so as direct sales businesses. Because of the dislike of this model, the government set in place some very restrictive and difficult hurdles for direct sales companies. Direct sales companies like BAck in the 90s, Amway, Herbalife and others were early entrants to China’s newly developing dietary supplement industry. From that time, these players enjoyed massive growth and were the leaders in terms of sales channels in China. However, since the establishment of cross-border e-commerce around 2014, Chinese consumers gained an expanded choice of international brands at their fingertips and, more importantly, at reasonable prices. Direct sales products tend to be more expensive when compared to a traditional retail product. Over the past nine years or so, cross-border sales have certainly been taking market share from direct sales companies. Although direct sales are still large, they have been seeing decreases in growth over the last few years. It was reported by Amway that its China sales in 2022 have finally been heading in the right direction, whereas Herbalife sales were down by more than 30%. As direct sales is a face-to-face business, COVID definitely had a negative impact on that sales model.

NBJ: Do you see any policies in the works that could challenge or change ingredient export in the next several years?

Crowther: I have not seen anything that would alter the flow of ingredients coming out of China or ingredients going in. With that said, it has always been a challenge to get international ingredients into China, as they first have to be approved and registered, which is both costly and time-consuming, taking 2 to 4 years, on average, to gain approval.

NBJ: What about sales?

Crowther: As we can see from the growth rates, there’s not much in the way to deter Chinese consumers from buying supplements. However, if the overall economy doesn’t improve, at some point supplements might be seen as not a must-buy as consumers become more conservative with their finances. (Source: NBJ Global Markets Overview Issue)

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