Inflation, supply chain issues accelerating retail transformation

NutraIngredients-USA editor in chief Stephen Daniells pointed out to attendees at annual meeting of the United Natural Products Alliance that the dietary supplement industry has not had to deal with a combination of high inflation and high interest rates within the professional lives of almost all of the members of industry.  Daniells gave the keynote address which took place last week in Cannon Beach, OR.

Changing face of retail

Jim Emme, CEO of Now Health Group, said in a presentation on the retail end of the industry that the global pandemic has accelerated changes in the brick and mortar picture  that won’t be unwound.  The industry’s retail face is changing irrevocably.  Emme said NOW has a unique perspective in that it is both a supplement manufacturer and wholesaler as well as a retailer via the company’s 12-store Fruitful Yield chain, which is located in Chicago.

“Twelve years ago 85% of our business was with independent retail chains.  Last year it was 15%.  This year it is 12%,” ​he said.

Emme said that he anticipates tougher times ahead, as the industry grapples with ongoing supply chain issues, rising costs, and a hangover from the pandemic boom times.

“We’ve been spoiled the past couple of years.  We have been handed through an immense tragedy a group of consumers who had never given us a second glance before,” ​he said.

The pandemic brought changes to the global movement of goods of a sort that hasn’t been seen since the dark days of WW2.  Ships aren’t being sunk by U-boats, but they are stranded because of logjams in the ports, especially in China. 

Emme showed a graphic locating ships at anchor awaiting space in Shanghai and other ports in eastern China.  A vast, motionless armada covers the face of the East China Sea. Exacerbating the issue is a tight lockdown of Shanghai itself (along with several other cities in China) that has complicated the internal movement of goods.

This has caused supply chain problems for all industries, not just for dietary supplement manufacturers.  The resulting dislocations and shortages—and the infusion of public assistance to help citizens cope with lost jobs and reduced working hours—has bumped inflation up to levels not seen since the oils shocks of the 1970s.  

Out of stocks stressing industry

It’s causing industries to deal with new realities really never seen before.  A few ingredients that suddenly jumped in popularity, such as astaxanthin, have temporarily suffered from out of stock situations. Now, Emme said, that’s becoming the norm.  NOW used to pride itself on running at 95% or higher for the availability of its more than 1,400 SKUs.

“We are running 75% to 82% fill rate.  Of our out of stocks, 60% are coming from the lockdown areas in China,”​ Emme said.

Emme said NOW began with a commitment to the independent natural foods and supplements retailers as teh core of the industry.  But it can be a stressful occupation with long hours and a degree of financial risk.  Many of these are family run operations and suffer from the same generational issues as do family farms.

“The biggest threat to independent retailers is a lack of succession planning,” ​Emme said.