12th Annual Vitamin Study

June 2019

12TH VITAMIN STUDY 1

Executive Summary In Spring 2019, TABS Analytics conducted its 10th consecutive, and 12th overall, comprehensive survey to understand shopping patterns for vitamins, minerals and nutritional supplements (VMS). This is an estimated $14.5 billion industry and TABS sought to examine trends regarding what types of vitamins and nutritional supplements are purchased, how frequently they are purchased and the outlets at which they are purchased.

Key Findings

• Regular Purchasers of Vitamins Declining – Overall the VMS category dropped slightly in 2019, with regular purchasers decreasing 2 percentage points year-over-year. Heavy buyers aged 55+, mainly women, continued a downslide, since reaching their heights in 2012.

• Adult Multivitamins Reign; Probiotics and Melatonin Trend Upwards – Adult multivitamins continue to far outpace purchases of any other supplement, with 52% penetration. The drop in older woman as regular purchasers has impacted both Vitamin D and calcium, but melatonin and probiotics are on the rise.

• After Meteoric Rise, eCommerce Plateaus – Compared to mass and specialty retailers, online penetration has more than doubled over the past decade; but it appears to have hit its peak at 17%.

• Big Three Remain Dominant – Walmart, Target and Amazon have seen the largest gains over the past decade in category buyer count, while club retailers have lost buyers.

• Mass Market Declines, But Remains Most Popular Outlet – Mass market dropped in share of mentions by outlet, with specialty brick and mortar stores recapturing what it lost in 2018. Walmart and online rank highest, with about 19% share of transactions each.

• Amazon Dominates in Online, While Walmart eCommerce Tanks – With more than one-third of all online purchases, Amazon ranks No. 1 in eCommerce, followed by a highly fragmented market. Walmart saw its share of mentions drop by more than half year-over-year.

• Lessons Learned: Top 10 Trends Defining a Decade of VMS Surveys – The VMS market is unique compared to other health and beauty care (HBC) categories, with broad consumer appeal but significant brand and segment fragmentation. Having 10

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consecutive years of the survey under our belt, we analyze the Top 10 VMS trends that we've uncovered.

Methodology TABS Analytics conducted a survey of 1,000 consumers via Caravan Panel, part of ORC International. Consumers surveyed were geographically and demographically dispersed and weighted by age and gender. This survey was first conducted in spring 2005, again in 2008, and then for the past 10 years, since 2010.

The goal of the survey is to discover:

• How many types of vitamins and nutritional supplements were purchased?

• What types were purchased and which were purchased regularly (3+ times per year)?

• At which outlets vitamins were purchased and where were they purchased regularly?

VMS Survey Glossary

• Channel – The outlet in which a VMS product is sold.

• FDMCD – Food, drug, mass-market, club and dollar stores.

• Mass Market – Same as FDMCD.

• Online – The online retailers selling VMS products. These include eCommerce pure play (those without a brick and mortar presence, such as Amazon) as well as the online extension of a brick and mortar retailer (Walmart.com, Target.com, etc.).

• Share – Defined as share of occasion, in the sense of how often consumers buy via a particular channel. This specifically does not mean market share or share of wallet. It is strictly a measure of frequency. There is a high correlation to share of occasion as identified by the panel and validated share of occasion in the market data, making this a highly reliable metric to use in calculating an additional metric, “share of outlet mentions.”

• Share of Mentions – Used as a proxy for “Share of Transactions.” Market size adjusted for estimated transaction size.

• Specialty – Nutritional brick and mortar specialty stores (such as GNC), natural food stores, catalogue, multilevel marketing (MLM), practitioners, military and other.

• Type – A specific segment or form within the VMS category.

• VMS – Vitamins, minerals and supplements, as defining the category.

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Regular Purchasers of Vitamins Declining Year-over-year, the VMS category has declined slightly – from 78% in 2018 to 77% this year. The drop can be mostly attributed to consumers who purchase between three and five types of VMS products annually, which after being stagnant for the past four years, dipped by 2 percentage points in 2019. Those who purchase one to two types regularly also fell from 30% to 28% in the past year. The heaviest buyers – who purchase 6+ types annually – remained steady at 8%, accounting for about 30% of sales; stronger than any other HBC category. This group of extreme buyers is purchasing more types than ever. For the past several years, it's averaged about seven types, but has more recently grown to nearly nine types annually.

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The number of both men and ages 55+ purchasing VMS continued to drop in 2019. The biggest impact, perhaps, came from women 55+ who are heavy buyers; 67% of this group at one time were heavy buyers. But since the peak in 2012, the number has declined by almost half, hitting a low of 39% this year. This is the most dramatic trend we've seen in the 10 consecutive years we've done this study. In most cases, such a drop off would be considered catastrophic. But for VMS it was not the case, since there were penetration gains in other age groups and genders. Both men and women ages 18-24 have seen steady rises over time. In addition, there has been growing category penetration overall, and more intense purchasing by extreme buyers.

12TH VITAMIN STUDY 5

Adult Multivitamins Reign; Probiotics and Melatonin Trend Up Since the start of this survey, adult multivitamins have been the most purchased supplement with 52% penetration. Innovation in the form of gender-specific or energy-enhanced multivitamins, and gummies, reliably bring more users back to this product type. Looking back across the past decade, the biggest gainers included Vitamin D, Vitamin B, probiotics and melatonin. Melatonin saw the biggest gain of any supplement, increasing from 9% to 13% and bringing it into the Top 10 types in terms of buyer count. Vitamin D lost buyers in 2019, but its incidence is up 59% since 2011. Probiotics has continued to climb, reaching 16% this year. Both fish oil and calcium have been the biggest losers since 2010. TABS believes these trends can be attributed to the decline in older women who no longer consider themselves heavy buyers.

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In the next chart, we look at the penetration of secondary products. Joint relief products have been volatile over the past decade, but seem to have stabilized during the last few years. Child multivitamins peaked around 2015 as gummies became more popular, but have dropped off since 2017. Hair/skin/nail multivitamins peaked last year at 10%, but dropped to 7% this year. To the contrary, eye multivitamin has experienced meaningful growth, and as more people buy these products, the average price continues to rise.

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After Meteoric Rise, eCommerce Plateaus Mass market and eCommerce are the two channels that have seen the most success in attracting the marginal buyers. Overall online penetration has doubled over the past 10 years. But in recent years, it appears to have peaked at 17%. It is interesting that VMS seems to be the only sector in which this is happening. Specialty brick and mortar stores have remained relatively flat in buyer counts as mass market and online has grown. TABS views specialty VMS retailers as almost like a farm system; they offer more innovative products and a better assortment. However, as buyers shift to other outlets, they will become less relevant to the VMS category and that pipeline of innovation will likely slow.

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Big Three Remains Dominant Walmart, Target and Amazon continue to be the Big 3 in VMS retail. They have experienced the largest increases in buyer count during the past 10 years, despite Walmart seeing a minor dip from 2018 to 2019. Looking at the bigger picture, Walmart made major gains with buyer count increases outpacing gains in store count as buyers move from other channels. While Target once was considered severely underdeveloped by those in the vitamin industry, it has gotten more notice in recent years with its push into lifestyle and wellness. Once the top VMS retailer with its Kirkland brand, Costco seems to have peaked in the 2016-2017 timeframe and gone steadily downhill since. The same is true for other club retailers, like Sam’s. TABS hypothesizes that club purchases in general have been hurt by the growth of eCommerce sales, since categories like VMS, in which products are purchased in higher quantities, do better online. Drug chains, including CVS, Walgreens and Rite Aid, initially saw strong gains as they expanded space allocated to VMS to offer more brands and products. But they have halted that expansion and pulled back on promotions, leading to their being fairly flat over the past five years and experiencing a loss of market share.

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Catalogues are another outlet that has taken a significant hit from online growth. As you'll see in the chart below, none of the secondary markets listed here have gained enough share to consider them having mainstream appeal.

12TH VITAMIN STUDY 10

Mass Market Declines, But Remains Most Popular Outlet In the chart on below, we look at share of mentions by outlet, which is a proxy for share of transactions. Comparing mass market, specialty and online, we see that mass market declined in share. But this is somewhat insignificant since mass market accounts for two thirds of all transactions. Specialty brick and mortar retailers saw just over a 2 percentage point increase, while online grew about .4 points. Digging deeper to examine individual mass market retailers, Walmart took top share with 19 percent, which was comparable to overall online share. Those retailers losing the most share since the 2014/2015 timeframe include Sam’s, Rite Aid, CVS and Walgreens.

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Amazon Dominates in Online, While Walmart eCommerce Tanks Looking more closely at online VMS share, pure play eCommerce firms are outpacing online purchases from brick and mortar retailers by more than 2:1. Amazon remains the No. 1 player by a large margin, accounting for more than one-third of all eCommerce purchases. The market is highly fragmented after Amazon. Vitamin Shoppe became the No. 1 brick and mortar retailer online, with a 5.9 share, beating Walmart, which dropped from 11.2 last year to 5.5 in 2019.

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Lessons Learned: Top 10 Trends, A Decade in the Making Compared to other health and beauty categories (HBC), the VMS market is unique. Having conducted this survey for 10 consecutive years, TABS identified it as a mainstream category, with broad consumer appeal (77% of adults buy in the category), buyer concentration in mass market outlets, modest volume growth, and growing penetration of formerly niche products, like probiotics and melatonin. However, this category also has its distinct features. There is significant brand and segment fragmentation, and low brand awareness defined by low ad spend and high specialty channel contribution. It also has a high eCommerce share (20% compared to 5% for other HBC), and it is reliant on heavy and extreme buyers who purchase upwards of 3+ product types. Looking back over the course of our surveys, we have identified the: Top 10 VMS Trends of the Decade

1. Growth and Peak of eCommerce – Approximately 20% share appears to be the ceiling, and if VMS cannot achieve a larger share, TABS believes that has major implications on eCommerce in the CPG space overall.

2. Infusion of Mainstream HBC companies into VMS – While these companies offer

greater stability and credibility, they lack “edgy” innovation, which will have a moderating effect on the category.

3. Growth of Specialty Supplements – Several high dollar products – like melatonin and

probiotics – are gaining share and drawing in heavy buyers.

4. Continued Strength of Mass Market, Particularly Walmart, Despite eCommerce Gains – There has been so much discussion about the Walmart vs. Amazon battle for share, but what sometimes gets lost is that both can continue to growth without taking share from the other. With the growth of these two market leaders, there will be some channels – like club and drug stores – that are negatively impacted.

5. Decline in Heavy Purchasing by Older Women – The recent drop off in purchase type

and frequency by this key demographic has implications for the product mix, which is evidenced in fewer purchases of fish oil and calcium, two products targeted toward

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this specific demographic. With more purchasing frequency by the 18-54 demographic, other products, like melatonin and probiotics, have increased.

6. Temporary Effects of Negative PR – Over the course of the last 10 years, a variety of product types – multivitamins, Vitamin E and melatonin, to name a few – have suffered from negative press that caused sales to drop. However, as we see these product types rebounding, it’s clear that reinvention is possible.

7. Declining Share in the Specialty Channel – These VMS-focused retailers put a strong focus on innovation. As share of transactions in these outlets declines, TABS believes that product innovation will suffer.

8. There are Limits to the Form of Innovation – Gummies were thought to be a game-changer that would eliminate those consumers who didn’t want to swallow pills. But there was minimal growth with the introduction of gummies, which really only shifted sales.

9. Buyer Counts Grow – 20% growth in buyer penetration was driven by broader

demands for variety in the category, and thus more SKUs, not increased velocity of existing items.

10. Concentration of Power Players in Broad Line – A select few big-name brands, like

Pharmavite, Nature’s Bounty, Nature’s Way and emerging player Piping Rock, are crowding out minor players.

The Experts in Consumer Analytics® Tabs Analytics, founded by Dr. Kurt Jetta in 1998, is a technology-enabled analytics firm servicing the consumer products industry. Our mission is to simplify and improve the way analytics is conducted through analytical innovation, which translates into a competitive advantage for our clients. TABS is the leading outsourced sales and marketing analytics firm in the consumer-packaged goods (CPG) industry. For more information about TABS Analytics services or this white paper, please contact Robert Baldwin at robertbaldwin@tabsanaltyics.com or (203) 446-8837.