The natural supplements industry has been experiencing healthy growth over the last few years, even during the recent recession. This is good news for the companies that market these products, as well as their investors -- and has even attracted the attention of big food purveyors and pharmaceutical companies, both of whom see an opportunity to bolster their bottom lines through mergers and acquisitions.
Recent market data shows that the worldwide market for herbal supplements and remedies is exploding due to factors such as consumer confidence in alternative health remedies like nutraceuticals and herbal preparations, as well as concern over pricey conventional medical treatments. Indeed, many consumers see these supplements as safer than standard medical care. Other factors, such as an aging population and heightened awareness of preventative health measures, are also helping to propel the market to an estimated $107 billion by 2017, up from a current value of $68 billion. Specific areas of growth are said to be fish oils, probiotics and detoxifiers, and functional foods.
Companies that stand to profit from this trend
A few business entities are poised to make good on this growth curve, and some are already doing so. Herbalife (NYS: HLF) has been on a tear, showing a value increase of more than 70% year over year and beating analysts' estimates time and again. Its net income increased 22% from last year, with its presence in emerging markets helping to fuel that growth. Functional foods and targeted nutrition are its biggest money-makers.
GNC Holdings (NYS: GNC) , which operates a chain of health supplement stores, has been showing some impressive numbers over the past year, and its stock price is just starting to reflect that. GNC sells a wide variety of nutritional supplements and has made a concerted effort to sell self-branded or exclusive products in order to avoid losing market share when consumers cross-check prices using mobile apps. These sales also result in higher margins.
Big players in the drug and food marketing sector have noticed the hearty profits being made in the supplement arena, too. Pfizer (NYS: PFE) just recently bought privately held Alacer Corp., the company that makes those ubiquitous little packets of Emergen-C vitamin C supplements. Pfizer already realizes $1 billion in sales from its dietary and supplements division, and its "nutrition and other business activities" segment rings in at $2.4 billion -- up from only $560 million in 2009.
Procter & Gamble (NYS: PG) just closed on a deal to purchase the private vitamin and supplement company New Chapter, representing P&G's foray into this market sector. P&G's business is divided into three sections, one of which is "health and well-being." A P&G spokesman stated that the company bought New Chapter to be part of what it sees as a growing market. I wouldn't be surprised to see more purchases of this nature taking place in the near future.
With all indications pointing to a rapid increase in market share for companies associated with natural supplements, expect fortunes to rise for companies like GNC and Herbalife. Also look for P&G to continue with its new investment trend, while I expect other pharmaceuticals will follow Pfizer's lead and use acquisitions of these types of businesses to fill in for lackluster pipeline offerings. Who knew that supplements could contribute so much to a healthy bottom line?
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At the time this article was published Fool contributor Amanda Alix owns no shares in the companies mentioned above.Motley Fool newsletter services have recommended buying shares of Pfizer and Procter & Gamble. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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