The Magic Pill: Chinese Companies Gobble Up Foreign Nutrition Firms

Chinese consumers are clamouring for nutrition supplements

China wants to be healthy. RMB 150 billion healthy. That’s the forecast for the country’s nutrition sector – vitamins and dietary supplements – by 2020, with 6% annual growth leading up to that figure, now just two years off.

Health and wellness is a global trend, as many have pointed out. But in China, add to that a voracious appetite for healthy products to counter the stresses of daily life in fast-paced cities, the erosion of trust in food safety, the concern about harmful pesticides and heavy metal residue in vegetables, fruits and water, and an advertising environment that is permissive of many dubious health claims. Consumers aren’t stupid. They want vitamins, and they want what works. For them, that means foreign brands.

In 2015, The Financial Times reported that nearly half of urban consumers polled in one survey regularly buy vitamins and dietary supplements, the same year the size of the market broke the RMB 100 billion mark. Pfizer’s Centrum and Amway’s Nutrilite brand lead the market, though domestic brands such as By-Health are catching up. Interestingly, vitamins C and E are especially popular among female consumers for their links to beauty. In fact, By-Health was the second most popular brand.

China's most popular nutrition brands

How?

The magic pill for their growth has been the acquisition of foreign nutrition brands, not heavy investments of time and capital in R&D. The company already has the rights to Nature’s Bounty and Met-Rx brand in China, and in January 2018 it added to its portfolio, acquiring probiotics manufacturer Life-Space Group (Evolution Health, Ultramix, Healthy Essentials, Elmore Oil and others) for AUS$690 million. That deal happened just over three years after Life-Space entered the Chinese market with an e-commerce-based offering.

This is only the latest move, following the $1.7 billion acquisition of the Swisse Wellness group by China’s Biostime in 2015. In a parallel move, Blackmores jumped into the Chinese herbal medicine market in 2016 with a AUS$23 million deal to acquire Global Therapeutics, the market leader in Chinese herbal medicine in Australia, with an eye to exporting to China. That strategy seems to be working, with the company reporting a boost in half-year profit in 2018 by 20 percent to AUS$34 million. It’s even happening in the pet sector, as a Chinese-led consortium struck a billion-dollar deal to buy a Queensland-based pet food giant to exploit the growth of “pet humanization” in the United States and ultimately China. The Chinese are hungry for foreign brands they can trust. Investors are only too willing to oblige.

All of this adds up to a tremendous opportunity for foreign nutrition, vitamin and dietary supplement brands in China. This can be either through entering the market directly or by considering an M&A strategy attached to the countless sources of capital in China. These sources see the value in a nutritional supplement they can trust, and know consumers value the same.