FINANCE

Finance

Holland& Barrett -Financial Planning

Literature Review

Despite of the struggling economies, the $27.9 billion Vitamin and Supplement Manufacturing industry is expected to grow at an average annual rate of 3.0% per year between 2006 and 2011. After experiencing strong growth in 2007 and 2008, revenue dropped 6.6% in 2009 due to a dramatic decline in consumer spending. Industry demand made a strong rebound in 2010, however, with revenue growing 9.2%. In 2011, industry revenue is forecast to grow an additional 3.9%. The aging population, increased health consciousness, improving consumer sentiment and escalating healthcare costs have contributed to such stalwart growth.

Products that promote age-defying capabilities in the realms of memory, physical performance, muscle retention and skin care will drive industry growth in response to growing demand from the aging population. Because most supplement use increases with age, dramatic demand increases are forecast for vitamin D and CoQ10 supplements, given the US population's aging demographics. The older population's increased awareness of health and fitness will grow the market for osteoarthritis supplements, such as glucosamine.

The media attention towards the health issues continues to encourage consumers to maintain their health during the next five years. The recent H1N1 (swine flu) scare still weighs heavily on consumers' minds, so products that boost the immune system will continue to do well in health stores; examples include probiotics, medicinal mushrooms, echinacea, astragalu and prebiotic and probiotic foods (http://phx.corporate-ir.net).

Healthcare Reform

The Patient Protection and Affordable Care Act (PPACA), the healthcare reform bill President Obama signed into law in 2010, will have only slight near-term effects on the industry because most provisions are not anticipated to start until 2013. The bill includes several provisions that address complementary, preventative and alternative medicine, and one provision focused on certain dietary supplements.

An increasing barrier to entry, however, is the regulatory scrutiny imposed by the FDA. New legislation has been proposed to fund more FDA dietary supplement regulators, which would potentially make it more difficult for vitamin and supplement companies to market their products. Likewise, an increased emphasis on preventative healthcare could lead to additional legislation that would either require approval before launching a product or increase FDA regulatory powers in some other way, obstructing the ability of new companies to sell or market products (siepr.stanford.edu).

Foreign Threat

Industry imports are forecast to grow at an average rate of 5.3% per year to $7.4 billion over the next five years. Industry manufacturers and their downstream retailers will continue to source products from abroad due to the lower production costs available in low-wage countries (such as China and India). Imports currently comprise 22.8% of domestic demand, though that number is forecast to rise to 23.4% by 2016. The rise in revenue, along with reduced costs through continued off shoring of manufacturing, will boost profit margins moderately from 15.0% in 2011 to an estimated 15.9% in 2016. At the same time, wage costs will increase as manufacturers face increased competition for top employees in an increasingly competitive labour market. By 2016, Researcher has forecasted that wages will grow an average ...