Asia’s unquenchable demand for Australian supplements

By RJ Whitehead

- Last updated on GMT

Asia’s unquenchable demand for Australian supplements

Related tags Dietary supplements International trade China

With growing middle-classes, ageing populations and a voracious appetite for Australian products, Asia is providing fertile territory for Australian complementary health brands. A raft of free-trade agreements can’t hurt either.

What the country's manufacturers are basking in right now is the huge surge in demand from Asian trade, and that is predominantly exporting to China​,” says Ryan Gorman, brand director of Australian ingredients company Network Nutrition, which has an office in Shanghai and is in the process of scoping out further Asian expansion. 

According to Gorman, this spike in Asian demand began with personal imports, when traders arrived in Australia from China with suitcases that they would fill with supplements to take back home.

Now it has opened up to more legitimate and sophisticated trade through a number of established free trade zones in China where brands can export directly​,” he continues. “Also you are seeing a lot of pharmacy chains here opening their back doors up to export trade. That's what has propped up the Asian sector this year​.”

Having been present in Asia for 35 years, Blackmores is no stranger to the continent. However, the Australian natural health major attributes much of its record results in the last financial year to a rise in Asia on the back of which has enabled the creation of more than 100 new roles for employees in Australia. 

In 2014-15, Blackmores’ sales in Asia were up 26% for the year to A$84m, which is double its revenues of five years ago.

Sales to China in particular multiplied. The company, which employs Chinese tennis player Li Na as a brand ambassador, says the opening of free-trade zones in China last year created a substantial opportunity, especially as Blackmores was one of only a few companies in the natural health category to secure a licence to directly trade within a zone.

Christine Holgate, chief executive, states: “It is apparent that there is a growing number of Chinese shoppers and entrepreneurs purchasing our products through Australian retailers​. 

By combining the contribution from these consumers with our Asia-based revenues, the value of the region to our group sales is approximately A$150m for the year. This demonstrates the growing demand for our brand outside Australia and highlights the importance of our Asia growth strategy​.” 

In an interview with Reuters, Holgate explained that Chinese consumers were prepared to pay a premium for Blackmores’ products because “they know that those products are quality checked before they're sent out to China​”.

Meanwhile, Swisse Wellness was bought for a jaw-dropping A$1.67bn by Hong Kong-listed Biostime in September in a move that reinforced the attractiveness for Asian players in having an Australian brand under their belts. 

It is worth noting that Chinese private equity firm Hony Capital and its compatriot, the manufacturer Shanghai Pharma, were two underbidders in the race for Swisse.

Gorman says Australia’s tough regulatory stance and clean image are fuelling this demand.

The sentiment we see is that Chinese brands are somewhat reticent about buying ingredients that are made in China​,” he says. 

There's a number of layers in the Chinese market in terms of what consumers are looking for. They perceive Australian products to be much higher quality than what they can obtain from locally produced product, and that's where the surge has come from over the last year​.”

Regardless of product provenance, Asian consumer demand is growing massively, says Emily Cox, analyst at Euromonitor International.

Many parts of Asia, including China, are seeing a fast ageing populations that are anticipated to rise significantly. With over 9% of Chinese aged over 65, China has the biggest such population. At over a quarter of its people over pensionable age, Japan has the oldest inhabitants.

This is driving growth in vitamins and dietary supplements such as fish oils, minerals, bone and joint health supplements and multivitamins​,” says Cox. “Further, companies are launching products with specific formulas for the elderly, as well as dietary supplements that treat menopause​.

The middle-class, Cox adds, has become the chief target of consumer goods companies, due to their increasing discretionary spending power. 

The values and attitudes of these consumers—family focussed, planning for the future and placing importance on their image—all influence purchasing decisions​,” she says. 

The middle-classes in Asia-Pacific are enthusiastic about vitamins and dietary supplements, and these consumers are willing to trade up to branded, high-quality products​.”

However, in the Australian context, this growth in demand and desire for highly regulated Australian products has been causing a vacuum.

There has been a lot of activity and buoyancy in the last year, but if you were to remove the Asian trade business it would be questionable whether you would see that same level of excitement in the Australian market alone​,” says Gorman.

You would definitely have seen brands scurrying to react to surges in demand and it would have been very difficult to predict where that demand would fall. A particular product might become interesting to Asian consumers so its manufacturer can't keep up with supply that exceeds their forecasts​. 

This is resulting in capacity constraints within the manufacturing sector here and a lot of manufacturers are gearing up their capacity to cope. A lot of production will have gone offshore as well to be able to deal with the shortage in capacity that has resulted from the surge in Asian trade business. So there's a lot of fallout as brands adjust to this new landscape​.”

This is echoed by Carl Gibson, chief executive of industry lobby group Complementary Medicines Australia, who claims that stocks of some products are dwindling as supply is diverted north to Asia.

We are already starting to see a scarcity of product​,” he says. “It's great opening up these markets and agreeing FTAs. But this is generating massive access to Australian products so we have to keep up with the demand. That’s our real challenge​.”

In the short-term, consumers will be faced with shortages, while companies will be forced to assess their best route into these burgeoning new markets for the long-run. 

Even if China’s runaway growth is slowing, its middle-classes are still growing and food safety officials continue to struggle to make headway against the nefarious practitioners that plague the country.

Meanwhile, free-trade agreements come thick and fast to open up even more new markets that each crave greater quantities of Australian supply. 

Few will argue against this being a good problem to have, but it is one the Australian complementary medicines industry will have to address very quickly.

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