Getting around the North American b2b market successfully

Len Monheit, Executive Director, Engredea

Presentation Outline • Current news • Market numbers • Economics • Culture • Supply, quality issues (inc. GMP) and regulations • Market Knowledge

– Distribution and channels – Certification & standards – How the industry operates – Marketing & communications – Industry global calendar

• How to do a trade show properly

• Other business considerations – To brand or not to brand – The value of research and patents – Doing business – best practices

• Resources to consider

CURRENT NEWS

THE NUMBERS

Global Nutrition Industry: 2000 vs. 2009

Nutrition Industry Sales by Region

ECONOMICS

• Global recession has shifted trade balances

• Trading issues – is it really a business friendly environment?

• The power of emerging versus emerged economies

• Access to capital

• March 2011 - World’s third-largest economy faced one of its worst natural disasters ever…damage caused….are estimated at ~$300 billion.

•A recovery in the Euro-zone and the U.S. could help improve trade prospects for Asian economies in the coming months.

• Will Europe really work?

• Will global growth continue? Two economies (45% and 5% since 2005)

CULTURE & PERCEPTION

• Is there a future in trading alliances?

• Is there an ‘East’ versus ‘West’ bias?

• Predicting trends and opportunities by understanding culture

• Defeating any anti-country bias is possible

UNDERSTANDING THE US INDUSTRY

Let’s face it….it’s very confusing…..

SUPPLY, QUALITY ISSUES AND REGULATIONS

FROM THE FDA…..

U.S

. B

ord

er

FOREIGN

DOMESTIC

Raw Material

Finished Product Contract

Manufacturer(s) (bottler, labeler, ingredient manufacturer, encapsulator)

Large Distributors

Niche/Community Distributors

Own Label Distributors

Consumer

Importer

Tainted Supplement Pathway to Market

Suppliers are expected to do more • For the same price

– Includes research – Performance testing – Technical support – And high quality

• More transparency expected in supply chain • Even though ingredient companies do not fall

directly under the US supplement GMPs, GMPs require ingredient testing rather than just a C of A and other activities that will challenge unprepared companies.

REGULATIONS & LEGISLATION

• Development of regulations (India, ASEAN, Latin America)

• Changing and export of regulations (EU, US) • Key areas are quality (GMP’s, supply chain),

claims, new products, safety issues • Leading to focus on 3rd party certification,

testing and analytical methods, Certificates of analysis, vendor qualification programs

• In the US, new draft guidance on New Dietary Ingredients is the most important document from the FDA in 17 years, since the passage of DSHEA.

Current US Issues • FSMA

• Supplement quality and efficacy debates (in the news)

• DSHEA new and recent developments

– GMPs

– NDIs

GMP and Related Issues • “Firm failed to conduct at least one

appropriate test or examination to verify the identity of a dietary ingredient, prior to its use, as required by 21 CFR 111.75(a)(1)(1).”

• Over 75% of GMP inspections have results in 483s.

• FDA ‘disappointed’ in industry performance with GMPs.

MARKET KNOWLEDGE

DISTRIBUTION & CHANNELS

Finished Product Channels • Direct to consumer

– Internet

– Television

• Practitioner

• Retail (Natural or grocery)

• Mass (Costco, Walmart, Sam’s)

• Multi-level marketing

Possible selling approaches • Shotgun approach – take whatever

business comes Or……

• Channel strategy – identify target areas by either sales model or product type and choose best candidates operating in that sales channel on exclusive or semi-exclusive basis

Distribution or Direct • Earliest and basic question facing both

ingredient and finished products companies in international markets

• Decision based on: – Product uniqueness – Research, brand equity and IP – Cost – Technical and specific knowledge required to sell – If direct, from an international or US base? – If US, same or unique name?

Choice of Distributors is key • Decisions include:

– National or regional – Key or all accounts – Breadth of portfolio

• Yours – do you offer product specific rights? • Theirs – can they give enough attention to your products?

– Category specific (food, drug, supplement, beverage) – Commodity or brand focused – Cultural fit – Sales ability – Penetration level – Your patience level

CERTIFICATION AND STANDARDS

• General considerations – Geography (origin, target, credibility) – Appropriateness of use of certification

• Certifications – 3rd party quality standards such as GMP (USP, NSF, NPA) – Regulatory approvals (formal, notified, GRAS, NDI etc.) – Kosher – Halal – Organic (USDA, Australia and Swiss also widely recognized) – Natural?

• Natural Products Association many products certified) • No formal definition internationally other than NPA

– Other: gluten-free, low glycemic

HOW THE INDUSTRY OPERATES

How the industry operates • Relationships • 5-6 Trade associations in the US

– American Herbal Products Association (AHPA) – Consumer Healthcare Products Association (CHPA) – Council for Responsible Nutrition (CRN) – Global Organization for EPA and DHA Omega-3s (GOED) – Natural Products Association (NPA) – United Natural Products Alliance (UNPA)

• Not for profit organizations – American Botanical Council (ABC) – Vitamin Angels – Nourish America

How the industry operates Print Publications

– Ingredients to manufacturers:

• Functional Ingredients

• Nutraceuticals World

• Nutritional Outlook

• Nutrition Industry Executive

• Natural Products Insider

• Prepared Foods

– Manufacturer to Retail

• Natural Foods Merchandiser

• Vitamin Retailer

• Whole Foods magazine

• Supermarket News

How the industry operates

Digital Products:

• Newsletters

– Engredea (Daily, Weekly and Asia version)

– Functional Ingredients e-news

– Nutraingredients (EU, US and product newsletters)

– Foodingredientsfirst.com

• Websites

- Newhope360.com

- Supplyside community

- Nutraingredients

• Social Media like LinkedIn, YouTube, Twitter, Facebook

Marketing and Communications

• News

• Press releases

• Articles

• Research

• White papers (technical papers)

Social Media

• Rising in importance

• A LinkedIn presence is absolutely required

• Participate actively but responsibly

• Advance the discussion, be careful how you promote your company and products

The future of social media?

• Most companies have very poorly developed strategies

• Very difficult to measure

• A mixed communication strategy has to be in place

• One of the best ways to connect and introduce internationally

IT TAKES ALL TYPES OF COMPANIES…..

Example 1 • Zhejiang-based company

• Set up ‘-USA’ company 5 years ago

• Currently leading North American co-enzyme Q10 supplier

• Member of two industry trade associations

• Third party certification (USP)

Example 2 • Bangalore India-based company

• Set up ‘-USA’ company 15 years ago

• Currently leading North American supplier of numerous ingredients

• Have won a NutrAward

• Member of three industry trade associations

• Deep research and IP portfolio

• Long-term contracts with supporting farmers

• Repeated sponsor of industry education and special events

Example 3 • Mumbai based company

• Has participated in two US tradeshows

• Generally receives a handful of leads at each show

• Most do not result in business

• Does not have certification

• Does not belong to a trade association

• Has no unique selling proposition other than low price

Example 4 • Numerous China-based manufacturing

operations

• US operations from Montana

• USP and TGA manufacturing certificates

• Active engagement with industry leadership

• Member of one trade association in US

The US industry calendar • March

– Engredea (Anaheim, California) – Natural Products Expo West (Anaheim, California)

• May – SupplySide East (NY) – either late April or May

• June – IFT (different locations but Chicago is best) – Natural Products Association Marketplace

• July – NBJ Summit (Dana Point, California)

• September (2012 editorial calendars prepared) – Natural Products Expo East

• October – SupplySide West (Las Vegas, Nevada)

OTHER BUSINESS CONSIDERATIONS

Decisions to make • To brand or not to brand

• To invest in research – Population specific?

• To invest in intellectual property

• To achieve third party certification

• How to approach business – What principles does the company stand for

– Short term or long term

– Commodity or specialty

RESOURCES AVAILABLE

• Media relationships

• Trade associations

• ‘Experts’

– Consultants, marketing professionals and experienced industry people who can help

– Choose wisely!

• Get the right legal relationships

In closing…. • Do your preparation… and be patient

• Get representation on the ground quickly

• Make sure you have a unique value proposition

• Know and understand the culture of the marketplace

Len Monheit Executive Director, Engredea New Hope Natural Media len@npicenter.com +1-303-998-9310