Starting a brand in the industry: So you want to get into the supplement business, eh?
The health and wellness space is one of the few industries that continues to grow at a steady clip. According to Grand View Research, the global dietary supplement industry was worth 122.08 billion (USD) in 2015. They forecast compounded annual growth rate of 9.5% through 2024. Fortunately for you, there’s room for everyone.
Maybe you’ve been using supplements for some time and have realized that, hey, “I can make something better.” Or you’re an athlete that’s been sponsored in the past by supplement companies. Or perhaps you’re just a good ol’ capitalist and see opportunity – green opportunity.
Well, we have good news for you, and a little bad too. It’s surprisingly easy to get into the supplement industry. That said, making money in it is a whole different ballgame.
In this article, I’ll break down four areas of consideration when launching your brand: Regulations, Entry, Production Considerations, and Formulations.
US regulations regarding supplements center primarily on the DSHEA act of 1994. That act gave more power to the FDA, defining supplements and setting guiding principles on production. Interestingly enough, the DSHEA grants supplement manufacturers the ability to go to market without prior FDA approval.
DSHEA and FDA focus on the manufacturing and production side of business. The FTC regulates marketing and claims. When you’re up late watching reruns of Seinfeld and catch an infomercial for some type of male “enhancement” product, that’s the area the FTC pays attention to closely. Start claiming that your product will cure baldness or help you jump twice as high… well, expect a friendly call from the FTC.
There is a very limited, general set of health claims allowed by our government. For example, you can state on your label that calcium and vitamin D may lead to reduced risk of Osteoporosis or fiber maintains bowel regularity. For the most part, though, the government does not view structured or functional claims lightly. When our clients ask us about using claims on their labels, we always recommend they err on the side of caution. Your supplement may actually cure male pattern balding but to imply that on your label would put you in somebody’s crosshairs.
There is a side road you can take here. The FTC has adopted a general guideline in that two well-designed human studies, almost always a randomized controlled trial with a substantial sample size may allow for a claim given results of the two studies. Of course, we’re talking a seven-figure research budget just to satisfy the FTC’s labeling requirements, so you’re better off aiming for what is currently allowed or what we like to promote generic statements. If you have a cardiovascular supplement, generally, “supports heart health” is safe and sound, while “reduces cholesterol levels by 18%” is not.
When we said it’s surprisingly easy to enter the dietary supplement market here, it’s because there is no burden of proof to prove to your product(s) work(s) or is safe for that matter. People outside our industry are always taken back during cocktail conversations, “You can literally just put anything in a bottle and call it a dietary supplement??” Yes and no.
Yes in that you can. No in that something dangerous or unproven will ultimately result in your brand’s failure anyways. Federal and state agencies are working on improving that and we certainly hope there are future regulations and more onus on suppliers and manufacturers to demonstrate some level of efficacy and safety. But for the time being, if you have a good idea, you’re ready to go.
To give you an idea of what to use to slip through into our industry, take a peek at DMAA. DMAA, 1,3-dimethylamylamine is an amphetamine derivative that was popular in a lot of sports nutrition supplements. Having personally used a pre-workout with DMAA, it’s a very powerful stimulant and something I can imagine what crack or speed would feel like. (For the record, I have never used crack or speed).
But there were cases where users actually died from supplements containing DMAA. Note: ONLY after there are reports of adverse side effects do you now have to withdraw your products from the marketplace. We hope you don’t go down the DMAA route.
PRODUCTION & OPERATIONAL CONSIDERATIONS
Now that you have an introduction with regulations, it’s time to produce your supplement(s). Again, the US is surprisingly accommodating. The FDA has passed updated rules since DSHEA with emphasis on good manufacturing practices. GMP rules are incredibly detailed and have greatly improved the reliability, consistency, and safety of supplements making it to the marketplace. Adherence to GMP rules, however, are not yet mandatory for everyone.
Thankfully, the big brands and the big contract manufacturers all follow GMP procedure as outlined by the FDA, specifically FDA GMP rule 21 CFR 111. When you’re shopping, for example, to purchase a Quest Bar or downing a protein shake from Optimum Nutrition, rest assured, they’re paying close attention to CFR 111. Since you’re in the new stages of product development, your priorities right now should be focused on the function of resources — and if you’re just starting out, you make do with what you have. You’d be surprised how many brands got their start making supplements in their own garages or borrowed commercial kitchens.
If you don’t want to make a protein or cognitive supplement in your home, you have your choice of what we call contract manufacturers. These guys invest in million-dollar equipment to greatly speed up blending, encapsulating, filling and bottling of your well, million-dollar idea.
In this area, there are two types of contract manufacturers (CMs). There are little, more nimble contract manufacturers and then those what we like to call the ‘big boys’. Both options have their pros and cons.
The smaller CMs – they may blend a mix of human labor and machine automation. Don’t get me wrong, they have still invested anywhere from half a million on up in production equipment, warehouse space, labor capacity, and so on. This is something that you don’t want to go down the route of, trust me. Sooner or later, everyone has to abide by GMP rules and you’re going to need deep pockets to get into compliance.
The primary drawbacks of a smaller CM are certifications and cash flow. They may follow GMP rules but they have yet to be certified by an accrediting body such as NSF. Saying you’re GMP compliant and actually being cGMP (certified) are two different matters. If I was consulting a friend entering the wellness space, I would recommend to test the waters with a minimally viable product (MVP) and see if their big idea has any traction in the marketplace before committing to a fully kitted out product line.
Another issue with the smaller CMs is the fact that they generally don’t extend credit. All the raw materials going into your products, all the bottles, capsules – you name it – is on your dime upfront. That’s a lot to ask for someone just getting into the supplement business. Also, many smaller CMs carry a limited amount of inventory on hand so a lot of the sourcing will be up to you to secure.
Sure, you can ask John Smith at ABC Manufacturing to source every ingredient from you, but that’s just going to increase your cost of goods sold (COGS), as the CM will add a sizeable markup to everything they source. But the beauty of smaller CMs is that there is the option to source your own ingredients.
When it comes to cash leaving your pocket, consider an entry-level pre-workout product. It may have six to seven ingredients with an out-the-door COGS around $10. Multiply that by 500 units (generally the bare minimum volume level required for a CM to take on your project) and you’re now $5,000 in the hole with no revenue coming in for at least three months. Why three months? I don’t care who you speak with or what they promise, from our experiences, turnaround time is at LEAST three months. There are ALWAYS project(s) in the pipeline ahead of yours and there’s almost always an ingredient that needs to be sourced with a longer lead time than expected. And this is with a consideration that your product design is 100% finalized.
The big boys – these manufacturers have been around years, if not decades. Their production space generally takes up an entire city block. Naturally, they have all their certifications in place and a deep and experienced sales team to help you with your concept. They have their own stock formulas for pretty much any type of health condition possible. Some specialize in powders, others in soft gels. But all have the in-house capabilities to make your product line. Most importantly, they can extend credit so you don’t have to tie up all of your capital into raw materials and inventory. This is probably the biggest and most important attribute: to not have to cough up the majority of your capital up-front.
Certainly, for every head, there’s a tail. The primary drawback to running with large CM are minimum production runs and costs. The ingredients they source for you come with an added markup. For someone who wants to test the waters and discover if there is any market traction, investing $10,000+ dollars into your idea might be a little daunting.
You may find green tea extract for $20 a kilogram (our industry generally operates on the metric system) on Alibaba but your CM might charge you $25/kg. That’s not negotiable. Nor is “Well, I’ll just get the green tea for you”. Remember those GMP rules? There are rules in place for each ingredient. Simple but onerous stuff like its country of origin, specification sheet, and so forth.
A large CM is not going to want to mess around with a cornucopia of randomly sourced ingredients, delivered by UPS when they already have it in stock or have it readily available through a partner supplier.
If you’re launching with a fully kitted out product line, we’re talking easily 75+ ingredients across six or seven different SKUs with a minimum of two thousand units per SKU. That’s some serious cost creep on your original estimates.
Operations will always be dependent on certain factors unique to your business. I know most folks starting with limited capital used their home to finance inventory and fulfill items. However, there is a much more efficient way to fulfill orders and that’s using pick-and-pack service providers. They go by other names too, order fulfillment, third party logistics (3PL), etc. I like to pick-and-pack because that’s exactly what they’ll mostly be doing for you.
The general operational scheme is to send your inventory over to the shipping partner; they catalog and calculate the inventory it in their system that is in sync with your e-commerce platform (Shopify, Big Cartel, etc.) and they’ll pack and ship your retail orders. Easy right? Of course, there are fees for all this. Most pick-and-pack providers will charge a nominal warehousing fee in addition to the variable pick-and-pack fee (generally between $1 to $2 per item). On the positive side, because they ship so much, their shipping fees will be heavily discounted, which is passed on to you. Email me and I’ll share my favorite partner, they charge only .95 cents per item.
There’s also private label drop-shipping but that’s another day, another article.
If you’re completely new to the game, it’s having someone in the industry formulating for you. It could be your sales rep at the contract manufacturer, an industry friend, or consultant. All may come up with the same relative formulations. What is staggering to the lay person outside of our industry is that very few of these formulators actually have a food science/nutrition background. If you’re lucky, they might have a Bachelors of Science in their respective field. It floors us every time we learn of the formulator(s).
We know, experience always trumps education but having a fundamental understanding of the basic sciences, pertaining to human supplementation, is in our opinion an absolute.
Our clients occasionally ask us about formulations and we always run it by our research and development team and scientific advisors. All have a doctorate in their respective fields of pharmacology, biology, and nutrition. If you have a formula you’re hesitant on, feel free to run it by us, even if you’re not using any of our ingredients. We’d much rather you put out a product that’s effective AND safe.
So there you have it, starting your own supplement brand. Pretty easy right?