Sports nutrition, most geared towards ‘muscle men’, is slowly evolving into a market with a broader appeal. This opens opportunities for traditional retailers, provided they develop a category management approach for this relatively young market.
Three market segments
First of all, what is the market profile? This question is not easy to answer as sports & active nutrition is a very dynamic market, characterized by various product formats and different target groups.
“Basically, there are three market segments”, Garyth Stone, Managing Director at global investment bank Houlihan Lokey says. “Traditional sports nutrition consists mostly of protein powders, sold in large containers and distributed through specialist retailers or on the internet. The target audience is the gym addict that aspires to some sort of Arnold Schwarzenegger-physique. Active nutrition is also directed at consumers that regularly take exercise, but more in the cardio-domain such as cross-fit or various triathlon-formats, or for aestetic reasons. Product formats started as powders but have increasingly moved to convenience products such as bars and drinks. Finally, there is the newer health & wellness segment, potentially the largest market because the broader appeal to consumers that strive for a healthier life style. These propositions do not necessarily have to be related to physical activity, and are completely focussed on convenience products sold in traditional retail channels.”
Fuzzy data
In terms of market data, the above markets are somewhat ‘fuzzy’. There are several market research agencies that monitor the domain of sports- and active nutrition. However, there are not many that are spot on. This can be attributed to the plethora of brands, products and – especially – the distribution channels. A considerable amount is being sold online or in specialty shops, which is not the domain of the Nielsen‘s of this world.
Euromonitor is rated by experts as ‘being he least wrong’. The market research agency rates the Western and Eastern European sports nutrition market (powders, drinks/shakes, bars) around 2 billion euro per annum. The UK takes up more than a third of this market, followed by Germany (219 million), Italy (142), Sweden (137) and France (110). For the record, these data do not include mainstream sports drinks such as Gatorade or energy propositions (Red Bull etc.).
According to Euromonitor, S&A-nutrition will grow at a 12 per cent rate until 2019, after which it will settle at 8 per cent. Not bad for a saturated market, but still a niche.
Professionalisation
Sports- and active nutrition has solid growth prospects, Stone says. Even the most mature market, the ‘muscle powders’, has ample ‘headroom’. The advent of online platforms, such as Myprotein, has professionalized this market, taking it out of ‘DIY-sphere’. Needless to say that Amazon also is playing a role with thousands of various product types on its platform.
Stone: “Traditional sports nutrition remains a healthy market, dominated by online sales. The bulky nature of these products facilitates this kind of distribution. For general retailers, this market is too specialized. The target audience also would not expect these products in a supermarket isle.”
Active nutrition and health & wellness would be more suited for the main distribution channels, given the broader market scope and market appeal. “Health & wellness offers definitely the most exciting prospects in the category”, Stone says.
Carb Killa
The latter is easier said then done. In order to make the transition from niche to mainstream, companies active in this field need to have the means and expertise to bridge the gap. In the US, several companies have cut their teeth on this transition.
According to a US analyst, it is a question of different tribes. Brands that appeal to endurance athletes not necessarily appeal to active, life style oriented consumers. In short, a different approach to branding and marketing is required. As the industry is still very much fragmented and price-oriented, major players are absent. “Grenade is the only company that successfully has made this transition from bodybuilding to mainstream”, Stone says. With its Carb Killa-range it has moved into mainstream convenience and grocery channels in the UK and abroad. By getting an investment firm (Grovepoint) on board, Grenade has been able to accelerate its expansion. Recently, Lion Capital took over Grovepoint majority stake at the company, currently valued at 72 million pounds.
Downward price spiral
The move of Lion Capital for Grenade, with a solid reputation in FMCG (Weetabix, Orangina Schweppes, Kettle Foods etc.), illustrates the potential of active nutrition and the ‘step up’ towards health & wellness. However, an industry consolidator is not on the horizon, maybe with the exception of Glanbia, whose Performance Nutrition-division has been active in acquiring several smaller businesses, such as Nutramino (Denmark), Isopure (USA) or thinkThin (USA).
More recently, Glanbia acquired Dutch Body & Fit, a Netherlands-based webshop, carrying over 15.000 products in the sports/active and wellness domain. Despite these consolidation activity, the market is still very much fragmented – as stated before – partly because the barriers for market entrance are relatively low. It is easy for newcomers to launch a product or brand, see also the importance – and lower treshold – of online distribution.
Stone: “The danger of fragmentation lies in brands not being to able to compete in terms of branding or functionalities but purely on price. In terms of profitability, this means that many brand owners are having problems realizing gross margins higher than 35 percent which are needed to build a sustainable business model.”
Mars extra protein
It remains to be seen whether existing brand owners would be able to move into health and wellness-market with their multi-million brands and have some consolidating effect. For example, Mars Foods launched a extra-protein versions (bar and drinks) of its iconic Mars and Snickers brands on the UK market. According to Stone, this brand stretch went a bit too far and subsequently sales were not rosy. “In terms of taste and product content – a Mars bar still contains a lot of sugar – this proposition did not resonate with healthy lifestyle consumers.”
Maybe other categories, such as dairy-based drinks, would be more suitable for the bigger dairies (Glanbia, FrieslandCampina, Danone, to mention a few) to move into the health&wellness-market. However, in order for them to do so, grocery retailers – the main channel for major FMCG-players – need to adapt a comprehensive aproach to this new category.
“In the UK, Tesco is one of the front runners”, says Toby Gordon-Smith, consultant at business consultancy TGS Strategic Solutions. “It is the most-forwarding thinking of the grocery retailer at the moment. Having said that, none of the mainstream grocers have developed a consistent category management approach yet. For example one UK retailer, has spread its health&wellness-assortiment over three categories: convenience, ‘free from’ and biscuits. As for family grouping, creating a separate section for health&wellness-products in supermarkets, the market still is not developed yet. On the other hand, there is the online channel which is very dynamic, with manufacturers integrating foreward (Glanbia, Body & Fit) or designated platforms with mainly private label products (Myprotein).”
Clean label
Finally, which specific product types will define this future category? As for the type, bars and drinks will be popular carriers. Consumers are familiar with these product formats and these are easy to consume (on the go). High-protein, low carb will be a winning combination for the years to come. As for the protein source, dairy-based ingredients (for example whey protein isolate) are well-positioned in terms of taste and nutritional value. Plant-based products still have a significant hurdle to take when it comes down to taste and texture, Stone says. “In general, these products do carry some functionalities but these are not likely to be understood by mainstream consumers. Therefore, the branding will be ‘fuzzier’ and more likely to appeal to consumer demand for more ‘natural’, cleaner label products.”
Stone and Gordon-Smith spoke recently at the Sports & Active Nutrition Summit, organized by Bridge2Food.
