Falling sales, negative media coverage, concerns over quality and a marked lessening of consumer confidence have cast a pall over the US herbal products industry in recent years. In 1998, consumer sales of herbal products grew 12.5 per cent but dropped steeply to 1.2 per cent by 2000, according to Nutrition Business Journal. Whereas some industry experts feel the current environment reflects little more than a market correction while new consumers cautiously experiment with herbs for the first time, others cite a host of other contributing factors. But the mass market in particular has been hard hit.

How bad were 2000 and 2001 for herbal sales in the United States? Pretty bad. According to Information Resources Inc. (IRI), based in Chicago, herbal supplements sales fell 15 per cent to $591 million in 2000. The IRI data measured predominantly single-category herbal sales in grocery stores, pharmacies and mass merchandiser outlets such as Wal-Mart and Kmart, but excluded club stores such as Costco, convenience stores, health food stores or the numerous direct-marketing channels. Unit sales fell at a slightly higher rate of 17 per cent, implying that prices maintained a modest upward trajectory.

By the latter half of 2001 the drop in mass-market herbal sales had slowed, but still fell four per cent over the year ending August 2001.

Sales of herbal supplements in natural foods stores were more encouraging. Surveys of more than 640 independent stores indicated growth of 2.4 per cent in herbal supplements sales in 2000. Market analysis by San Francisco-based SPINS reported herbal supplements sales growth in its panel of natural products supermarkets of 1.6 per cent in 2000, although herbal singles alone were down six per cent. What caused the precipitous slide in sales of herbal products in the US? There appears to be no clear consensus within the industry as to either the cause of the problem or the solution. Here are seven variables that probably contributed to the downturn.

Blame It On The Media
Mark Blumenthal, founder and executive director of the American Botanical Council in Austin, Texas, and editor of HerbalGram, cited negative media coverage as a major factor in the market's decline.

"The media tends to make generalised statements like 'unregulated industry' that have depressed consumer and professional confidence," he says. "I think this is the most pernicious media message and the most destructive. Having said that, this scrutiny is propelling the kind of regulatory development the industry needs and which will go a long way toward dispelling the consumer perception that the herbal industry is under-regulated."

Bad press can, of course, be devastating. Following media stories that raised the possibility of St. John's wort (Hypericum perforatum) interfering with the action of prescription drugs, sales of the popular herb nose-dived. Blumenthal believes adverse reactions tend to get blown out of proportion, while the benefits of herbal products rarely get the press they deserve. Media reports also tend to ignore whether an herbal product has been used properly, he says. It is a situation exacerbated by the federal government's refusal to recognise the benefits of herbs for disease prevention.

"Just as the media helped the industry grow following passage of the Dietary Supplement Health and Education Act (DSHEA) in 1994, they have turned around and skewered the sacred cow they built up," Blumenthal adds.

Correcting The Supply Binge
The boom years lured many new players into the market, which led to an inevitable glut in supply. Michael McGuffin, president of the American Herbal Products Association (AHPA), describes it this way: "In 1994-95, if you were in the vitamin business, you had to get into the herb business. In 1997-98, it didn't matter what business you were in—you wanted to get into the herb business."

With supply outstripping demand in such quantity, a period of revision was inevitable. "The current trend is a correction," says McGuffin, "not an abandonment of the goods by the core consumers."

Critical Of Mass
Greg Ris, vice president of sales for supplier Indena USA (New Jersey), believes mass-market dynamics have damaged the industry. "The mass market was responsible for the rapid rise in demand, but directly contributed to the decline in botanicals as well," he points out. "In the mass market, there were such price pressures to offer inexpensive products that quality was compromised."

Others, however, feel mass marketers have become convenient scapegoats. "Some of these big companies make high-quality products, but they get singled out on quality issues because they are the biggest players and it makes the biggest media story," notes one executive.

Public Education
There are many who believe false expectations among consumers may have contributed to a lack of satisfaction with herbal products. "Some mass-market shoppers want herbal products to work just like aspirin, and they don't," says McGuffin.

Unlike health-food store users, who tend to know a little more about natural products, mass-market shoppers are more likely to hold unrealistic expectations about what herbal supplements can and cannot do. This may explain why herbs such as ephedra, which produce immediate reactions, have gained popularity among mass-market shoppers while slow-remedy herbal products have tended to fare more poorly.

The industry is also to blame for either perpetuating unrealistic expectations about herbs or simply not managing the expectations of their newest consumers and doing what is necessary to convert them into faithful users. Insiders agree the failure of retailers and manufacturers to educate mass-market consumers has contributed significantly to the problem.

Industry members are not the only ones to blame, though, according to Blumenthal. "Despite the fact you have a growing body of clinical evidence supporting the benefits of many herbs, there is currently no way to acknowledge that information on product labelling."

Industry Inadequacies
Aside from not educating the public sufficiently, the industry, some experts believe, has failed the US consumer by not policing itself adequately and by offering products of varying quality. Blumenthal says American companies have spent too much money on marketing, at the expense of research.

In an attempt to promote those companies that have gone down the clinical route, he wrote Herbal Medicine: Expanded Commission E Monographs, a book that includes a chart listing branded herbal products recognised in scientific literature as clinically effective and safe. As a result, he says, "I have been criticised by some friends in the herbal industry domestically of being overly promotional of the European phytoherbal industry. But their research is more advanced than ours, and my list reflects that fact."

Other industry leaders have bemoaned the many trade associations in the supplements business (as many as nine of consequence) and their inability to create a unified voice to the consumer and to Washington.

No Law Enforcement
Some in the industry have suggested the government could have done more to weed out and make examples of the industry's bad apples, rather than allowing sensational headlines to cast aspersions on the whole industry.

"Existing laws are not being adequately enforced," Blumenthal notes. "The Food and Drug Administration (FDA) and the Federal Trade Commission have the authority to regulate claims and the quality of products so that any supplier who makes claims it can't meet is technically mislabelling. The FDA has adequate authority to protect the public against unsafe or misbranded supplements, but the FDA only selectively enforces the law."

The Bigger Picture
The fall in herbal sales has coincided with a worldwide economic slowdown. Acknowledges Ris, "There is a certain segment of the consumer market that would be impacted by an economic downturn."

Luxury products like herbals would fall out of the budgets of this segment. Indeed, the entire nutrition industry expanded dramatically during the boom years of the extended bull market but has yet to weather a general economic downturn. The issue of consumer education surfaces again here, because making the supplements industry recession-proof, or at least recession-resistant, requires more investment in the consumer.

Retrench, Refocus, Move On
Suppliers of botanical raw materials and extracts intent on weathering the downturn are focusing efforts on eliminating supply backlogs and streamlining operations. To sustain business for the long term, they are also focusing on product innovation, value-added services and partnerships with key distributors and retailers. Both raw materials suppliers and finished-product manufacturers agree the focus should be on quality and efficacy, not cost alone. While some mass marketers are continuing to demand low-cost materials, others have learned an important lesson: "They are realising the only way to win back consumer confidence is to offer a legitimate product and offer the safety and efficacy reported in the literature," Ris states.

His company, Indena, is working on a branding campaign to promote a quality seal on labels. It is also taking steps to ensure it will be able to cope with demand once the market improves by obtaining 60 per cent of its herbs through cultivation worldwide.

Martin Bauer Group in the US, a leading botanicals supplier, says customers' growing concern with raw materials quality was behind its decision to focus on direct sales at the expense of distributor-based sales. It reported sharp growth in the US in 2001.

Despite tough times, executives are cautiously optimistic about the future and believe the supply glut is close to being sold through. Some suppliers are even reporting modest increases in activity as well as stabilising prices of raw materials.

While demand for St. John's wort, ginkgo (Ginkgo biloba), echinacea (Echinacea purpurea) and other herb staples was almost nonexistent in 2001, other botanicals showed more buoyant growth. For instance, suppliers report an improvement in demand for bilberry (Vaccinium myrtillus), milk thistle (Silybum marianum) and vinpocetine (a synthetic derivative of a compound found in the periwinkle plant [Vinca minor]). Demand for herbs targeted at women, such as black cohosh (Cimicifuga racemosa), chaste tree berry (Vitex agnus castus) and horse chestnut (Aesculus hippocastanum) also remain strong. Herbs related to energy, weight loss and joint health continue to perform well, as do saw palmetto (Serenoa repens) and valerian (Valeriana officinalis).

Botanicals are also finding new markets in areas such as personal care, where herbals such as grape seed, milk thistle and willow bark (Salix alba) are finding favour because of their antioxidant properties and role in ultraviolet protection.

Ironically, the downturn has led to some suppliers and growers exiting the business altogether—guaranteeing that when demand does recover, supply pressure will push up prices again. But most within the industry remain optimistic despite the obvious dilemmas at hand. As one executive put it: "When some dogs are barking, they all bark. We hope we are at the end of that trend."