Church & Dwight Gummy Investment Targets Expanding Market

Church & Dwight expands its manufacturing capacity for gummy vitamins, citing strong sales growth in the category, and expects to use the format for some OTC products. Analysts expect interest in the gummy format to spread amongst manufacturers across the consumer health space.

Church & Dwight Co. Inc. expanded its production capacity for L’il Critters children’s and Vitafusion adult vitamin lines by 75% with an eye on gummy products’ potential to grow into a substantial piece of the dietary supplement market.

Church & Dwight estimates that gummies make up about 58% of the $300 million in children’s vitamin sales and about 3% of the $4.7 billion adult market – resulting in a market that’s worth about $315 million and growing.

Market researchers say adults as well as children may prefer flavored, colorful gummy supplements over tablet, capsule or gel-cap formats, and C&D’s focus on the form for supplements and possibly OTC drugs is a sound move.

Gummy products are helping spur overall vitamin and supplement market growth, which increased 4% in 2012 to $9.3 billion, according to Euromonitor International.

“Gummies as part of the total vitamin business are only about 9%. As far as we're concerned, there's 91% of the business to go.” – Church & Dwight CEO Jim Craigie

Ewing, N.J.-based Church & Dwight, forecasting plenty of room for growth in the gummy supplement sector – particularly with adult consumers, said Dec. 5 it is investing $55 million in an additional production line at its manufacturing facility in Jackson, Pa. The firm received $1.5 million in Pennsylvania grants for the project, with construction scheduled to begin in January 2014 and operations in early 2015 (Also see "In Brief: Pfizer OTC, Moberg, Atrium, C&D, Wockhardt, Herbalife" - Pink Sheet, 9 Dec, 2013.).

“Gummies as part of [all U.S. vitamin sales] are only about 9%. So as far as we're concerned there's 91% of the business to go,” said CEO Jim Craigie during the firm’s Nov. 1 third quarter earnings call.

Craigie projected Church & Dwight’s gummy vitamin sales will grow 20% to $300 million in 2013 and said the rate will increase slightly in 2014. While gummy vitamins account for less than 10% of the company’s overall annual sales, Craigie emphasized the sector is of particular interest to the firm, which accounts for 37% of total sales in the gummy vitamin market.

“The gummy form has such huge advantages in the taste and all the mouth-feel benefits of it,” Craigie said. He claimed that any consumer he talks to, after trying a gummy product for the first time, “assures me that's the last time they take a hard pill.”

When gummy chewable vitamins for children appeared more than a decade ago, “mothers were testing the products to make sure they were safe for their children and figured these could be good for me, too.” – Euromonitor International analyst Edward Hsyeh

According to the firm’s third-quarter earnings statement, L’il Critters is the leading brand of children’s gummy vitamins and Vitafusion increased its share of the market by 40% during the July-September period. Vitafusion has led adult gummy vitamin sales for the past eight quarters, accounting for six of the top 10 stock-keeping units in the category, and is the fastest growing adult vitamin brand for the past 52 weeks, the firm said.

Craigie said the firm will support the brands by increasing sampling within stores and working with retailers to make shelf displays more consumer-friendly.

“We've got a tiger by the tail here and we're going to be doing everything from increased marketing spending, new product innovations, increased distribution, increased sampling. We're just going to keep pounding it and delivering double-digit growth,” the CEO said.

The firm continues to make the gelatin-based vitamins in the two Washington state facilities it gained in its $650 million acquisition of Avid Health in late 2012, the deal that provided Church & Dwight’s dramatic entry to the gummy market (Also see "Church & Dwight More Avid About Consumer Health Growth" - Pink Sheet, 6 May, 2013.).

Ronkonkoma, N.Y.-based, [NBTY Inc.]also is investing in the gummy format. The firm announced on Oct. 30 that it will open a vitamin manufacturing facility in San Antonio that will allow the firm eventually to bring its gummy vitamin manufacturing completely in-house.

“Gummy vitamins are the fastest growing form of vitamins, up almost 30% versus a year ago and we expect that trend to continue,” said NBTY CEO Jeff Nagel in a same-day statement.

NBTY said the Texas facility will support its vitamin brands including Nature’s Bounty, Disney and Sundown Naturals, and at full capacity will produce more than 15 million vitamins daily. The firm’s announcement followed a May 2013 restructuring that closed seven of its manufacturing plants (Also see "NBTY Private Label Business Woes Prompt Facilities Restructuring" - Pink Sheet, 20 May, 2013.).

Supplement Sweet Spot

Analysts also expect gummy vitamin sales growth to accelerate.

Euromonitor International analyst Edward Hsyeh noted the first use of the gummy format was more than a decade ago when companies started making chewable vitamins for kids. But firms found fans in adults, too.

“Some mothers were testing the products to make sure they were safe for their children and figured these could be good for me, too,” said Hsyeh.

Demographic trends help drive the adult gummy market. As aging baby boomers become more active in self-care to curb their health care spending, particularly for the elderly, many seek out vitamins and supplements. More and more of these consumers prefer gummy vitamins, Hsyeh said.

Datamonitor analyst Tom Vierhile noted gummies are “more fun,” but also easier for some people to consume.

“Many older consumers may have a problem with swallowing and there is still the stigma of popping too many pills. This formulation is seen as a more palatable alternative,” Vierhile said.

Firms are trying to overcome the challenge of marketing to adults a product traditionally seen as a children’s item. They are abandoning the cartoon character or other amusing shapes used for children’s’ gummy vitamins for fruit shapes, discs or spheres. They also are using the format for multiple varieties of vitamins, some even for probiotics.

Vierhile also sees the gummy format as the next big trend in OTC drugs, expecting manufacturers to begin using it to replace pills or tablets in products like pain relievers and sleep aids.

Indeed, Craigie recently said Church & Dwight could extend the format to some OTC products in the next five years (Also see "Church & Dwight Considers Gummy Form For OTCs" - Pink Sheet, 6 Sep, 2013.).

Meanwhile, the latest driver in the gummy market space is sugar-free products. Hsyeh pointed out that firms recognize that health-conscious consumers prefer sugar-free products.