With the rise of wearable technology, physical & mental wellness apps, fitness classes, and plant-based alternatives, there is no denying that the mindshare of health & wellness continues to grow rapidly in the mind of a consumer. These days, consumers view health & wellness through a much broader and more sophisticated lens, encompassing not just fitness and nutrition but also overall physical & mental health and appearance. The contemporary definition of health is no longer limited to physicality and the absence of disease. The World Health Organization (WHO) defines health as being “a state of complete physical, mental, and social well-being”.

Growing in sync with this trend is the consumption of supplements. Supplements have become an integral part of modern lifestyles, offering individuals a convenient and targeted way to bridge nutritional gaps and support overall well-being. Consumers today have a plethora of supplements to choose from; single vitamins, multivitamins, minerals, botanical extracts, and other bioactive compounds that aim to enhance various aspects of human health and wellness. From bolstering immune defenses to promoting bone strength, cognitive function, and more, dietary supplements offer a tailored approach to complementing daily diets and achieving optimal health.

And then there was COVID-19. As the world came to a stand still, the acceleration of supplementation in the minds of consumers reached new heights. The pandemic gave us a new found appreciation for health and wellness, just like adding fuel to a rocket ship. The world, especially Southeast Asia, is on course to continue on this bandwagon, Indonesia, which has been under-penetrated to date, shows promising signs of uptake. This article will explore DSGCP's view on Southeast Asia's Vitamin and Dietary Supplement (VDS) industry, more specifically, Indonesia, and why we are excited.

Money can't buy you health, but it can supplement it

Globally, supplement consumption is driven by many factors, most obviously, disposable income. We mapped Vitamin and Dietary Spend (VDS) against Gross National Income (GNI) per capita of various nations from the developed world (USA, South Korea, Australia, the Nordics) and emerging markets (ASEAN-6 and India) and unsurprisingly, there is a high correlation between disposable income and supplement spending.

Indonesia's VDS market is the largest in the region at USD 2.2 billion in 2022 and makes up 28.4% of the entire ASEAN-6. However, its VDS consumption per capita is low at USD 7.6, behind Singapore, Thailand, Malaysia, and Vietnam. This shows that Indonesia's VDS market is largely under penetrated, with a lot of room to grow. With Indonesia's GNI per capita estimated to double to USD 8,000 - USD 9,000 in the next 10 years, Indonesia's VDS consumption per capita has the potential to grow 2-3x, closer to where China, Thailand, Malaysia, are today. Combined with the 4th biggest population globally of 270 million people, that represents an additional USD 2 billion worth of opportunity waiting to be captured.

To buy or not to buy - human psyche in supplements

As a consumer-focused fund, DSGCP is obsessed with deciphering consumer psychology to answer one fundamental question - WHY do consumers buy? Sounds like simple enough question? Think again! This involves cracking a myriad of complex needs and emotions that are ever-changing.

Understanding consumer psychology in supplement consumption involves recognizing their progression through stages akin to Maslow's hierarchy of needs. Maslow prescribes that people are motivated to achieve certain needs, and some needs take precedence over others. The more affluent a society and the more "bottom-of-the-pyramid" needs are fulfilled, the greater the capacity to pursue higher-level desires. In the case of supplements, we believe that consumers transition between 3 different consumption stages that may explain their purchasing behaviours.

1. The first stage of consumption is "Supplements as Medicine". At this initial stage, consumers view supplements as more curative to address specific health deficiencies or ailments. Purchases are typically ad hoc and generally doctor led or to resolve specific health issues. These consumers buy supplements out of necessity to address a perceived health deficiency, as guided by healthcare professionals or test results. Products at this stage are often addressing the most basic needs such as Immunity, Mobility, Multivitamins etc. This is generally the "hook" into the category for most consumers.
2. The second stage of consumption is "Supplements as Prevention". In this stage, consumers proactively maintain overall well-being, transitioning from remedying deficiencies to investing in lifestyle needs. Purchase frequency increases as consumers become more health-conscious although not necessarily habitual. Here, consumers are willing to invest in a broader range of supplements, including those addressing beauty, energy, and sleep, beyond basic vitamins and minerals. DSGCP's portfolio company, Youvit, is serving consumers at this stage of consumption.
3. The final stage of consumption is "Personalized Supplements". Consumers aim for peak potential, not driven by lacking something but aspiring to be their best selves. With greater affluence and greater exposure to global trends, consumers are moving beyond the ethos of hard work and diligence into the space of indulgence and enjoyment. There is a shift from acquiring economic markers to acquiring lifestyle markers, which results in keeping the body and mind in shape to ensure you can enjoy a superior quality of life. Purchase frequency at this level is high as it has become habitual and aspirational. Consumers are also more likely to purchase multiple supplement solutions tailored to their unique needs and goals. DSGCP's portfolio company, Moom, is serving consumers at this stage of consumption.

Transition between these stages is influenced by income, education, age, and culture. Affluence and education often propel consumers from basic needs to higher desires. Brands should consider these factors and deeply understand cultural norms to tailor marketing and products effectively. This insight allows brands to align with cultural nuances and aspirations, staying relevant in diverse markets.

The Vanity Hook

The allure of beauty in human nature is undefeated. Traditionally, beauty is not seen as essential, but the influence of trends like K-beauty and J-beauty have catapulted it up the hierarchy of must-have products. A stroll down pharmacy aisles in countries embracing these trends reveals an array of supplement offerings dedicated to enhancing beauty and refining appearance. Beauty supplements in many places are viewed as part of preventive health measures, but consumers in Korea, Japan, and Thailand often perceive them more as a form of curative supplementation. This distinction emerges from their strong focus on appearance, at times prioritizing looks over overall health.

This beauty inclination is not unique to these countries, it is prevalent in Southeast Asia too! Based on a recent 9,000 person survey conducted by DSGCP, Bain & Company and Meta, beauty is ranked the 3rd/4th most essential to lifestyle across various income groups in SEA. This insight hints at the potential of beauty supplements, especially as consumers move from consumption stages 1 to 2. This may potentially drive higher proportionate spend as income increases.

The Indonesian Psyche

To understand why VDS is under-penetrated in Indonesia, we first explore Indonesians' perception of health and wellness and how supplements should play a role. In the aforementioned survey, 54% of SEA consumers (52% in Indonesia) are concerned about both physical and emotional wellness as compared to 40% of their Europoean counterparts. However, despite the higher concern, SEA consumers still spend less than other regions. This represents a clear "Say-Do" gap which may be driven by affordability and accessibility.

The table above shows the consumption behaviour of consumers in different countries. Compared to the rest of the developing and developed nations in Asia, Statista reported that 29% of Indonesians take supplements only when sick, as compared to <8% in other countries (with the exception of Vietnam). On the flip side, 75%-80% of consumers in other countries take supplements regularly (daily or weekly) while only 61% of Indonesians do so. The Indonesian psyche of buying supplements is between the first and second stages, where the association of supplements with medication is still relatively high, but there is evidence to suggest that more consumers will make the transition with higher incomes and better education.

Herbal ingredients - leveraging thousand years of history

Herbal remedies, known by various names and deeply rooted in many cultures, enjoy widespread acceptance and familiarity in Asia, primarily due to the rich history of traditional herbal medicine practices. Terms like Jamu, Traditional Chinese Medicine (TCM), and Ayurveda are recognized in different regions, and this familiarity often leads to reduced resistance or skepticism when it comes to trying supplements containing herbal ingredients.

China represents a compelling case study that provides insights to where the Indonesian supplement market might be heading. The Chinese supplement market sees Herbal, Healthy Aging, and Immunity as the top three categories in 2023, showing that everyday health is top-of-mind when it comes to supplement consumption. Two best-sellers, Royal LingZhi Capsules and Milk Thistle Tablets, are herbal-based products. The herbal category is projected to be worth USD 7.68 billion as of 2023, approximately 20% of China’s VDS market and the largest individual category.

Indonesia is showing signs that herbal ingredients are poised to play a significant role in the development of the supplement market. For example, Tolak Angin, an age-old brand started in the 1950s, has been used by generations of Indonesians to boost the immune system and digestion. Despite significant advancement in modern medicine, Tolak Angin has withstood the test of time and remained a household brand. Indonesia also has successful listings of herbal supplements such as Tolak Angin's parent company, Sido Muncul (USD 1 billion market cap), and Kalbe (USD 5 billion market cap).

It is important to clarify that recognizing the role of herbal ingredients in supplement adoption is not about establishing them as superior to modern science. Instead, there is ample evidence to suggest that herbal supplements can enhance adoption by introducing familiarity and reducing the need for extensive consumer education. They resonate with cultural practices and offer a sense of trust and comfort that aligns with the history of traditional medicine.

Does form factor matter?

Pills, effervescent, liquid, powder, gummies have all been used to varying degrees to deliver supplements into our bodies. In the US, which boasts one of the most sophisticated and largest supplement markets globally, consumers are increasingly seeking personalized supplement options to help them optimize their health. This would be the closest representation of the highest stage presented in the hierarchy. Notably, the top 3 formats in the US are combined pills (39.2%), gummies (21.3%) and powder (15.6%). However, the fastest growing form factors are gummies, shots, and softgels. Google keyword trends of "Gummy Supplements" vs "Pill Supplements" searches in the US from 2010-2023 showed a CAGR of 25.6% for gummies as compared to a CAGR of 7.6% for pills. Some of the factors driving this phenomenon include:

• Adults 45 and older suffer from “Pill fatigue” as they take four or more prescription medications daily. Switching to a gummy version of a vitamin or supplement makes them feel as if they are not taking so many pills.
• Gummies are a pleasant way to mask the aversion to pills that taste bad or have foul odors. Tasting like candy also helps consumers to take supplements more consistently.
• Gummies appeal to both children and adults. While originally targeted at children to eat more supplements, adults have also started treating gummy supplements like candy, evoking feelings of nostalgia and pleasure during consumption.

Consumers at the highest stage consume supplements as part of their lifestyle, hence they are constantly searching for ways to make supplements more enjoyable and convenient, leading to the "snackification" of supplements.

In contrast, China's supplement market has its own preferences, with capsules (42%) and tablets (36%) being the top two formats in TMall. The best-selling supplements in China often focus on immunity and general health, reflecting a consumer mindset primarily oriented toward prevention. However, snacking formats like gummies and jelly have become more and more popular among young Chinese consumers. At this stage, consumers in China are open to trying new formats and may actively seek them out.

Similarly, Indonesia is still in the early stages of its supplement journey. Consumers may be relatively indifferent about formats, resulting in a prevalence of pills or tablets, which align with the familiarity of traditional medication forms.

In summary, the choice of formats varies significantly between countries due to cultural factors, consumer preferences, and the stage of supplement consumption. The US represents an advanced market with a strong focus on personalization and enjoyable formats, while China and Indonesia are at earlier stages with different priorities and preferences in supplement delivery methods.

Brand positioning as the MOAT - Selling what people want, not what they need

The supplement industry is a legacy industry that is highly competitive and has low barriers to entry. While the top purchase considerations of the category are trust, high quality ingredients and efficacy. The ease of manufacturing, lower regulation requirements and wide range of products have leveled the playing field and made it increasingly difficult to differentiate. So how do some companies succeed while others fail? Here is where we take a leaf out of Eric Ryan's OLLY playbook, which was acquired by Unilever in 2019. DSGCP had the privilege of interviewing Eric Ryan and his journey at Method and OLLY Vitamins.

OLLY vitamins are made out of similar active ingredients as most VDS brands, but instead of focusing on selling the ingredients, they focus on selling the benefits. So instead of selling biotin or collagen, they sold beauty. Instead of selling melatonin, they sold sleep. Instead of selling vitamin C, they sold immunity. Psychologically, this appealed to US consumers because it presented them with what they innately wanted instead of what they needed.

Other than the focus on benefits versus ingredients, OLLY's entire proposition was built around the idea of making health delightfully easy for the millennial consumer: packaging was colorful and designed to be proudly featured on a shelf (rather than tucked away in a medicine cabinet), the brand name OLLY was friendly, approachable and even included a smile in its logo (unlike the typical typical codes of the category following conventional names like Nature's Way, Nature's Made) and the format of gummies was purposefully selected to be a delicious, delightful and convenient experience.

While this is not to say that the exact same playbook should be replicated in Indonesia, providing unique appeal in the sea of same-ness will be imperative for all new brands.

Vibrant M&A activity

The supplement industry has garnered significant attention in the M&A market, driven in part by heightened consumer awareness of health and wellness, especially in response to the COVID-19 pandemic and the growing interest in preventive measures. According to a PWC report, a total of 9,500 global healthcare (including supplements) deals were transacted in the last 5 years (20% in the Asia Pacific region). Strategic players, such as Nestlé, Unilever, and Bayer, have taken strategic steps to strengthen their positions in the supplement market, while financial players, such as L Catterton, WM Partners, Lion Equity partners, have acquired strong brands and manufacturers with the intent to scale through acquisition. Some notable deals include:

• Olly Nutrition (https://www.olly.com/) and Smarty pants Vitamins (https://www.smartypantsvitamins.com/) were acquired by Unilever for an undisclosed amount
• Care/of (https://www.takecareof.com/) acquired by Bayer at USD 225 million valuation
• IM HealthScience (IBgard, FDgard, Fiber Choice and REMfresh) acquired by Nestle Health Science for an undisclosed amount
• Thorne HealthTech acquired by L Catterton for USD 729 million
• Allergy Research Group (https://www.allergyresearchgroup.com/) acquired by WM Partners for an undisclosed amount

With great challenge comes great opportunity

The Indonesian supplement industry is undoubtedly filled with potential, but has a lot of local nuances that new brands will have to overcome. Based on our research and reflection, we believe that Indonesia is near the inflection point for an uptake in adoption of supplements. Indonesia's GNI per capita is expected to double, which definitely aids the adoption of supplements, and narrows the "Say-Do" gap. Culturally, consumers will evolve from the "supplement as medicine" mindset, with herbal ingredients and branding playing a role in accelerating that shift. New brands able to navigate these nuances and promote the benefits of supplements as part of a healthier lifestyle could find opportunities for growth in Indonesia's evolving market. Who will be the next to supplement Indonesia's way to better health?