Nutraceutical Start-ups are Booming. What’s Next?

What is common between Virat Kohli and Cristiano Ronaldo? A prevalent response would be that both are at the top of their professional sports. If probed further, someone could say that both have made more money than almost anyone else in their respective fields. Another response could be that both are probably the most marketable characters in the entire realm of sports. That marketability brings many opportunities your way in terms of brand partnerships. And as faith has it, both are the brand ambassadors of Herbalife.

But what is Herbalife? As per their website – "Since 1980, we have been on a mission to improve nutritional habits around the world with great-tasting, science-backed nutrition products that help people get the right balance of healthy nutrition." In short, it's a nutraceutical company. But what are nutraceuticals? Well, this is where we start getting into the grey. There are many definitions, but the best way to define them is as dietary products that "claim" (more on this later) to have nutritional benefits. So how are they different from dietary supplements, you shall ask? Nutritional supplements can be chemically synthesized, but nutraceuticals are exclusively derived from food. Hence, they can be considered to be a subset of dietary supplements.

Nutraceutical?was coined in 1989?by Stephen DeFelice and has been a rage in the US for almost half a century. Herbalife, which entered India more than 20 years ago, has bet big on India. It expects?India to be its largest market globally, superseding the USA. The pandemic has compounded this growth as an increasing number of people consumed supplements to boost their immunity. According to?a report by FSSAI, the nutraceutical market in India is expected to hit almost $10.2 billion in 2026 - a significant jump from $4 billion in 2020. With the country's rapid growth of the nutraceutical industry, it shouldn't be a total surprise to see start-ups board this runaway train.

According to Tracxn, 20 of the top 50 start-ups in the nutraceutical space have received funding in the past three years. These are start-ups backed by some of the most significant VC funds – Sequoia Capital, Fireside Ventures, and Sixth Sense Ventures, just to name a few. Unlike a pharmaceutical firm which requires you to jump through multiple hooplas to obtain a license, it's relatively straightforward to set up a nutraceutical firm. Consequently, the costs of setting up are also lower, and given the business's high margins, more start-ups are entering the fray.

These start-ups not only face stiff competition from each other but also from existing behemoths in the form of Amway India and the above-mentioned Herbalife Nutrition. These organizations have a distribution network (whispers "pyramid scheme"), which most, if not all, start-ups lack. Also in the fray are consumer goods companies like Dabur and Himalaya, who jockey back and forth over the Ayurveda (read "Indian nutraceuticals") segment. Not far behind are traditional pharmaceutical manufacturers such as Cipla and Dr. Reddy's Laboratories, both of whom have their own lines of nutraceutical products.

With so many players competing for the pie and little to no variety in the variety of products on offer, it becomes essential for these start-ups to build a brand and maintain consumers' trust. Thus, they have to burn most of their cash on aggressive marketing and packaging.??

Another challenge these start-ups face is the nature of the game they are playing.

Nutraceuticals have always been a gray area overseas as they have tread a fine line between claiming to have medicinal benefits but avoiding being under the purview of concerned regulatory authorities. In India, that line gets blurrier. Nutraceuticals are categorized as food products as per the?Food Safety and Standards Act, 2006. They have to follow specific manufacturing and labeling guidelines, but, and most importantly, don't have to ensure any uniformity in composition and standardization. Consequently, a fair share of start-ups has proliferated the market with contaminated products.

Google?Garcinia Cambogia?and countless products containing this fruit would show up. US Food and Drug Administration (FDA)?has advised consumers not to consume?any product that contains?G. Cambogia?as it contains sibutramine which increases blood pressure and/or heart rate. With European Food Safety Authority making it mandatory for nutraceutical firms to include only those substances approved by it and at specified levels, expect the noose to tighten in India in the near future.

Also questionable is the claim made by products of these kinds. These products claim to help in weight loss, a claim that?has been questioned before. The claims about certain nutraceutical benefits have already landed multiple brands in legal trouble abroad.?Dannon was forced to splurge $56 million?over false yogurt claims made through false advertising. As the market grows and people become more aware of the products, it won't be surprising to see such cases pop up in India.

Past start-ups in the field also don't generate much excitement. Zomato and Amazon (through the Solimo brand) dipped their toes in the nutraceutical business. The former was forced to close it down in six months, while the latter barely hangs on by a thread.

But not everything's gloomy. The Indian nutraceutical industry is expected to touch $8.5 billion by the end of this year, which would be 3% of the global market. Naturally, there's a lot of untapped potential in the region, and that's exactly what the VCs and entrepreneurs are banking on. Done rightly, India could transform itself from a consumer of nutraceuticals to a producer. Some start-ups like BBETTER are?already hoping to expand?into the US and Europe over the next few months. Herbalife is also?contemplating opening a manufacturing firm?in India, given the increasing importance of the market.

With the boost of the pandemic past it and possible regulatory challenges in front of it, no one can predict how the nutraceutical industry will grow and flourish in the ever-changing landscape of the Indian market.

This article was written by our team consisting of?Mohit Kumar Manhas,?RAGHU CHARAN,?Lokesh Kesiraju,?Yogesh Kumar Sahu, Dyuwan Shukla?and I as part of the Managerial Communication course taught by?Dr. Rahul K Shukla.

Feel free to read the document and share your thoughts on the same!?#startup?#xlrijamshedpur