LONDON—A recent bidding war between Reckitt Benckiser RB.LN +1.01% PLC and Bayer AG BAYN.XE +0.34% for vitamin maker Schiff Nutrition International Inc. could be a taste of things to come, as consumer-products companies and drug makers jostle to grab a slice of a growing market for vitamins and health supplements.
According to Euromonitor, the global market for vitamins and minerals was worth $84 billion in 2011 and has grown by 12% at constant exchange rates in the past five years. It is the largest and fastest-growing subset of an overall global consumer health-care market worth nearly $200 billion, Euromonitor says. New products are pepping up the market, with the fastest-growing categories including vitamins B and D, calcium, fish oils and “probiotics” (nutritional bacteria).
Aging populations in advanced economies are spending more money on supplements—with claims that they improve physical function that deteriorates with age, particularly as prescription drugs are becoming more expensive. In developing marketswhere over-the-counter medicines often account for the bulk of all drugs sales, rising middle classes are spending more to counter nutritional deficiencies and stave off diseases which are still threats to life.
“We are going to see more consolidation in the vitamins and supplements market,” said Monica Feldman, head of global consumer health research for Euromonitor.
Firms like Reckitt, Nestlé SA NESN.VX +1.60% and drug maker GlaxoSmithKline GSK.LN +0.29% PLC are placing big bets on a trend for consumers in both mature and fast-growing markets to spend more money on managing their own health. Reckitt Benckiser last week agreed to buy Schiff for $1.4 billion, topping an earlier-agreed deal with Germany’s Bayer at a 24% premium. This isn’t the company’s first major acquisition in the consumer health sector: In 2006 it acquired the over-the-counter medicines business of the U.K.’s Boots for £1.93 billion ($3.1 billion).
GlaxoSmithKline, the U.K.’s biggest drug maker by sales, announced two deals, also last week, to take greater control over the company’s subsidiaries in India and Nigeria. The deals were driven mainly by the success in India of hot drink Horlicks, a big brand there due to its nutritional claims.
German chemicals group BASF SE BAS.XE +1.17% recently agreed to acquire Norway’s Pronova Biopharma for $840 million to expand its nutrition business, while Chinese foods giant Bright Food in 2010 came close to acquiring U.S. vitamin retailer GNC, people familiar with the matter said.
Other consumer groups interested in nutrition include Anglo-Dutch giant Unilever ULVR.LN -0.58% PLC, which is researching how factors such as the genetic makeup of microbes within the body, demographics and lifestyle affect the way people process nutrients in a research program called “nutrikinetics.”
Nestlé, which has been building its exposure to nutrition through deals such as the acquisition of Pfizer Inc.’s PFE +0.41% infant-nutrition business earlier this year, on Wednesday announced a joint venture with Hutchison China Meditech Ltd. HCM.LN 0.00% to launch nutritional products based on Chinese medicine.
Drug makers, seeking to offset declines in prescription drugs that are coming off patent, also see opportunities in nutrition. “Pharma companies are much more interested in consumer health than they were 5-10 years ago,” Bernstein Research said in a recent note. “The stable growth and cash flow generated from their consumer health businesses…contrasts to [sic] the instability and patent risks of their core pharmaceutical businesses.”
GlaxoSmithKline, in particular, has been ramping up its consumer business over the past five years, and Chief Executive Andrew Witty has said that consumer medicines can move more quickly into all-important emerging markets than prescription drugs. Pfizer boosted its exposure to vitamins through its 2009 acquisition of Wyeth. In October Sanofi SA SAN.FR +0.36% launched a joint venture with Coca-Cola Co. KO +0.56% called Beautific Oenobiol to launch a range of drinks carrying well-being and beauty claims
The vitamins market is highly fragmented, offering scope for consolidation and making more deals likely. According to research by Nicholas Hall & Co., the top 10 players in the market between them account for under a quarter of total market share, with around 45% of the market dominated by small, one-region players.
The business isn’t without its pitfalls. Tastes and growth rates vary significantly from market to market. In the U.S., vitamin sales grew 24% over the past five years at constant exchange rates, Euromonitor says. In the U.K., by contrast, vitamin sales are flat at best, according to research firm Mintel.
Euromonitor’s Ms. Feldman warns that while the scope for emerging-markets growth is great, individual markets have radically different cultural perspectives on nutrition. She points in particular to the historical strength of the herbal medicines markets in India and China, a challenge for Western multinationals. Meanwhile over-the-counter medicines are attracting a growing level of scrutiny from regulators, in particular in Europe. The European Union is increasingly forcing companies that make health claims for products to back them up scientifically. “A key risk for Reckitt—and other corporates—is the potential for this category to be upset by regulatory changes,” said Martin Deboo, an analyst with Investec Securities in London.
The lines are blurring in the vitamins sector between pharmaceuticals and consumer companies, says Ms. Feldman. And while pharmaceutical companies have the scope to produce higher-quality vitamins, consumer companies may have the edge in their expertise of marketing consumer products and the ability to source products cheaply. There is much to play for.
—Mimosa Spencer in Paris and John Revill in Zurich contributed to this article.