Ingredient suppliers have no control over demand

By Virpi Varjonen

- Last updated on GMT

Related tags Supply and demand

Could direct connections and relationships with consumers provide suppliers of nutritional ingredients with better opportunities and less volitility in demand?
Could direct connections and relationships with consumers provide suppliers of nutritional ingredients with better opportunities and less volitility in demand?
No one envies the position of nutrition ingredient manufacturers and suppliers these days. They are stuck in the middle of the value chain, facing pressure from all directions, says Virpi Varjonen.

The industry keeps inventing new ingredients, technologies and applications, but ever so rarely do these inventions become successfully commercialised innovations bringing proper return on investment (ROI). It has become increasingly difficult to sustain price margins, when there are many options available and also aggressive pricing tactics.

However, the elephant in the room is that ingredient suppliers have no real control over demand.

Demand increasingly volatile

Trends come and go with an increasing pace, and companies with few ingredients in their selection are especially affected by such fluctuating demands. These demands have also become more volatile due to the “Dr. Oz effect”, and other hypes and unfavourable (or sometimes favourable) mass media communication.

The reality in the ingredient business may well be that one day you have an ingredient you desperately try to push forward on the market and the next day something out of your control happens and you don’t even have enough capacity to meet the booming demand. Or vice versa. Hardly a desirable situation, right?

Good science just isn’t enough

But surely consumers will buy products if we can just prove how healthy and great our ingredient is?

There is an ever-increasing body of science on the health benefits for different nutritional ingredients. But even the more consumer-oriented research approaches and good quality science around relevant health concerns are not enough to control the demand.

Consumers simply may not ever hear about your research, no matter how much you try to push it.

“We need to educate the consumer”

Sure, the consumer needs to know what omega-3, astaxanthin or other health ingredients can do for them. The problem is that there is just so much information available nowadays. But little of it readily understandable and relatable to the consumer.

Few consumers are capable of independently evaluating the (often conflicting) scientific evidence of the health benefits of different ingredients and even fewer have the time and energy to invest in that.

Another problem in today’s world is that no one is listening. Traditional communication and marketing methods such as PR are losing their power. In today’s world, the fact is that no one can control what mass media, or a single blog writer, wants to write.There’s no point in wasting time and energy on that. The educational approach has come to its end.

The root cause: No connection to consumers

Fair enough, ingredient companies have admittedly tried to speak to the consumer by applying a consumer-driven approach, in which they develop solutions for specific consumer health concerns.

Additionally, they have created variations of the same ingredient, targeted to specific consumer groups with their specific needs, like women or the elderly.

Despite the health relevance to consumers, proper science and other attempts to develop business such as sustainability and traceability systems, demand factors simply remain out of the ingredient suppliers’ control. Consumers hold the ultimate power, but long supply chains stand between the ingredient suppliers and consumers.

Most ingredient suppliers have no real interaction with or direct connection to the consumers. Therefore, the problem of volatile demand remains - making the nutrition ingredient business a highly risky one.

Opportunity:  direct connection with the consumer

Would the following sound good: stable demand, strong barriers to switching, more negotiation power, means to sustain higher prices and being less affected by external threats?

Look around you, the first movers have already realised how to reach this by applying a consumer-centric approach! Nutrition ingredient suppliers have the opportunity to get a better grip over market demand by applying a consumer-centric business model.

This is about establishing a direct connection and relationship with the consumers.

It is not our responsibility to market to consumers​”, say many nutrition ingredient companies.

No, but it is a long-term business opportunity to sustain better nutritional ingredients business. Why would you want to relinquish that power?

Virpi Varjonen is a nutrition market analyst and strategist in a Nordic strategy and marketing agency Invenire Market Intelligence Oy. She’ll be happy to discuss and debate the consumer-centric approach within ingredient business with at Hi Europe in Amsterdam

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