Third Industry Survey 2017

The Italian food supplement industry

FederSalus Research Centre

Italian food supplement industry

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Trade turnover

€2,385 million

Industry investments

about €239 million

(10% of turnover)

Total employees

19,977

Industry estimates

Industry exports

€405 million

(17% of turnover)

53% 47%

50% 50%

62% 38%

50% 50%

Companies represented by FederSalus

Other industry companies

1. Market outlook in Italy and Europe

2. Structural and economic indicators for Italian food supplement industry

3. FederSalus member companies

3.1 Number of employees, turnover of member companies, value of investments and use of government incentives

3.2 Human capital 3.3 Distribution channels and food supplement information and promotion models

4. Focus on exports and other overseas operations

Policy news Methodological notes

Contents

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Food supplements

The use of food supplements is recommended when certain substances are needed to help improve overall health, although they have no healing properties.

Food supplements are “food products designed to supplement the ordinary diet and represent a concentrated source of nutritional substances, such as vitamins and

minerals, or other substances having a nutritional or physiological effect” (Article 2 of Directive 2002/46/EC).

FederSalus is a trade Association representing the food supplement industry, currently comprising nearly 200 member companies operating in Italy.

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1. Market outlook in Italy and Europe

97 116 123 139 142 160 172 185 204 212

1,315

1,576 1,664 1,892 1,938

2,066 2,254

2,567 2,760

2,923

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Volumes Value

CAGR 2008 VALUE - 2017: 9.3%*

CAGR 2008 VOLUME - 2017: 9.1%*

Italian food supplement market

Source: Data processed by Nielsen Scantrack Total Pharmacy, Paraph., Large Retail Channels 2008 – 2014, Data by New Line Ricerche di Mercato and IRi Pharmacy and Large Retail Channels, including pharma corners in hypermarkets and supermarkets, 2015 – 2017 (MAT December) * Compound annual growth rate accounting for the annual average percentage growth **Source: GfK Food Supplements 2017 Monitor for FederSalus. The figure referring to an average use of 1.6 types of supplements comes from a survey conducted by the Institute in 2015.

€/m

illio

n o

f p

acka

ges

2017: each person used an average of

2.5 types of supplements**

2015: each person used an average of

1.6 types of supplements**

According to FederSalus data for pharmacy and large retailer channels only, Italian food supplement market is worth nearly €3 bn, and has grown by 5.9% in the last year. About 92% of market value derives from pharmacy sales, while the remaining 8% is generated by large retail outlets.

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Market demand is driven by diverse needs: toning up, strengthening, specific prevention needs

Cleansing, blood circulation, heavy legs, cellulite, weight control, aesthetics

Multivitamins, Mineral salts Tonics/Energisers, Sport, Memory

and cognitive functions

Heart/cholesterol, bones and joints, immune system, winter

prevention/problems, pregnancy and breast-feeding

Intestinal problems/lactic ferments, menopause, women’s problems, prostate, fertility, eye problems,

urinary tract ailments, sleep or anxiety problems

Source: Processed data from GfK Food Supplements 2017 Monitor for FederSalus (6,946 respondents representing the Italian adult population)

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Over the past year 65% of the Italian adult population (32 million of Italians) used at least one food supplement. On average, each person used 2.5 types of supplements, with more than two thirds of consumers considering them safe and effective.

Consumer use

Specific situations 28%

Prevention 22% Well - being 15%

Toning, Strengthening,

Energy 35%

50% 50%

50.1%

Food supplements

10.6%

9.4%

8.7%

8%

13.2%

Branded prescription Food supplements

Generic drugs SOP+OTC

Skin care Other non-drug

Pharmacy retail value

(€/m)

% Trend (2017 vs 2016)

Contribution to % of retail value (2017 vs 2016)

Global 25,227 -0.5%

-0.5%

Branded prescr. 12,650 -2.4% -1.2%

Food Supplements

2,667 +5.5% +0.5%

Generic drugs 2,369 +4.8% +0.4%

SOP+OTC 2,194 -1% -0.1%

Skin care 2,024 +0.03% 0%

Other non-drug 3,323 -1.1%

-0.1%

% breakdown of pharmacy retail value

Source: Processing based on New Line Ricerche di Mercato data, MAT December 2017

Pharmacy: distribution channel of choice

….where food supplements are the second biggest category after branded prescription drugs.

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Italy one of European leading food supplement markets

Source: Processed based on Euromonitor International Eastern and Western Europe data, Vitamins and Dietary Supplements category -

Current Prices - Fixed 2016 Exchange Rates

% value of leading markets

More than €9 billion Approx. €12 billion Approx. €15 billion

Note: The Euromonitor International classification is based on product composition, which prevails over marketing, regulatory and

registration aspects Euromonitor International’s vision is not comparable with that of other research institutes that monitor sales generated in Italy,

nonetheless it allows a comparison to be made with other European countries

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8.4% 8.9% 8.6%

9.5% 9.7% 9.5%

5.5% 9.6% 11%

18.5% 13.2% 11.4%

19.8% 20% 20.6%

38.3% 38.6% 38.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2016 2021

Altri mercati Europei

Italia

Germania

Russia

UK

Francia

Other European markets Italy Germany Russia UK France

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2. Structural and economic indicators of Italian food supplement industry

Estimate of main indicators

Trade

turnover €2,385 million

Employees 19,977

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Value of investments

Approx. €239 million

(10% of trade turnover)

Italian food supplement industry

Outsourcing: a structural characteristic of the food supplement industry

Trade turnover: €2,385 million

73%

16%

11%

% breakdown of turnover

Branded products Contract manufacturing Raw materials

Company type Industry-wide trade turnover (€/m)

Industry trade turnover net of export share (€/m)

Branded products 1,745 1,500

Contract manufacturing

393 295

Raw materials

247 185

Food supplements in Italy cannot be produced in facilities where drugs are produced, as these two types of production must be kept clearly separate.

This regulation has led to the development of a typically Italian “virtuous” system, with cooperation between

pharmaceutical companies operating in the food supplement industry and Italian companies specialising in R&D and toll manufacturing.

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…a feature in common with Italian pharmaceutical industry The Contract Development and Manufacturing Organization (CDMO) is an excellence in pharmaceutical industry

Italy generates about 23% of the value of CDMO production in the EU (Germany 20%), also growing more than Germany.

The strengths of the CDMO sector in Italy are to be found in the close interaction along the production chain, supporting innovation, quality and flexibility of production processes.

Source: “Le imprese del Conto terzi farmaceutico in Italia: network e digitalizzazione”, 2017 study by Farmindustria-Prometeia

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€7.6 bn

Value of CDMO production in the EU

2010 - 2015 growth

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3. FederSalus member companies

3.1 Turnover, number of employees, value of investments and use of government incentives

Number of FederSalus members Companies responding to survey

Branded products Contract manufacturing Raw materials

185 83 64% 18% 18%

2016 industry turnover (trade revenue) estimated for all member companies

€1,186 million

Average company turnover €6.4 million

Total employees of member companies 10,583

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Estimated turnover and number of employees of member companies

73.5% 21.7% 4.8% Turnover trends

Increased Steady Decreased

Food supplement turnover and employment trends: a strong and growing sector

Trade turnover of member companies: €1,186 million

Total employees in member companies: 10,583

Basis: 83 companies

52% 48% Employment

trends

Increased Steady

Basis: 83 companies

58.7% 20.5%

20.8%

% breakdown of turnover

Branded products

Contractmanufacturing

Raw materials

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Investments/turnover ratio related to food supplements in the past year

About 50% of member companies responding to the survey stated they had reinvested up to 10% of their food supplement turnover

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The value of investments of

member companies

About €119 million

Note: The figures shown are estimated as 10% of the trade turnover of member companies referring to food supplements (€1,186 million).

This information made it possible to estimate:

Categories traded alongside food supplements

77%

51%

39%

20%

19%

11%

Medical devices

Cosmetics

Drugs

Food for specific groups

Food for sportsmen

Gluten - free food

Basis: 83 companies

In addition to specialising in the food supplement industry, member companies are also engaged in pharmaceutical, cosmetic and food activities

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65%

53%

28%

19%

16%

9%

50% tax credit on incremental expenses for research,development and innovation purposes

Super depreciation

Hyper depreciation

Aid to economic growth (“ACE”)

New Sabatini Act

Support for internationalisation as part of the extraordinary plan of the Ministry for Economic Development aimed at

promoting “made in Italy” products

Basis: 43 companies

Use of government incentives for investments in Italy

Significant use of tax credit for research, development and innovation purposes. This measure is designed to stimulate R&D spending in the private sector to innovate processes and products and ensure enterprises’ competitiveness.

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Patent Box

24% of responding companies (20 out of 83) stated that with regard to 2016 income they applied to the Revenue Agency for favourable tax treatment (known as the Patent Box) on income from intangible assets, such as trademarks*, patents and know-how.

*2017 was the last year in which it was possible to apply for favourable tax treatment based also on 2016 income from trademarks income

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3

3

Branded products

Contract manufacturing

Raw materials

Number of member companies who applied

Type of application submitted Number of companies

Referring to food supplements as well as other product categories traded

10

Referring to the food supplement category only

6

Referring to other product categories traded other than food supplements

4

20

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3.2 Human capital

Human capital

Employees

Educational level:

Women 55% Men 45%

Degree 56%

Upper secondary school diploma

34%

Lower secondary school diploma

10%

In 64% of cases scientific degrees were held (e.g. biology, biotechnologies, chemistry and pharmaceutical technologies, pharmacy, etc.)

Basis: 83 companies 22

Skills most sought

32.1%

19% 18% 15.2% 17.7% 11.5%

11.5%

15.2% 11.5%

11.4% 8.9% 9%

24.4%

25.3% 30.8% 30.4% 26.6%

24.4%

11.5%

12.7% 11.5% 21.5%

10.1% 21.8%

20.5% 27.8% 28.2%

21.5%

36.7% 33.3%

very much in demand much in demand in demand less demand little in demand

Aggregate percentage of

responses: “Very much in

demand and Much in

43.6% 34.2% 29.5% 26.6%

Responding companies searched for professional profiles with skills in the following areas:

Design, formulation

development and control of food supplements

Use of food supplements

in the medical field*

Legislation principles

Economics and management of

food supplements

Food supplement chemistry

Food supplement

biochemistry

26.6% 20.5%

Basis: 83 companies 23

* The roles and functions involved may be different, for example scientific management and/or sales reps

2.7% 5.2% 2.6% 6.6% 9% 10.5% 8.1% 6.5% 14.2% 5.3% 7.8%

11.9%

35.1% 35% 29.9% 38.1%

35.1%

36.8%

23% 22.1% 19.5%

25% 22.1% 11.8%

31.1% 31.2% 33.8% 25% 26% 29%

very easy easy quite easy difficult very difficult

53.3% 53.3% 50% 48.1% 40.8%

Food supplement biochemistry

Use of food supplements in

the medical field*

Economics and management of

food supplements

Legislation principles

Design, formulation development and

control of food supplements

Food supplement chemistry

Skill areas and availability

Aggregate percentage of

responses “Very difficult and

difficult”

54.%

Basis: 83 companies 24

Responding companies said it was not easy to find professional profiles with skills in the following areas:

* The roles and functions involved may be different, for example scientific management and/or sales reps

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3.3 Food supplement distribution channels and information and promotion models

66.7%

39.2%

37.3%

33.3%

23.5%

Medical and scientific information

Consumer advertising

Communication activitiy at Point of Sale(POP)

Point of sale staff training

In store promotion

Food supplement information and communication models

Basis: 51 branded companies 26

Medical and scientific information is a key feature of the industry, together with communication and training activity at the point of sale, i.e. the pharmacy, the main purchasing channel. A major role is also played by communication intended for the consumer.

4. Focus on exports and other overseas operations

58.1% 68.7% 74.6%

37.1% 26.6%

25.4%

4.8% 4.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 Survey 2016 Survey 2017 Survey

Decreased

Remained stable

Increased

Growth trends continue for overseas operations

Basis: 62 companies Basis: 64 companies Basis: 59 companies

Compared with the previous year your company’s overseas operations have:

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66.1%

15.3%

18.6%

Assuming food supplement turnover to be 100, the % share of overseas operations is:

Less than 25%

Greater than 50%

From 25% to 50%

Weight and trends of exports and other overseas operations

Basis: 59 companies

% share of overseas

operations/total turnover

2015 survey 2016 survey

Less than 25% 72.6% 70.3%

From 25% to 50%

16.1% 15.6%

Greater than 50%

11.3% 14.1%

Previous surveys

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2017 industry survey

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Impact of sales in overseas markets on total turnover

Based on the information provided by respondents, operations in overseas markets make up about 21% of total trade turnover of member companies

81.5% 80.2% 79%

18.5% 19.8% 21%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 Survey 2016 Survey 2017 Survey

Industry share of turnover from operations in overseas markets

Industry share of turnover from operations in the Italian market

Basis: 62 companies Basis: 64 companies Basis: 59 companies

Value of exports

Value of exports of member companies

Approx. €250 million

Value of exports of entire industry

€405 million

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Note: The value of exports of member companies is determined by applying the estimated share of overseas turnover (21%) to total trade turnover (€1,186 million). The value of exports of the entire industry accounts for about 17% of estimated trade turnover of the entire industry (€2,385 million).

Reference overseas markets:

76.3%

45.8%

18.6%

57.6%

20.3%

22.0%

13.6%

40.7%

8.5%

25.4%

27.1%

Euro area

Other EU countries

United Kingdom

Non-EU Europe

Russia

China

India

Other Asian countries

Africa

North America

Central and Southern America

What are the main areas/countries where your company operates directly or indirectly?

69.5%

37.3%

11.9%

35.6%

37.3%

32.2%

18.6%

37.3%

10.2%

37.3%

27.1%

Can you please state the countries where your company’s overseas operations will be directed in the

near future?

Basis: 59 companies

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67.8%

35.6%

28.8%

18.6%

16.9%

13.6%

3.4%

Distributor

Attending international trade fairs andevents

Direct presence/foreign branches

Importer

Agents

Licensees

Joint venture

Can you tell us about the ways in which your company operates in overseas markets?

62.5%

40.6%

23.4%

12.5%

20.3%

18.8%

4.7%

2016 survey

Methods used by companies to operate on foreign markets

Basis: 59 companies 33

Basis: 64 companies

Colonna1

Cluster “I have turnover from

exports” (basis 59)

Future outlook

Increased 67% Will increase 65%

Stable 33% Will remain stable 35%

Decreased / Will decrease /

Order/contract trends for overseas markets

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Colonna1

Cluster “I have turnover from exports” (basis 59)

Cluster “I do not have turnover from exports”

(basis 13)

Increased 65% 63.6%

Stable 35% 18.2%

Decreased / 18.2%

Order/contract trends for the Italian market: a comparison between clusters

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Exporting companies have better order/contract trends in the Italian market

Steps required to drive exports in the industry

• Implementation and institutional certification of good manufacturing practices

in the production process

• Recognition of NACE Code and unique Customs Code for food supplements

• Streamlining of export formalities

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6. Policy news European position paper on probiotics: FederSalus contributed to drafting a consensus document of

EHPM, IPA and EDA Associations in line with the position of the Italian Ministry of Health, with the aim of raising awareness among European Institutions so that a common solution may be found among Member States to allow the industry to use the name probiotics, overcoming current regulatory criticalities. The document was submitted to the European Parliament on 7 November 2017.

Food supplement electronic notification system: At the end of 2017 the Ministry of Health announced it had prepared a system for the electronic notification of food supplements, food for specific groups (formerly “dietary”), gluten-free food specifically formulated for people suffering from coeliac disease to which vitamins and minerals have been added. The system will come on stream in 2018 and will replace the method currently in place.

Belfrit list of botanicals: On 28 June 2017 the Italian Ministry of Health submitted a draft Decree to the European Commission containing a single list of the plants allowed to be used in food supplements (the “final” BELFRIT list), which will become the only list of plants usable in Italy. The Decree is expected to be published by the end of March 2018.

Recommendation to make VAT on food supplements uniform: on 22 December 2017, following the approval of the 2018 Budget, the government approved the agenda concerning the application of a single 10% VAT rate on food supplements. This VAT adjustment would remove the disadvantages for supplements on which a 22% rate is applied at present, with a benefit for consumers.

Competition Bill written into law: Law No. 124 of 4 August 2017 introduced changes for pharmacies, which are the main distribution channel of food supplements. The Law introduced the possibility for limited companies to own private pharmacies to the extent of 20% of pharmacies operating in the same region.

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Methodological Notes

The results processed include the questionnaires completed by 83 member companies. About 45% of member companies participated in the survey (83 out of 185 total companies).

Trade turnover estimates for FederSalus member companies and the industry as a whole were based on information provided by responding companies, taking into account the relevant sell-in value as a reference value for calculation purposes. This value was determined by applying a 50% estimated trade margin to the sell-out generated in pharmacies and large retail outlets (source: New Line Ricerche di Mercato and IRi).

Estimates referring to the number of employees, including both the 185 member companies and the industry as a whole, were determined using ISTAT(1) coefficients relating to employee classes consistent with companies’ estimated turnover.

(1) 2015 ISTAT Report “Struttura e competitività del sistema delle imprese industriali e dei servizi” (Structure and competitiveness of industrial companies and services)

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For further information: Stella Poce s.poce@federsalus.it Giuseppe Marinò g.marino@federsalus.it

FederSalus Research Centre Via Brenta 2/A 00198 – Rome www.federsalus.it Tel.+ 39 06 54221967

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