The past year was marked by unprecedented explosive growth in the herb industry as millions of Americans began using herbal dietary supplements and new sales highs were achieved in mainstream markets. As is often the case in rapidly expanding markets, the herb market is characterized by the proliferation of many small, large, and medium-sized businesses. However, as the market begins maturing, the trend toward consolidation begins. Add to this the entry of three pharmaceutical giants, and the herbal products playing field has changed forever.

During the past year, many manufacturers in the traditional health food market made acquisitions, were acquired themselves, or went public. In some of the biggest news American Home Products acquired dietary supplement manufacturer Solgar Vitamin and Herb Company for a reported $445 million. Nutraceutical, Inc., a holding company comprising the Solaray, Kal, and Premier One group of companies went public, as did Chatsworth, California manufacturer Natrol, who acquired garlic manufacturer PureGar from Basic Vegetable Products and herb diet tea marketer Laci LeBeau.

Major multi-level marketing (MLM) companies also consolidated positions in the herbal arena. Utah-based NuSkin International, which has been marketing herbal supplements under its Interior Design label, purchased the Pharmanex company of Simi Valley, California, the maker of Cholestin(R) and other specialty herb products formerly sold in mass market. NuSkin intends to bring the Pharmanex products into its MLM product mix and remove them from sale at retail.

Big news hit the industry when major MLM powerhouse Amway ($5.7 billion annual sales) purchased controlling interest in Trout Lake Farm in Washington state, the nation's largest producer of organically grown botanicals, producing a claimed 3 million pounds of 70 different botanicals annually.

More activity in the ingredient supply side raised more than a few eyebrows when global giant German-based Martin Bauer, arguably the largest supplier and processor of botanicals in the world, purchased the Muggenburg group of companies, suppliers of bulk raw materials, food flavorings, and botanical extracts, for a reported $90 million. The combined companies are clearly the largest supplier of botanical ingredients in the world. A long-time industry insider, requesting anonymity, sees mixed results from the Bauer-Muggenburg merger: "Consolidation on this level rarely benefits those who are consolidating. It can cause short-term confusion and customer service problems in the newly formed operating subsidiaries that tend to sort themselves out over the long-term. I look to their servicing their large customers very well, but some of the smaller customers may have more difficulties dealing with the consolidated firm. This consolidation should have very little effect on prices of raw materials, as there are still enough players in the global botanical market -- many of whom are not as large but are well positioned on specific materials, thus providing competitive balance."

Another powerful combination surfaced when the Swiss-based Zuellig Group, announced a merger of certain subsidiaries; the extract business of Botanicals International (Long Beach, California), a botanical ingredients supplier; Wilcox Drug Company (Boone, North Carolina), a provider of native North American botanicals to the domestic and European trade; and Zetapharm (New York, New York), a fine chemical ingredient supplier, with the publicly-traded Hauser of Boulder, Colorado in a deal valued at $66 million. Hauser produces standardized botanical extracts. According to company officials, this merger brings together complementary strengths; Zuellig provides sourcing, sales, and marketing while Hauser is strong in science and has state-of-the-art extraction facilities. The merger company will continue to be based in Boulder.

The trend toward vertical integration is seen in the recent acquisition of American Ingredients of Anaheim, California, a reseller of bulk botanicals and extracts, by Global Health Sciences of Orange, California, the holding company recently formed by Dick Marconi, owner of D&F Industries, the nation's largest contract manufacturer of herbal and conventional dietary supplements. D&F produces supplements for around 60 companies selling into various markets, particularly multi-level.

The herbal landscape was changed permanently when several volcanoes erupted in the mass market with the entries of Bayer, Whitehall-Robbins (div. of American Home Products) and Warner Lambert into the herbal products retail market. In the fall Bayer introduced a line of eight functionally based supplements combining herbs, vitamins, and minerals. Each is positioned to address a specific health area with each product named by its corresponding health benefit. Whitehall introduced six botanicals under its well-known Centrum(R) line, based on the patented PharmaPrint(R) standardized extract process in which several phytochemical ingredients are standardized and each bioassayed for biological activity. Warner Lambert introduced its new Quanterra(R) line of European botanical extracts based on the company's claims that the products in the line are clinically proven; the first two products introduced are St. John's wort and saw palmetto, both manufactured by one of the oldest phytome dicine manufacturers in Germany. The company plans to introduce additional herbal items in the first half of 1999.

Article copyright American Botanical Council.

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By Mark Blumenthal