Takeaways from the NY AG Case and Publicity

After the big announcement in February this year from New York Attorney General Eric Scheiderman that DNA testing of several herbal supplements purchased from a handful of major retailers in New York state had revealed issues with authenticity and contamination, the dietary supplement industry was not sure what effect the subsequent negative publicity would have on sales. Sure, the industry jumped on the inadequacies of using DNA testing for herbal extract products—extraction often removes DNA from the finished product, meaning there would be no DNA to find and verify authenticity—but the coverage was widespread and mainstream, led by The New York Times. However, now a good half a year removed from the initial news splash, data suggest sales of dietary supplements and especially herbs remain strong.

SPINS data from health food, specialty and conventional retail outlets show sales of multiple-herb formulas were up nearly 13 percent for the 12-month period ending in mid-July, with double-digit growth year-over-year for the months of May, June and July. Single-herb product sales may have slipped a little in the three months ending mid-July, but sales of these supplements were up over the prior 12-month period.

The numbers only tell part of the story. What effect did this situation have on consumers? What were retailers experiencing in the months following the AG’s announcement, considering all the publicity?

INSIDER reached out to each of the four major retailers named in the NY AG investigation: Walmart, Target, Walgreens and GNC. All were coy and hesitant to talk about herbal product sales trends and any questions they might have faced from their customers relative to the NY AG case. However, each retailer pointed to their public financial statements and related press releases, which generally showed positive revenue and earnings growth with no specific mentions of any significant dips in dietary supplement or herbal supplement sales.

In terms of major natural products industry retailers, Whole Foods Market was tight-lipped about its herbal product sales trends and recent consumer experience, per its usual policy of secrecy, and Vitamin Shoppe noted its previous statement about a slight impact on sales when the NY AG action hit the news, but subsequent financial reports for the company have shown no other impact.

If retailers aren’t reporting much of an impact, perhaps a closer look at the numbers would offer more detail.

SPINS provided INSIDER with data on the specific herbs named in the NY AG investigation—ginseng, garlic, St. John’s wort, Ginkgo biloba, Echincacea, saw palmetto and valerian—for each of the months from February through July 2015.

In natural supermarkets (SPINScan Natural, excluding Whole Foods), both Echinacea alone and Echinacea-goldenseal combo products enjoyed significant growth for each month compared to the same month in 2014. This was the case in both specialty supermarkets (SPINSscan Specialty Gourmet) and conventional retailers, excluding Walmart (SPINSscan Conventional Multi Outlet, powered by IRI). When looking at the figures in each channel, Echinacea single and combo supplements experienced slight decreases each month following the NY AG action. However, this also happened the year prior, from February to July, suggesting a seasonal effect is not uncommon for a supplement beloved for immune structure and function benefits.

St. John’s wort showed a similar seasonal effect for both 2015 and 2014, especially in natural and specialty stores, but the overall year-over-year patterns trended toward solid growth.

Looking at less-seasonal herbs, valerian sales were pretty steady month-to-month and year-to-year in the natural channel. They’ve fallen off a bit in the past couple of months, both month-to-month and year-over-year, in specialty stores, but have experienced steady month-to-month growth and huge double-digit year-over-year growth in conventional stores.

Likewise, saw palmetto has held steady growth patterns in both natural and specialty stores, but it actually has experienced a reversing of negative sales in conventional stores, year-over-year, as  27-percent growth in February 2015 improved each month to reach a positive growth of 4 percent in July 2015.

The biggest impact might have been on garlic and ginseng (excluding Siberian ginseng). Sales of garlic seem to have slid a bit both month-to-month and year-over-year in all three retail channels. Ginseng was a more complicated performer, with sales in natural stores remaining steady monthly and growing year-over-year, but suffering significantly in both comparisons in conventional stores—while the previous year also showed a seasonal dip from February to July, the year-over-year growth was a steady -17 percent or so for each of those months this year.

Overall, the NY AG case and publicity did not appear to impact sales significantly across retail channels, except for a couple of specific areas. There are a few possible reasons why the damage might not have been as bad as the industry feared.

The industry responded quickly and doggedly highlighted the inadequacy of the AG’s DNA testing method, and several major media outlets, including Forbes and the New Yorker, ran stories questioning the validity of the NY AG’s investigation.

Still, the key to why sales haven’t plunged may lie in the consumers. People who have been using herbal extracts for years tend to be knowledgeable; they research product information and seek out clinical trial results showing health benefits.

Daniel Fabricant, Ph.D., executive director and CEO of the Natural Products Association (NPA), which counts many natural and specialty retailers among its membership, noted studies have shown the typical herbal supplement consumer is highly educated and undertakes a lot of research on the products they buy. Further, they tend to focus on structure-function claims. “This is not to say they are not interested in quality, because they definitely are, but I don’t think the news stories were a death knell," he said. “The press made it this broad sweeping issue, but for these consumers, the decision [to purchase supplements] is a more personal one. I don’t think a news story is going to change their minds in an instant."

One reason the stories might not have affected buying patterns is the messaging. “The message wasn’t about how the test results showed the products weren’t the same as what was found in clinical trials," Fabricant said. “That would have been different than the actual message that products were tested and the findings were interesting or funny or whatever."

Still, if consumer savvy and industry response are to thank for the damage control, industry would be foolish to think the worst is passed and the news and AGs have moved on. “It never ends," Fabricant said, adding the industry can’t just go home and declare victory. “The AGs always have authority to do these sorts of things and can play both the sword and shield. This should concern everyone in the industry and make people realizes that while the flames may have died down a bit, the potential for things to spark back up are clearly still there."

The best course of action for the industry would be to get engaged and stay engaged. “My biggest fear is that people in the industry will think it’s out of the news cycle and we’re fine," Fabricant said, declaring the industry has to engage more and do so on a level it hasn’t before. “We have no one to hold us accountable but ourselves for this situation having happened." He suggested the industry has an opportunity to educate AGs about the industry’s quality standards and why they make sense. “We haven’t been very strong in contributing to AG campaigns, meeting with them regularly, or educating them on industry," he said. “So, that has got to change."

Prevention may indeed be the best medicine, and looking at how other similar industries have safeguarded themselves from such actions is key. Fabricant said the industry needs to play the politics game on all fronts, not just U.S. Congress and state legislatures. He noted there are both Republican and Democratic AG associations the industry can engage, but it is important to begin discussions before rather than after an investigation and subsequent publicity. “As an industry, what we contribute back is paltry," Fabricant said. “The level of involvement in some things is paltry, and I hope this AG action was a wake-up call."