Key trends for contract manufacturers in the nutraceutical industry

As the demand for health and wellness products continues to grow, the nutraceutical industry has reached new heights over the past year. This growth is exciting for the booming industry but also creates a new set of challenges and opportunities for contract manufacturers (CMs).

Companies like Arizona Nutritional Supplements (ANS) are impacted by several factors, ranging from increasingly stringent quality and testing standards to rising labor and commodity costs, global supply chain disruptions, and changing customer dynamics.

Ingredient adulteration and quality control

Is the customer getting what is represented on the label? It seems like a simple question, but its answer directly affects brand equity. Ingredient adulteration is an ongoing concern, with instances of suppliers or manufacturers diluting or substituting high-value ingredients with cheaper alternatives. As a result, regulatory bodies like the U.S. Food and Drug Administration have tightened their focus on testing methodologies.

For manufacturers, this shift has led to heightened expectations from both regulators and increasingly informed customers who are familiar with cGMPs (current good manufacturing practices). Twenty years ago, many customers would ask manufacturers to create a product without providing detailed specifications or formulas. Today, however, clients are well-versed in regulatory requirements and quality standards, and they demand transparency. This shift has strengthened partnerships between manufacturers and brands, fostering mutual trust built on a commitment to quality.

Increased demand for clean and sustainable products

Consumers today want products that are perceived as healthier, more natural and without synthetic additives. They are paying close attention to ingredient labels and are seeking transparency for what goes into the products they consume. As a result, CMs are under pressure to provide formulations that meet “clean label” standards. These typically involve excluding artificial preservatives, colors, flavors and allergens, while avoiding genetically modified organisms (GMOs).

To meet these demands, CMs are sourcing higher-quality raw materials that come with certifications such as USDA Organic, Non-GMO Project Verified and allergen-free certifications. Manufacturers are also implementing stricter quality control measures to ensure product consistency and quality, which requires investing in both front and back end processes.

In addition to ingredient transparency, environmental concerns and growing awareness of social and ethical responsibilities have made sustainable practices essential. Consumers not only want a product that promotes personal health but also one whose production is environmentally friendly and socially responsible. As a result, manufacturers are focusing on reducing their carbon footprints, minimizing waste and adopting renewable energy sources where possible.

Overseas sourcing: the impact of China and global supply chains

China plays a critical role in the global supply of raw materials for many industries, including nutraceuticals. Key ingredients like vitamins, herbal extracts and amino acids are often sourced from China, frequently from relatively small operations. However, reliance on Chinese suppliers has become riskier due to geopolitical tensions, trade restrictions and transportation delays. As a CM, even a small ingredient delay can hold up an entire order, forcing companies to carry more inventory and extend lead times, which drives up costs.

Global conflicts also have far-reaching consequences for supplement manufacturers. The war in Ukraine, for example, has disrupted the production and availability of key agricultural commodities like sunflower oil and wheat. Sanctions on Russia have contributed to rising energy costs and impacted global transportation. Additionally, trade policies between the U.S. and China and the fallout from Brexit in Europe continue to add uncertainty to the global supply chain.

To mitigate these disruptions, CMs must be prepared to secure alternative raw material sources and build resilient supply chains.

Fluctuating prices of commodities and raw materials

CMs are forced to assess profitability on a rolling basis to maintain a viable business. The volatility of raw material prices and continued inflation significantly impact manufacturers’ ability to stay profitable. For example, ingredients like turmeric, ashwagandha and collagen are subject to price surges due to poor harvests, environmental changes and rising global demand. Given the thin margins on which CMs typically operate, even small fluctuations in commodity prices can make or break profitability on an order. Coupled with ongoing inflation, these factors have made it even more challenging for CMs to operate efficiently.

E-commerce: the Amazon factor

The impact of Amazon on the industry cannot be understated. The rise of e-commerce, particularly through Amazon, has created incredible opportunities for the supplement market. Amazon’s platform offers unmatched convenience, fast delivery, competitive pricing, and has become a key driver for consumers seeking easy access to a wide range of high-quality products. For brands, this presents a chance to reach millions of potential customers and facilitates unprecedented market visibility and growth. For CMs, this requires agility responding to the changing requirements of online platforms to better serve customers.

Amazon continues to play an important role in finished goods testing and product listings. It becomes essential for manufacturers to communicate with industry groups like AHPA (American Herbal Products Association) and UNPA (United Natural Products Alliance), which work directly with program managers to navigate and evolve with Amazon’s ever-changing listing process and requirements. Despite some challenges, many manufacturers have leveraged Amazon’s vast resources while also exploring direct-to-consumer (DTC) models. This dual approach allows companies to benefit from Amazon’s reach while maintaining greater control over pricing, marketing and customer engagement through their own platforms. Ultimately, Amazon has transformed how supplements are bought and sold, offering both opportunities and pathways for innovation in the industry.

Adaptation and evolution

Contract manufacturers in the supplement and nutraceutical industry face a rapidly evolving landscape. Fluctuating raw material prices, supply chain disruptions, ingredient adulteration and geopolitical conflicts present significant challenges. Additionally, the rise of e-commerce has shifted consumer expectations and reshaped the marketplace.

Manufacturers who adapt to these trends, strengthen quality control, diversify their supply chains and leverage new market opportunities will be well-positioned for success in the years ahead.