Soochow: New consumer drive boosts growth of health products, attention may shift to sector valuation switch.

Soochow released a research report stating that under the new wave of consumer trends, it is important to pay attention to the possible valuation switch of the health supplement sector. Traditional health food products have laid the foundation, while new consumer contributions are increasing. The traditional aesthetic system and valuation perspective are no longer suitable for the research of the new cycles. It is recommended to re-examine the health food industry, focusing on the possible valuation switch of the sector, adapting to channel transformation, catering to new consumer groups, and empowering high-quality companies in new product categories. The main points of Soochow are as follows: - Health food is a business with strong brands, important channels, and high profit margins. - The health food industry in China has continued to grow steadily, showing characteristics of "pulse-enhanced growth" due to special events like the SARS outbreak in the early 21st century and the COVID-19 pandemic from 2019-2022. The market size of the VDS industry in China has increased from 70.135 billion yuan to 224.041 billion yuan from 2010 to 2023, with a CAGR of 9.35%, much higher than the global average of 4.26%. With an aging population and new consumer trends driving growth, it is expected that the market size of the nutrition and health food industry in China will continue to grow at over 6% in the next three years. The average per capita consumption of nutrition and health food in China in 2023 is 26 US dollars, only 14%, 22%, and 25% of the levels in the US, Australia, and Japan respectively, indicating ample room for penetration in the future. - Top companies maintain longevity, and product range and extension are key. - At the current moment, Soochow believes that the investment value of the health supplement industry is worth reassessing. The evolution of the business model in the industry is often underestimated, and health supplements exhibit new consumer traits on three levels: 1) New Channels: The sales of health supplements in China are shifting online, with online e-commerce retail sales accounting for 58% of total sales in 2024, up from 3.1% in 2010. Interest-based e-commerce, cross-border e-commerce, and private-domain e-commerce are becoming important incremental channels. Lemonbox and similar private-domain formats are injecting vitality into the industry. 2) New Consumer Segments: Health supplements are no longer tied solely to the elderly population, but are expanding to cover all age groups and families. There is a trend towards younger consumers, penetration into the children's market, and focus on pet health. 3) New Product Categories: Innovation in effect and dosage driven by new consumer groups, focusing on areas like body management, personal image, workplace recovery, relaxation and sleep comfort. Risk Warning: Market competition, rising raw material costs, and the risk of product sales not meeting expectations.