Ageing population stimulates growth in related categories

1. Demand for vitamins and dietary supplements is relatively elastic, while demand for OTC products is generally inelastic, a key reason for the different performance of the two largest categories in the consumer health market in 2010. • Chinese people are increasingly willing to spend more on health and wellness products, in order to maintain a good physical condition • consumer health market is expected to perform well with a CAGR in excess of 6% in constant value terms over 2010-2015. • With improvement in local consumers’ health consciousness over the forecast period, demand for consumer health products is expected to enjoy strong growth, especially in several emerging categories such as herbal and traditional OTC products and child-specific vitamins and dietary supplements. • China still has many problems in its consumer health market, such as a lack of relevant regulation and strict quality control capability. Hence, most Chinese consumers prefer to choose those brands with good reputations and lengthy histories from large companies • centralisation and consolidationof China’s consumer health industry • Sanofi-Aventis, paid around US$520 million to acquire the leading domestic company, BMP Sunstone

2. Ageing population stimulates growth in related categories China’s ageing population has been identified as a consumer group with considerable potential, particularly in the consumer health market. According to research by Euromonitor International, the overall population aged above 65 years increased by 10% over 2005-2010, reaching almost 130 million in 2010, which represents around 10% of the total population of China. In addition, average life expectancy has increased, to 71.8 years for men and 75.4 years for women in 2010, and these numbers are growing. Improving awareness of natural and herbal concepts in the market Concerns over environmental pollution and food safety in recent years have undermined consumer confidence in product quality and affected consumers’ purchasing behaviour; they were more willing to pay a premium for better quality products. Thus, the belief that natural/herbal is better than artificial has become popular. Driven by positive media coverage in TV programmes, newspapers, magazines and books, the popularity of this concept has grown ever stronger.

3. National health care reform In early 2009, China implemented its national health care reform which aims to reduce the overall medical bill for Chinese consumers in the long term. government’s centralised sourcing One of the key goals of the national health care reform is to improve Chinese consumers’ awareness of self-medication, which is expected to be a key engine of growth for China’s consumer health market over the forecast period. The rising numbers of Chinese consumers visiting drugstores/parapharmacies instead of going to hospitals for minor ailments will contribute to growth in the OTC retail market. Meanwhile, more and more people will realise the importance of prevention instead of treatment, which will is expected to boost sales of vitamins and dietary supplements.

4. Introduction Key findings Traditional medicine makes a strong comeback as the industry experiences rising competitive pressure and consumers seek “safer and natural” alternatives. Growth disparity in the category Increasing regulatory activity in North America, Western Europe and Australasia constrains sales as more recalls and warnings emerge for questionable products. New packaged options fuel sales in Asia Pacific, Latin America and the Middle East. Asia Pacific leads retail value sales in the world Traditional Chinese medicine (TCM) and Ayurveda (India) gain momentum in Eastern Europe and Latin America. Health practitioners in those regions are training in TCM and Ayurveda to expand traditional healing in their countries. The category remains highly fragmented Convincing consumers is getting easier Awareness of self-care initiatives on prevention and early treatment benefits sales of herbal/traditional products. The purchasing behaviour of some consumers drifts towards “gentler” products as opposed to “toxic” conventional drugs. Increased regulation will clean up questionable products Enforcement of good sourcing and manufacturing practices to meet quality and safety standards is anticipated to increase. Governments and regulatory agencies are crafting enhanced regulation to protect consumers. Rising interest in alternative or integrative medicine to boost sales Healthcare budget constraints and rising insurance premiums make patients seek alternative treatments to cure their ailments, especially chronic diseases. Complementary Alternative Medicine (CAM) promotes herbal/traditional products. Science to secure success in future sales Herbal/traditional products backed by scientific research proving efficacy is the next key challenge. International initiatives to recognise and formalise traditional medicine will create sales opportunities for products with proven scientific evidence. Only a handful of international companies have an important presence. Competition is defined by the presence of many small regional and domestic producers selling artisanal variants of herbal/traditional products that cater to specific local demand. Traditional medicine to be formalised

5. A Review of Herbal/Traditional Medicine The medicinal properties of popular herbs and plants

6. Expansion of Herbal/Traditional Products in the World Herbal/traditional growth – selected countries 2009-2010 • % y-o-y growth • >10% • 6% to 10% • 2% to 5% • 0% to 1% • < 0% Key Point: Contrasts in growth Growth in developed economies remains weak or flat as regulation increases. In contrast, in populous countries in developing regions growth derives from increasing recognition and presence of packaged options.