Why Marketing Natural Products is so Complicated

Part 2: Natural Doesn’t Necessarily Mean Safe

In the previous article (part 1), we talked about general concerns regarding the issues that make marketing natural products so difficult. As promised, today we‘ll take a closer look at how the big four impacts the end consumer.

As a reminder, the big four are the widespread issues caused by the ‘bad actors’ who decide to cash in at the consumers’ expense.

These are the companies who ‘knowingly’ sell products with incorrect allergen statements, high toxicity levels, adulterated ingredients and misleading disease-focused marketing claims. The challenge is, many of these companies wholesale or private label their products to unsuspecting brands.

What we end up with are a slew of products on the market with safety issues, labeling issues and outrageous marketing claims.

For the most part, unless a company grows its own supply, a CPG company wholesales an ingredient or private-labels an entire formula from a third-party supplier.

Large suppliers tend to have 100’s of sales reps and/or affiliates whose livelihood depends on getting the product on people’s minds. They are armed with an arsenal of sales materials including product spec sheets, certificates of analysis, quality assurance, product benefits and sometimes a multitude of misleading marketing claims to help close a sale.

Any issue or misinformation then gets passed down the line of reps and/or affiliates, through the B2C company who purchased their product, and ends up in direct contact with the end-consumer.

When both B2B and B2C companies scale quickly to meet demand, it can be common for certificates of analysis and quality assurance documents to be outdated, expired or downright wrong. For too long there was no way to track back to confirm if the exact ingredient sold was, in fact, the same lot or version of the ingredient that was advertised.

These issues have ignited growth in supply chain management software solutions and have started some techy conversations regarding blockchain and its potential benefits in supply chain transparency and traceability.

In our experience, many CPG companies tend to take suppliers on their word about the safety of a product, or accuracy and legality of information provided by a supplier. When companies do this they are taking on a huge liability.

It’s best, and required, to double check the product with third-party lab testing and compliance experts. Skipping this step is where many of these issues begin.

Big Issues Caused by ‘Bad Actors’

Long gone are the days when you can you slap a label on a product and expect it to fly off the shelf.

Consumers are demanding transparency and for good reason. They aren’t only trying to protect themselves from the bad actors; they are trying to protect themselves from the many mishaps and mistakes that can happen when good companies rush to meet demand, exceed sales goals and scale quickly.

Some of these mistakes can be deadly.

ALLERGEN CONTAMINATION

Approximately 15 million people in the United States have food allergies. While most food allergies cause relatively mild and minor symptoms, some food allergies can cause a severe and sometimes life-threatening allergic reaction called anaphylaxis.

The FDA estimates that in a year:

• 30,000 people will require a trip to the emergency room,

• 2,000 people will need hospitalization, and

• 150 people will die because of a major reaction to a food allergen.

The most common cause of food-induced anaphylaxis in the US is due to peanut allergies. Peanuts are one of the eight major food allergens, which means any product containing peanuts must include an allergen statement on the label.

Most brands have no trouble complying with this. However, sometimes issues with allergens can come from cross-contamination or a cross-contact situation.

Cross-contamination or cross-contact situations can happen in several ways. Many manufacturers use shared equipment with nuts. There may be a presence of peanut dust from a previous run on a machine that wasn’t properly cleaned or segregate. Small-batched products made in commissary kitchens may come into ‘contact’ with another product’s residue where allergens where present.

Cross-contaminations may also occur on the supplier’s side and passed unknowingly into other brands’ products. This recently happened to RXBAR.

Most of us all know and love RXBAR. Their unique no B.S. packaging, along with a $600 million dollar deal with Kellogg, made the RXBAR the ‘it’ bar of 2017. Yet, even the big brands who try to do everything right can come across a major mishap.

On January 15, 2019, RXBAR had a voluntarily recall, because of an undeclared peanut. They state “the issue stems from a specific ingredient supplied by a third party, and the supplier has been changed since this issue arose”. Over 20 different flavor variations were affected by this one contaminated ingredient from a single supplier.

TOXICITY LEVELS

Poison control centers help people manage poisonings which can be solved over the phone, saving a trip to the emergency room. Specially trained nurses, pharmacists, and doctors are on-call to help with accidental contact or overdoses from various natural and man-made substances.

In 2017, the Journal of Medical Toxicology released a study reporting on a spike in calls to US poison centers because of dietary supplement overdoses.

• 274,998 dietary supplement cases were reported in a 12-year period, between 2000-2012. That’s over 22,000 cases a year.

• 70% of all calls were for children younger than 6 years old, with unintentional exposures.

Miscellaneous dietary supplements accounted for 43.9% of all exposures, followed by botanicals (31.9%), hormonal products (15.1%), and other supplements (5.1%). Ma huang products (ephedra), yohimbe, and energy products were the categories associated with the greatest toxicity.

Many of you may remember the FDA’s federal ban on products containing ephedra in late 2003.

This was the first time the agency banned an herbal supplement. Ephedra was used in as an appetite suppressant to help promote weight loss and as a supplement to help increase energy and alertness.

The FDA based the decision to ban the herb on extensive research involving over 16,000 reports of adverse health effects from products containing ephedra, including 155 deaths.

Herbal products can be as powerful as drugs, yet don’t require a prescription. They can also cause serious medical complications if not taken properly.

Dietary supplements do not need pre-approval by the FDA before it is released into commerce. Unless of course the product is intended for therapeutic purposes. Overall, it’s the responsibility of product producers and the marketers to not only ensure the product is safe but to also ensure it’s used correctly.

Brands selling products that contain highly purified compounds should require extra, self-regulated scrutiny to ensure its overall safety. In this next case, a well-known and what many would consider harmless vitamin caused adverse reactions in poor little pups because of high levels of Vitamin D found in pet food.

On Jan 16, 2019, the FDA alerted pet owners and veterinary professionals about recalls of several dry dog foods after receiving complaints that dogs eating the food experienced vitamin D toxicity.

Excess vitamin D in the diet can cause vomiting, loss of appetite, increased thirst, increased urination, excessive drooling and weight loss. Vitamin D at toxic levels can cause kidney failure and death.

The mandatory recall effected eight brands and 14 different products. Because of the number of brands impacted by this recall, it can be assumed that the issue started early in the supply chain.

ADULTERATED INGREDIENTS

Aside from toxicity levels, adulteration has also been a big concern among consumer protection agencies, industry trade associations and medical professionals.

Adulteration is caused when an ingredient (partial or in its entirety) is replaced by a different ingredient without the consumer’s knowledge. In food, expensive natural products such as vanilla extract, maple syrups and honey are replaced by the cheaper, and less-desirable ingredient like high-fructose corn syrup.

Both honey and maple syrup, along with olive oil, fish, organic foods, milk, grains, coffee and tea, spices, wine and certain fruit juice made Forbes Top 10 list of Fraudulent Foods.

For supplement companies, the Dietary Supplement Health Education Act (DSHEA) of 1994 states a product may be found to be adulterated if there is inadequate information to provide reasonable assurance that such an ingredient does not present a significant or unreasonable risk of illness or injury.

The main motivation behind adulterated products is for economic reasons. For example, most spices are sold by weight. This creates a potential situation for bad actors to ‘cut’ batches of pure plant powders with cheaper, and potentially toxic agents.

In recent years, the spice turmeric has seen a rise in its popularity, and with that came a surge in suppliers adulterating the powder. To match turmerics signature golden hue, some bad actors’ used lead, which has a similar bright yellow color.

In 2016, seven brands of turmeric were recalled for containing excessive amounts of lead. All seven brands had sourced their ingredients from a single supplier.

Lead is particularly dangerous for pregnant women, infants and children. In 2016, this was not considered new news, but a continuation of a bigger problem. Between 2010 and 2014, six cases of children were hospitalized from exposure to high levels of lead found in culinary spices, like turmeric.

Turmeric-based dietary supplements with an alarmingly high level of lead were also recalled. All seven sellers of the recalled turmeric in 2016 were all listed in a class action lawsuit.

Adulteration can also happen because of technical motivation. Sometimes if the amount or dosage, of a natural product, is too big to fit in a capsule or to take orally to achieve the desired, labeled strength and result of the supplement, a company will use a drug to replace it.

This happens so often the FDA created a database for tainted dietary supplements. Today, there are 923 products listed with a disclaimer that the list only includes a small fraction of the potentially hazardous products with hidden ingredients marketed to consumers. The lion’s share of these products are for muscle building, weight loss and sexual enhancement. Many, if not all, of these products, are considered to be misbranded by the FDA.

Hemp-derived CBD products are not included in this databases, however, that doesn’t mean this space isn’t susceptible to shady shenanigans of bad actors trying to make a quick buck. Consumer Reports just did a study on ‘Dangerous Chemicals found in CBD Products’, which included everything from synthetic chemicals linked to emergency room visits and an over-the-counter cough syrup most likely used to mimic the effects of CBD.

DISEASE MARKETING CLAIMS

Misleading marketing claims, or as the FDA refers to it, misbranded or mislabeled products, can trip up any company. Many companies that receive warning letters for misbranded products did not understand that they were doing anything thing wrong. They believed they were wholeheartedly marketing the product’s true benefits.

In 2018 the FDA issued 409 warning letters, spread across eight industries including food, drug, supplement, cosmetic, tobacco and animal. Over 50% of the letters included a misbranding issue.

Misbranding occurs if a manufacturer places a label on their product that is misleading or confusing, or if the label does not correspond to the proper product. Regulations in this area are plentiful, with each industry listed above having its own set of rules to follow.

From a marketing standpoint, one of the biggest reasons a product is considered misbranded is when it is sold to be used in the cure, mitigation, treatment, or prevention of disease. We will break this down further in part 3 of this series.

Sometimes the FDA is not the one calling attention to these issues. Many companies find they have compliance issues when an expert reviews their packaging and marketing materials before admittance to be sold at a retail location or exhibited at a trade show. These misbranding issues can halt the growth of a company.

In most cases the misbranded claims can be found all over a company’s website, social media accounts, printed materials and packaging. The costs to rectify those claims across so many mediums is hefty. If a product needs to be changed under a strict deadline, rush charges on re-designs, reprints and refills and possibly reformulations could diminish the product’s margins.

The costs could be so high a company may lose the opportunity to appear on the shelf or take part in the event. Getting things right the first time is a big deal, especially for new companies.

With misbranded products, everyone is held accountable.

This includes the retail stores that sell the products to the design agency that created the product’s packaging.

While some may feel a warning letter is about as bad as a slap on the wrist, the FDA has the Federal Trade Commission (FTC) to help watch consumers backs. Companies can and have been prosecuted if they participate in interstate commerce involving mislabeled or misbranded consumer products.

In 2018 alone, the FTC had 38 successful cases with almost $4M being recouped and refunded to consumers defrauded by five separate dietary supplement companies for fraudulent claims.

In 2017, one dietary supplement company alone was fined $8M.

While there are companies that can take an $8 million dollar hit, most won’t be able to handle the fines. Many have to declare bankruptcy and close their doors. If doors don’t close, jobs are almost always lost.

The Cost of Getting it Wrong

All of the issues discussed today are considered to be misbranded products by the FDA. Issues with a health and safety risk would result in a product recall. This could be devastating for a small company. It’s estimated that 52% of food recalls can cost a company over $10 million in sales losses and direct costs, according to a study by the Grocery Manufacturers Association (GMA).

• 29% of the companies surveyed faced a financial impact between $10-$29 million.

• 9% of the companies surveyed faced a financial impact of between $30 – $49 million.

• 14% of the companies surveyed faced a financial impact of over $50 million.

The backlash a brand will face from a recall also has a powerful impact on the company’s continued success. A survey by Harris Interactive found health or safety-related food recall can have enormous implications for a company’s reputation.

• 16% of consumers surveyed said if a brand they usually purchase is involved with a recall they would never purchase from the recalled brand again;

• An additional 17% would avoid any brands made by the recalled product’s manufacturer.

• 60% of Baby Boomers and Seniors are more likely than Millennials (49%) to only temporarily switch brands,

• While Millennials are more likely than any other generation to say they would never purchase the recalled brand again (24% Millennials, 15% Gen Xers, 12% Baby Boomers, 9% Seniors).

Companies who ‘knowingly’ sell misbranded products are the worst of the worst. They not only cause great harm to their customers, they also end up making things difficult for those who are trying to get it right.

These are the folks that gave the government a reason to take a closer look at the industry as a whole.

This doesn’t end here…

We’ve talked about general concerns in part 1 and took a closer look at the top four concerns in part 2 of this three-part series: “The Claims Conundrum. Why Marketing Natural Products is so Complicated.” While we’ve covered quite a bit, there is still a lot more to talk about. If you want to learn more about these issues, don’t miss the next article where we’ll take a deeper look at one product to see why we have to watch what we say.

Stay tuned for PART 3.

Disclaimer: This post is designed to provide general information on pertinent topics, and the statements are made for educational advice. If you have specific legal or compliance questions as it pertains to your products and the law, we recommend that you should seek the advice of your legal counsel, compliance expert or industry trade association for further guidance and support.