The “Premiumization” of the Wellness Market: A Worrisome Trend
By Thierry Malleret, economist
Rich economies are now gentrifying as businesses narrow their focus on the wealthiest consumers: doubling down on premium, exclusive goods and experiences for high-end customers with stripped-down offerings for the rest. The wellness economy is at the forefront of this new gentrification. Whether it’s pricey new fitness clubs, wellness resorts, or well-tech, the word “premium” seems ubiquitous. Malleret discusses the complex example of the new weight loss drugs (Ozempic, Wegovy, etc.) which, given the ever-worsening obesity epidemic, represent an important milestone but are already moving from medicine to expensive “wellness” status-symbol. How will relentless premiumization impact the wellness industry’s image? What is a major exception to the trend?
Most rich economies are gentrifying as business narrows its focus on the richest consumers. Segmentation into premium goods for high-end customers and stripped-down offerings for all the others seems to have become the new norm for more companies. The wellness economy, because of its appeal and popularity, is at the forefront of this process of extreme gentrification. Whether it’s spas, fitness clubs, wellness resorts and retreats, well-tech, beauty offerings, or anything else related to wellness, the word “premium” is everywhere. As wealthier consumers increasingly prioritize health and wellness (to build a “better me” and by equating health and wellness with “new wealth”), they are willing to pay a premium price and put the requisite amount of effort and time into investing in health and wellbeing.
This, in turn, prompts wellness companies to create opportunities for revenue growth and margin expansion by nudging their customers towards pricier and fancier versions of their offerings and products. This strategy has a downside in terms of (1) access and (2) image. (1) Selling lower volumes for higher prices will ultimately leave poorer consumers worse off and unable to afford wellness products and experiences—a risky move that will exacerbate inequality. (2) This will reinforce the image that “wellness is for the wealthy” and that the industry is too often a bastion for the richest.
OBESITY, NEW CURES AND PREMIUMIZATION
This phenomenon of gentrification and premiumization of health and wellness products can be observed in the current craze about a new class of drugs called “GLP-1 receptor agonists,” initially created to treat diabetes, but now proven to work as weight-loss drugs. This is a major milestone, considering that about two-fifths of the world’s population are considered as overweight or obese—a figure that could rise to more than half by 2035 (according to the World Obesity Federation). If this new class of drugs reverses the obesity trend, a significant number of people will benefit, and so will the global economy (experts estimate that the annual global cost of excess weight could reach $4 trillion by 2035—2.9% of global GDP—if the trend persists unchecked).
The wellness premiumization twist is this: GLP-1 receptors are expensive (in the US, about $900 a month if not covered by an insurance), but they are already moving from medicine to “wellness” status-symbol. The appeal of an effortless, near-instant fix to get svelte is proving irresistible to many celebrities and influencers. Whether one takes a GLP-1 medicine like Ozempic or Wegovy has therefore become an “obsessional” topic of conversation among famous names (Elon Musk admits he does, Kim Kardashian denies it).
Paul Jarrod Frank, a New York dermatologist, sums it up perfectly: “We happen to live in a society where people—particularly the top one percent—have greater access to not only the medicines but also the trainers and the nutritionists and the cosmetic dermatologists to try and make all their dreams come true.” As the market for GLP-1 drugs could reach $150 billion by 2031, all of the big pharma companies are engaged in the race for the obesity and weight management market. It will be fought in the name of wellness along the lines of premiumization.
ONE EXCEPTION TO PREMIUMIZATION AND ITS INFLATIONARY EFFECTS: NATURE
For months, we’ve argued that the pandemic has served to raise our awareness of the vital importance of nature in terms of our mental and physical wellbeing, as well as that of our planet. Nature is therefore at the core of wellbeing, but as it can be consumed “freely,” it is not at the core of the wellness industry’s offering. However, some exceptions are burgeoning to serve the growing outdoor market. In the US, for example, Starwood Capital Group (a private investment firm) and AJ Capital (a real estate- hospitality business) are joining forces to create an outdoor-focused hotel group that will target US markets near national parks, beaches, and mountain towns in “an affordable manner.” Not premium (with lower margins) but growing fast and authentically well!