Nutrition Business Journal

Although my opinion could be considered biased, the NBJ Summit team—led by Patrick Rea and Tom Aarts—outdid itself again with this year’s annual gathering of nutrition industry leaders. Held July 21-23 at the St. Regis Resort in Dana Point, California, the sold-out 2010 NBJ Summit brought together more than 300 CEOs, presidents and other executives for what proved to be an inspiring, instructive and thought-provoking three days of education and networking.

Below are several of the key messages that emerged from this year’s NBJ Summit:

• Innovate your way out of a downturn: The recession took a big bite out of the nutrition industry’s product development activity in 2009, as many companies focused on survival rather than creating their next breakthrough product. But, as Sterling Rice Group Managing Partner John Grubb demonstrated in his keynote titled “The Imperative to Innovate: Disrupting the Competitive Context,” downturns are the exact wrong time to put the brakes on new product innovation. As Grubb noted, with higher risk comes greater reward, making game-changing innovations the key to thriving during tough times and claiming more than your fair share of a market opportunity. Also, product line extensions tend to make up most of a company’s revenues, but new products drive the greatest profit growth.

• Fail fast: True innovation isn’t possible without the risk of failure—and, as Grubb told NBJ Summit attendees, most of what you do will be wrong at first, so prepare to fail quickly and use the lessons from your missteps to move your innovations forward. Because failure is a natural part of innovation, the innovators in a company must be given the time to learn from their mistakes, Grubb added. Of course, creating a forward-thinking ecosystem of innovation can be more easily accomplished at private companies, which are typically not held hostage to quarterly results the way public companies can be.

• Prepare to be scrutinized: Whether it’s coming from the U.S Food and Drug Administration (FDA), the Federal Trade Commission (FTC) or the “bounty hunter” law firms looking to get rich off of class-action consumer lawsuits, U.S. nutrition companies must be prepared to have their products, science and claims put under the microscope. Serious future scrutiny could come from FDA’s impending new dietary ingredient (NDI) guidance, which could publish later this year. If the guidance becomes stricter, an estimated 40%-60% of the current dietary supplement market could be adversely affected.

• Make the world your oyster: As Christine Holgate, CEO of Australia’s largest dietary supplement company, Blackmores, told a packed Summit audience: Even those companies with successful, fast-growing businesses in their home markets should consider global expansion. Under Holgate’s leadership, Blackmores is now in seven markets and is considering launching into others. According to Nutrition Business Journal estimates, total global nutrition industry sales grew 6.6% to $288 billion in 2009. This growth was somewhat higher than the 4.4% growth the $108 billion U.S. nutrition industry experienced last year.

• Choose your global partners carefully: As NOW Health Group President and CEO Al Powers told Summit participants, moving into a new market without carefully vetting your in-country partners or fully understanding the business culture can be expensive mistakes. Powers candidly told the audience that he learned this lesson the first time NOW entered the Chinese market a decade ago and the company’s Chinese partner stole NOW’s product and then marketed other counterfeit supplements under the NOW brand. The experience didn’t scare NOW away from the promising Chinese market, however: Under Power’s guidance, NOW is once again building its business in China—this time with much more success.

• Don’t be afraid of big pharma: Former GlaxoSmithKline (GSK) executive Stephen Stefano spent his NBJ Summit keynote address attempting to convince the audience that pharmaceutical companies—like GSK—can be good partners for the nutraceutical industry. As Stefano explained, blockbuster drugs are becoming fewer and far between and the margins for pharmaceuticals continue to shrink. This is making it more important than ever for drug companies to diversify their product offerings. “The climate is ripe for pharmaceutical companies to get involved in nutraceuticals in a productive way,” Stefano said. He used GSK’s prescription fish oil product, Lovaza, as an example of a “nice fit between pharma and supplements.” Global sales of Lovaza have now topped $1 billion, leading many Summit participants to wonder: What will be the next blockbuster supplement-based drug?

• Never forget Rule No. 6: One of the most inspirational moments during the 2010 NBJ Summit came from Benjamin Zander during his keynote address. In what was (correctly) billed as a life-transforming talk, the Boston Philharmonic Orchestra conductor coached attendees to live their lives and lead their organizations from the viewpoint of possibility rather than from fear, anger or complacency. My favorite part came when Zander presented what he calls Rule No. 6: “Don’t take yourself so damned seriously.” Duly noted!

• Live like Ohno—no regrets: The 2010 NBJ Summit closed on another inspirational high note with the keynote address from eight-time Olympic medalist Apolo Ohno. Ohno, who has launched his own dietary supplement company called 8 Zone, opened himself up to questions about everything, including why he created 8 Zone, what supplements he takes, the music that keeps him going during training and why he respects the South Koreans (who have been some of his greatest competitors on the ice). In explaining how he was able to dedicate four years of rigorous training to prepare for a few minutes of Olympic speed skating competition, Ohno said he learned to remain focused on the journey and live each day with no regrets.

Registration for the 2011 NBJ Summit will open later this year. Sign up early, as this year’s event sold out.

Related NBJ links:

Going Global: Taking Your Business Overseas & Getting it Right the First Time

Leadership Secrets from Top CEOs - Growing Your Business (and your career) in 2011 and Beyond

I spoke with Scott Van Winkle of Canaccord Genuity this week to parse the pending acquisition of NBTY, Inc. by the Carlyle Group, an asset manager based in Washington, DC with more than $90 billion invested in companies and real estate across the globe. NBTY is a leading manufacturer and marketer of nutritional supplements, with 22,000 products sold worldwide under a host of brand names, including Nature’s Bounty and Puritan’s Pride.

The deal has support of NBTY management and is expected to close late this year. Carlyle offered $55 per share, a significant premium over the current stock price, for a total transaction cost approaching $3.8 billion. Or so I thought. “The irony is that it’s really not much of a premium to the stock price from April of this year, when NBTY traded at $51,” says Van Winkle. “It’s only 8% above the three-month high for the stock.”

According to Van Winkle, Carlyle’s valuation of NBTY on an absolute basis is not that expensive at 8.6 times EBITDA. Relative to peer companies, the valuation places a slight 5-10% premium on NBTY compared to market prices for Herbalife, NuSkin and a host of supplement companies. The bottom line, however, is actually how little such a big deal says about the state of the nutrition industry.

“This is a financial deal,” says Van Winkle. “If you look at all the businesses you can buy, and you’re going to use leverage, you need cash flow to service that debt. NBTY generates a ton of cash and has done so very consistently over the years. They’re a market leader, so this is a very easy deal at this valuation to justify financially. That’s the game here. This isn’t a strategic play. It’s a financial investment.”

I did ask Van Winkle about the finance & investment climate across the broader industry, a topic NBJ will explore in detail with our next issue, and he hinted at a general lack of confidence from investors in supplement companies. “We are seeing lower valuations,” says Van Winkle. “Back in spring 2009, supplements started growing 10% in the mass market, where NBTY does business. Any time you have a big acceleration in growth that’s hard to justify, you want to discount that level of growth.”

Related NBJ links:

June/July 2010: Nutrition Business Overview

2010 Nutrition Industry Overview Web Seminar

Is New Product Development Finally Picking Up Steam in the U.S. Nutrition Industry?

Nutrition Business Journal is coming down from its healthcare practitioner high, but I couldn’t let the channel rest without discussing Wise Woman Herbals (WWH) out of Creswell, Oregon. In reporting our issue about MLM & Practitioner Sales in the Nutrition Industry, and then again in our issue about Direct-to-Consumer Sales, we heard repeated and emphatic accolades about the quality of WWH’s handmade products.

So I picked up the phone and talked to Dave Garland, Operations Manager for WWH, about the story behind the company’s quiet success. WWH produces more than 350 supplements, with a focus on organic, wildcrafted and natural ingredients sold primarily to healthcare practitioners. You won’t find WWH in many health food stores.

“We’re trying to represent that whole traditional, handcrafted approach to herbal medicine,” says Garland. “We don’t do huge batches. Everything’s small-crafted. We think of ourselves as a micro-manufacturer, if you will, of small-batch tincture.” A key to this philosophy is preservation of whole-herb constituents, working as an herbalist might have hundreds of years ago. In fact, the company name reaches back to a time of village doctors, when every small community had a ‘wise woman’ treating illness with handmade tinctures and herbs.

“We don’t want to strip the herbs, to heat-treat them to death,” says Garland. “Our philosophy is that the whole plant is good, there are things there that we don’t want to destroy.” This allows WWH to exert a high-level of quality control into its processes, from sourcing locally to manufacturing compounds by hand. “We don’t manipulate much,” says Garland. “It’s a more natural approach, if you can have a more natural approach to natural medicine.”

WWH follows cGMPs rigidly, and has operated from the outset with quality and safety a top priority. Many of the companies NBJ encounters at the leading edge of quality control—like Gaia Herbs and Ascenta Health, whose traceability programs get a closer look in our upcoming issue—are companies verily built on the concept. GMPs aren’t a big deal if you’ve been operating in-line with them for a decade.

WWH was one of the first small companies granted cGMP compliance. Many product ingredients are sourced locally in the Cascades and coastal mountain regions, with some vendor relationships dating back 20 years. This is another key ingredient to the current debate about supplement safety and efficacy rearing its head in the media and on Capitol Hill. Safety and efficacy seem, in part, the result of working with trusted vendors, whether you are a manufacturer sourcing component ingredients or a retailer selling finished products. Trusted vendors are the kind of vendors who accept corporate audit programs, independent third-party testing, and strategic alignment with philosophical goals around wildcrafting and organic certification. Trusted suppliers lead to trusted products, and consumer trust in the supplement industry as a whole.

Quality control is all the more important when you sell directly through the healthcare practitioner channel. Some products that Garland refers to as ‘low-dose’—like an anti-parasital supplement with black walnut—have alkaloids and low levels of toxicity that preclude sales to a general, retail audience. These are short-term, low-dose compounds that require professional supervision, and a sharp focus on safety during manufacture.

Another way to make high-quality products? Keep it simple. “Our premise is traditional, naturopathic,” says Garland. “Basic, simple tinctures. Simple compounds. We don’t believe in standardization. There are constituents in the herb we want to preserve.”

Related NBJ links:

NBJ’s Integrative Medicine Report 2009

April 2010: MLM & Practitioner Sales in the Nutrition Industry

Health Practitioners Value Revenue-Generating Potential of Selling Supplements

I thought about titling this post—“Fat and foreign? Let’s make a deal!”—but that seemed a bit too sensational and disrespectful to Monty Sharma, CEO of Atkins Nutritionals, who inspired the thought. In a recent interview for our upcoming issue on the overall nutrition industry, Sharma discussed global obesity rates and how certain countries, unfortunately, present better growth opportunities for Atkins than others.

In 2009, Atkins expanded operations to Spain, Portugal, the Middle East and India. “The reason these countries are important for us,” says Sharma, “is that obesity and diabetes are rampant there.” He pointed to the Gulf Cooperation Council (GCC) countries in and around Dubai as some of the highest incidences of diabetes and obesity in the world. “These countries have serious issues because of food habits,” says Sharma.

International revenue at Atkins is trending toward 15% of total revenue, up from about 5% in the past two years, when Atkins began a reinvention of itself as a weight-management platform far removed from its ‘no-carbs’ origins. Though specific figures remain unspecified—Atkins is privately held by North Castle Partners—Sharma does verify 45% annual growth on the trailing 52 weeks of data. That’s no small feat given the pernicious softness of the U.S. economy.

Looking forward, Sharma sees potential in the Benelux countries, Sweden, Norway, South Africa and Germany. “We will continue to grow internationally in 2010,” says Sharma. “The markets we look at are all very good markets in terms of their obesity.”

A further sobering thought from Sharma that I can’t seem to shake: “The number of people overweight and obese overseas is far greater than that in the U.S. The opportunity overseas is greater, one would argue, than the sales opportunity here in the U.S.” There are too many ways to digest a statement like that in a mere blog post, but let’s just say that the growing trend toward wellness has some big hurdles to overcome far beyond the usual suspects of consumer education, regulatory scrutiny and competitive pressures.

Related NBJ links:

SNWL Sales Suffer Blow from Recession and Flurry of Negative News Events

Spain: An Innovator in the Global Functional Food Market

Healthy, Lesser-Evil & Functional Foods

I spoke recently to Rene LeClerc, Vice President of Sales at Ascenta Health, about the world of fish oil. In the process of researching an upcoming story about traceability tools in the supplement industry, I came across Ascenta’s Pure Check platform, featured prominently on its website and packaging. Pure Check lets a consumer track, with just a few clicks, the specific ingredient content and quality markers of the very bottle he purchased at the store. It’s a compelling and friendly approach to building consumer confidence, and verifying that NutraSea products (Ascenta’s branded line of fish oil supplements) are as pure and potent as they claim to be.

“The reason we launched Pure Check?” says LeClerc. “We were frustrated. Every fish oil company was saying the same thing. They all claimed to have the purest, the highest-quality fish oil. Everyone was saying it, but no one was backing it up.” It’s easy to get frustrated in today’s world of supplements, where marketing claims sometimes stretch beyond legal and responsible limits, but it’s also becoming easier to separate the wheat from the chaff.

I talked to several companies in the past few weeks with new, web-based traceability tools at the top of their priority lists. These companies tend to be industry leaders. They tend to be the very sorts of companies you’d expect to have the resources and expertise to provide more transparency into their manufacturing process. Ascenta, a powerful player in the Canadian market now making major inroads into key distribution accounts across the U.S., appears to be among their ranks.

Maybe a company’s genuine commitment to quality has something to do with its ability to achieve and maintain a leadership position, and maybe innovations on the traceability front will have something to do with steering the entire industry toward more transparency and credibility in the months and years to come. Says LeClerc: “With Pure Check, we simply wanted to put our money where our mouth is, and show our consumers that, when taking NutraSea, they were getting a quality, clean product, every time, every batch. We wanted to go so far as posting the results of every batch online—full transparency, full disclosure. I don’t have one batch of product in the marketplace anywhere where you cannot get the third-party quality report for that batch on our website. That is by far the most powerful point of difference about our line.”

Be sure to check out the next issue of Nutrition Business Journal, our annual overview of the entire nutrition industry, for more about Ascenta and the trend toward traceability. Subscribe now, or come back in July when the issue goes on sale.

Related NBJ links:

NBJ Video Interview: Gaia Herbs Introduces ‘Meet Your Herbs’

2010 Archived Practitioner Supplement Sales Web Seminar

2009 Supplement Business Report