As we wrap up our research for Nutrition Business Journals’ inaugural Healthy Kids issue, it’s clear to us at NBJ that there are plenty of opportunities for innovators and entrepreneurs to enter and make a splash in the U.S. children’s nutrition market. In fact, Mark Trotter, CEO of Yo-Naturals, a California-based healthy vending company, thinks that the kid’s food market has booming potential right now. “Opportunities are endless for savvy product developers and marketers,” Trotter told NBJ. “Kids are very interested in healthy options. People think that because kids are kids they want to eat Hershey’s bars, but they don’t.”
Still, breaking into and succeeding in the children’s nutrition market remains challenging, particularly for small companies. “For a startup, it’s really expensive,” cautioned Julie Smolyansky, CEO of Lifeway Foods, which manufactures a popular children’s kefir beverage under the brand ProBugs. “The food business is really brutal, very expensive and it’s very hard to get capital. So be extremely aware of what you are getting into.”
Certainly companies are becoming more sophisticated in the way that they formulate and market children’s products, but there still appears to be a substantial gap between what manufacturers are producing and what parent’s desire. As Denise Devine sees it, much of this is due to a lack of true innovation in the children’s nutrition category. “Sometimes bigger companies confuse iteration with innovation,” said Devine, president and CEO of Froose, which makes a new kids drink that is packed with organic whole grains and fruit. “They might add a nutrient or two, but I don’t see a lot of turning product development on its head. If you look at what is happening in the food business, all the innovation comes from small companies. The companies that have the resources, I don’t see them taking the risk to do something very innovative. We are moving along a continuum and anything that’s better is great, but I don’t see that we are moving all that quickly in that direction.”
Financial hurdles will always be present for companies trying to break into the market with a better-for-you food or beverage product, but a down economy may be the best time for smaller, entrepreneurial companies to develop the new products that the larger CPG companies will one day want to buy, Devine said. “Research and development is the first thing that goes with big companies [during a recession]. They ignore new products and focus on their core brands. So when the economy returns, they are looking for new products.” Devine told NBJ that she hopes to turn her startup company into a nationally recognized brand in the next five years.
NBJ’s Healthy Kids issue will feature interviews with Trotter, Devine, Smolyansky and numerous other nutrition industry executives, as well as a complete analysis of the U.S. healthy kids’ food market in 2008. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, go to www.nutritionbusinessjournal.com.
Related links:
CRN: Multis Can Safely, Affordably Address Nutrient Gaps Present in Many U.S. Kids
Lifeway Foods Produces Probiotic Profits
Ian’s Swallows Healthy Handfuls
Researchers in Europe have pinpointed another benefit of drinking water: When children consume more H2O at school, they are less likely to become overweight. That’s the finding of a new study published in the April 2009 issue of the journal Pediatrics. In the study, researchers found that adding drinking fountains and classroom lessons that promote the benefits of water consumption to 32 elementary schools in the socially deprived areas of two German cities reduced the risk of children becoming overweight by 31%.
The study leaves many questions unanswered—such as how water intervention affected a child’s weight risk and whether increased water consumption prompted kids to consume fewer calories during the day. But it also showed that simple changes can help reduce the risk of obesity for our children, particularly when there is an education component involved. This alone makes me appreciate the fact that my son’s kindergarten teacher is adamant about parents sending their kids to school every day with a filled water bottle.
Nutrition Business Journal will be addressing the issue of childhood obesity in our upcoming Healthy Kids issue, which publishes later this month. The issue will include stories about school vending machine policies and healthier vending options and a Q&A with Ann Cooper, also known as the Renegade Lunch Lady and author of Lunch Lessons: Changing the Way We Feed Our Children. Also featured is a discussion with Vitamin Angels Founder and President Howard Schiffer about how the nutrition industry is helping his organization bring needed vitamins to more than 10 million children globally. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue of the journal, go to www.nutritionbusinessjournal.com.
Related links:
Thirsty Market for Kids’ Beverages
Coca-Cola Company in Hot Water
National Vending Machine Company Launches Healthy Snack Program
‘How bad can the economy be if people are buying acai?’
That was the question posed by Washington Post columnist Jennifer Huget in a March 31, 2009, article about the growing popularity of the Brazilian wonder berry. The article noted that sales of acai have been skyrocketing—Americans spent more than $108 million on acai products in the 52 weeks ending Feb. 21, 2009, up from a little over $62 million during the same period in 2007, according to SPINS research. But the piece also questioned—as it should—the the validity of many of the health claims that are coming out about the acai super fruit. As Huget writes: “Who’d have believed that this modest product of Brazil’s Amazon rain forest could do everything from speed weight loss to correct sexual dysfunction—while bolstering your immune system, too?”
Huget also warns consumers against enrolling in the “free” trials of acai products that are showing up with increasing frequency on the Internet and in people’s e-mail in-boxes. “After sharing credit-card information to cover shipping and handling, consumers are being hit by surprise monthly charges, often before they even receive their trial shipment,” Huget writes.
What is happening right now with acai is another example of how a few bad berries can contaminate an entire industry. Stepping up against nutrition-related Internet scams (which acai product maker Sambazon is doing) and backing products with serious research that can stand up to scientific scrutiny (such as Proprietary Nutritionals Inc. has done for its cranberry Cran-Max ingredient) is becoming increasingly important and will be essential in helping individual companies—as well as the entire industry—weather the negative press that is being fueled by fraudulent acai and other nutrition-related companies.
Related links:
2008 Scientific Achievement Award: Cran-Max
XanGo, MonaVie, TNI Keep Squeezing Sales Out of Super Fruits
The economic downturn is touching every company in the nutrition industry, but the smaller entrepreneurial companies potentially stand to lose the most should the recession deepen or linger because their access to capital and credit will only grow tighter. So how is a CEO expected to protect and even continue growing her company in the midst of this recession? For Gigi Lee Chang, founder and president of organic frozen baby food maker Plum Organics, the answer was to join forces with Nest Collective, an Emeryville, California-based firm dedicated to amassing a suite of healthy, organic and nutritional consumer products brands. Along with Plum, Nest also owns a growing line of organic lunchbox snacks and kids meals under the Revolution Foods brand.
“It made sense for us to come together because I felt Nest would safeguard the mission of Plum and help me take it to the next level,” said Lee Chang, who sold her company to Nest at the end of 2008. She said Plum’s next goal is to develop a suite of shelf-stable toddler foods that will become the organic equivalent of the popular Gerber Graduates line. “Parents who would normally buy only organic for their children use Gerber Graduates because there is no organic option. We want to be that option.”
Jed Smith, founder and managing director of Catamount Ventures, which is Nest’s primary financial backer, said partnering with other fast-growing, mission-minded businesses is one viable way for small- to medium-sized companies in the nutrition industry to continue expanding in the current environment, while protecting their brands and company ideals. “As access to capital dries up and as these smaller companies start to get to scale and need more resources, they will need to find other ways to compete,” Smith told Nutrition Business Journal in recent interview. “Nest is providing a real alternative for entrepreneurs so that they don’t necessarily have to sell to a big private equity firm or a big consumer products company, but rather can be part of something that is pure and authentic.”
NBJ’s April issue focuses on the children’s nutrition market and includes an in-depth profile of Nest Collective. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue of the journal, go to www.nutritionbusinessjournal.com.
Related links:
The Nest Gobbles Up Frozen Baby Foods Maker, Plum Organics
Health Concerns Drive Growth Spurt for Organic Baby Food
NBJ had the opportunity to speak with GNC Chief Executive Officer Joe Fortunato on March 23 regarding the company’s impressive 2008 performance. GNC posted sales growth of 6.7% for the year, with same-store sales growth of 2.7%. Perhaps more impressive were the the revenue gains in the fourth quarter across all divisions, even in the midst of a severe consumer spending downturn. In our conversation, Fortunato talks about some of the factors that contributed to GNC’s success in 2008, as well as the the company’s outlook for 2009 and beyond.
NBJ: What were some of the main growth drivers in Q4, and for the entire year?
Joe Fortunato: We had a really strong vitamin business throughout the year and we had a reasonably strong sports business throughout the year. Our sports business really accelerated in our own brand. Our Pro Performance brand grew in strong double digits and it has started out this year extremely well. At one point [the Pro Performance product line] was more of a house brand. Today, we’ve accelerated the brand through science and innovation and new product introductions to be anywhere from an entry level brand to up to a premium brand. That brand equity and the innovation we’ve brought to the brand is really starting to pay off.
NBJ: Your manufacturing/wholesale division was up almost 14% in Q4, what led to that double digit growth?
JF: If you remember back to the [Royal Numico N.V.] days, we cut out almost all contract manufacturing. That was a Numico decision and that was a very, very bad decision on their part. At one point, without the Rexall business, we were as low as $14 million in contract manufacturing business. Today we’re doing over $125 million in contract manufacturing business. So that’s not only accelerating, but we’ve made a very pointed effort strategically to go after more contract manufacturing to get better absorption in our manufacturing facility. We’ve not only been able to get more contract manufacturing business since 2003-2004 and grow it steadily every year; we’ve also enhanced the margins coming out of that business.
NBJ: Why was it a bad decision by Numico to cut contract manufacturing?
There are two reasons. First of all, if you don’t make it, somebody else will make it for them. Second, if you have the capacity, you may as well try to absorb it. It helps control the costs of the GNC brand by absorbing that capacity.
NBJ: Same-store sales continued to improve despite a weakening economy, what factored into that growth? We’ve always heard that athletes are more brand/product loyal in their purchasing habits than many other market segments; do you think that’s true? How does that tie in with GNC’s 2008 performance?
JF: If you look back over history, we have developed tremendous brand loyalty at GNC. In the vitamin business, I think the brand loyalty is second to none. With Pro Performance developing the way it has, the brand loyalty in the sports business is continuing to accelerate. So the answer to that would be that the brand–the recognition of the brand, the loyalty from consumers and the integrity that the brand represents–has really really been the foothold that GNC has capitalized on over the past couple of years. We continue to differentiate our brand. Our mantra three to four years ago was to differentiate. The business was becoming too commoditized. I felt the way to win the game was to differentiate GNC from the rest of the field. Science and innovation is one of the ways we have done that.
NBJ: How have internet sales contributed to GNC’s business?
JF: Our web business grew about 28% in 2008. It’s growing very fast again in 2009. We plan to continue to accelerate the website and we are investing about $5 million over the next few years to redevelop the whole thing. The functionality will be redone. It will have an interactive feel to it. They’ll also be some social networking components within the next 12-18 months. Obviously we are looking at ways to get more aggressive on the web to be competitive with some of our major web competitors.
NBJ: What percentage of GNC’s business is done on the internet?
JF: Web sales are very small component, less than 3%. I think our web business in the next 3 years will be $125 million. We’ve just touched the surface there, it wasn’t a priority early on, but we’ve made it more of a priority.
NBJ: Has the economic recession helped GNC’s private label [Pro Performance brand]? NBJ has seen examples of consumers trading down to private label in the foods market to maximize value.
JF: Even with our entry level products, quality is always a strength of ours. We’ve been very conscientious of what’s going on in the economy, so what we’ve done is allowed for a good price point where people come in and they want to try things. Then, we’ve positioned the consumers into more complex premium formulations as they become acclimated with the use of supplements. The mentality of the consumer is that they always want the best. Once you get them involved in the business, that’s more price point oriented, after that it’s all about the brands and the trust and the integrity and offering the best products in the marketplace. That’s how we play our retail business.
NBJ: How has the recession impacted the company?
JF: I couldn’t sit here and say we haven’t been impacted. We’ve been conscious of the potential impact the economy could have on us. I think we’ve been more promotional because of that. We went into January and February with some very strong promotions. We are very sensitive to pricing with our consumers. We’ve absorbed raw material price increases rather than passing them along to our customers. To put a finger on how much we’ve been affected is hard to do; everybody has been affected a little bit. One thing that helps out is that this industry is less discretionary than a lot of other industries.
NBJ: What is your outlook for the rest of 2009 and 2010? You’ve weathered the economic storm pretty well; do you see more success down the road?
JF: First of all, I couldn’t be more pleased with how we performed during this economic downturn. The exciting part is that we still have tremendous opportunities ahead of us. We have more initiatives than we can handle. We are one of the few businesses that can be more selective about how we grow this business moving forward–what categories we’ll focus on more effectively, how we position our business more effectively, there are just numerous, numerous opportunities.
We’ve invested heavily in the business–we’ve put in new point of sale registry systems that have cost us somewhere in the range of $20 million. So we’ve got better training and selling tools in the stores. We have higher end sophistication in regards to technology, better communication with our employees, better cross-selling opportunities that are suggested on register systems–all things that can help advance interaction with employees and consumers. We also invested $5 million in the web business, we’ve invested a couple million dollars in WebMD for relationship over a two and a half year period, we’ve invested in a new creative advertising agency in addition to our normal marketing. That has paid off tremendously. The payoff on our advertising is the best in the 20 years I’ve been here.
The mindset here has been to over-deliver, maintain a strong performance during this downturned economy and think logically about how most effectively to do that. I think we’ve managed that very well. Then the other component has been to start investing in the business to give us upside potential for the future. We’ve been fortunate enough to do both; we’ve hit the performance numbers and beat them and we’ve invested in the business and we will continue to invest in 2009 to position ourselves in 2010, so I think we’re in a very good position right now.
Related Links:
CRN: Supplements Are Still a Priority for Consumers, Despite Slumping Economy
Health Clubs and Gyms Work to Bulk Up on Sports Supplement Sales
Web Pumps Up Sales of Sports Supplements
