Nutrition Business Journal

Our friends at Supermarket News announced Whole Foods’ intention to sell 32 stores, most of which are closed, in a settlement agreement with the Federal Trade Commission. The stores that will be sold include 19 Wild Oats locations, ten of which were closed by Wild Oats prior to the merger. The 13 stores to be sold that are currently operating include 12 Wild Oats locations and one Whole Foods store. A total of seven Colorado stores, five that are currently operating, are included in the settlement.

Whole Foods also has six months to sell intellectual property and trademarks associated with Wild Oats. This comes on the heels of a long battle with the FTC, in which the company has reportedly spent in excess of $16.5 million to fight the case. So what is the outlook for Whole Foods?

The retailer secured an investment in January 2008, by The Yucaipa Companies, LLC., led by supermarket investment mogul Ron Burkle. I spoke with Andrew Wolf of BB&T Capital earlier this week and he viewed the investment as a big vote of confidence. He also spoke favorably about the store’s outlook, despite the unfavorable economic conditions and problems with the FTC. “I think that in the long term, once economy turns, Whole Foods is still very valuable concept. There will still be enough people interested in best quality natural and organic.” He went on to comment on the company’s current positioning. “Whole Foods core grocery is doing ok, because the customer knows that price points are lower and they are pretty well priced in the middle of the store. It’s the high quality perimeter where consumers are trading down to lesser quality or taking a pass.”

Scott Van Winkle, Managing Director of Canaccord Adams, thinks the company may have endured the brunt of the storm in 2008 and positioned themselves well for a rebound. “I think they saw their trough in the pace of the decline of purchasing from consumers in November and December. All of the efforts they have made over the last 9 months are going to start to bear some fruits–slowing down the pace of store development, cost controls they’ve done in Austin, headcount reductions and a hiring freeze, that should result in more attrition, improving margins.”

So one might conclude that the company has done a good job managing the forces they can control, now it just needs the macroeconomic conditions to improve. “They’ve already cut prices, given better value, now they just need to educate their consumer that it’s not that expensive at whole foods,” added Van Winkle.

Related–

Court to Whole Foods: FTC Trial Won’t Be Thrown Out

Whole Foods Strives to Shrug Off Whole Paycheck Image in Current Economic Climate

Mannatech Inc., a multilevel/network marketer of dietary supplements, has agreed to pay $4 million in restitution to Texas customers in a settlement with the Texas Attorney General. The company and its former CEO Samuel L. Caster were accused of unlawfully marketing products from 2002 to 2006 by exaggerating their health benefits. In addition to the $4 million, the company will pay $2 million to cover fees and expenses of Texas regulators, and Caster will pay a $1 million civil penalty and is prevented from serving as an employee of Mannatech for the next five years.

Mannatech’s marketing materials falsely claimed that its supplements could cure and treat down syndrome, cystic fibrosis, cancer and other serious illnesses. Under state and federal law, drug manufacturers cannot claim their products cure, treat, mitigate or prevent illness unless the product has been approved by the U.S. Food and Drug Administration as a drug. The state also cited Mannatech for encouraging product testimonials that exaggerated the products’ healing effects. The company reportedly used misleading “before and after” photos that deceived consumers.

The Texas Attorney General commented on the civil action in a press release. “Texans will not tolerate illegal marketing schemes that prey upon the sick and unsuspecting. These deceptive practices posed a health risk to seriously ill consumers who may forgo traditional medical attention because of the company’s false claims. Today’s agreements put an end to Mannatech’s deceptive marketing practices in Texas.”

Mannatech detailed “significant changes” to its operating practices in a press release. Those changes include the expansion of its compliance department, banning the use of disease claims and implementing a six-month money back guarantee on all of its products.

Clearly, the government—be it federal or state—is increasingly cracking down on blatantly false supplement marketing claims. The claims only serve to tarnish the image of the all supplement companies and add to the misperception that this is a rogue, unregulated industry. News like this Mannatech story will always be bad for the industry, but it could be particularly harmful during tough economic times when consumers are being more careful than ever with their healthcare spending.

Related-

Mannatech Cuts U.S. Workforce by 15%

Mannatech Reports Mixed Q1 Company Performance

Nutrition Business Journal is hosting and moderating a number of panels later this week at Natural Products Expo West in Anaheim, California.

We hope to see you at these events:

Wednesday, March 4

* NBJ Publisher and Editorial Director Patrick Rea, NBJ Editor Carlotta Mast and Natural Products Consulting Group Principal Bob Burke will give our State of the Industry presentation to Nutracon attendees from 12:30 p.m. to 2 p.m. in the Anaheim Hilton.

Thursday, March 5

Michael Movitz, vice president of business development at SPINS, will join Patrick, Carlotta and Bob for NBJ’s State of the Industry: Hot New Products and Industry Trends presentation from 10:30 a.m. to noon in room 204AB of the Anaheim Convention Center. We will discuss the latest nutrition industry growth figures, identify key trends for 2009, highlight the hottest products on the market, and address the challenges facing the industry this year and beyond.

* Starting at 1 p.m., Patrick will be dishing out the NBJ data during private one-on-one “speed data” sessions with Nutracon attendees.

* At 3 p.m., Patrick will discuss the state of the nutrition industry with Global Business Program participants.

* Carlotta will join Chef Ann Cooper, Organic Bistro’s Laryn Callaway and YoNaturals’ Mark Trotter to discuss the opportunities and challenges facing retailers and manufacturers in the kids nutrition market during the Healthy Children, Healthy Future panel, which runs from 4:30 p.m. to 5:45 p.m. in room 207B of the convention center.

Friday, March 6

* Patrick will take on the issue of genetically modified food with UNFI’s Michael Funk, Helen Holder of Friends of the Earth, FoodChain Global Advisors’ John Fagan and Consumer Union’s Michal Hansen during the GMOs: Gettin’ M Out of Our Food panel from 8:30 a.m. to 10 a.m. in room 207A.

* Next door in room 207B, Carlotta will do the introductions for the Natural Products Marketing: Lean and Green SupplyExpo Seminar from 8:30 a.m. to 10 a.m. This event will feature Jeff Hilton, president of the Integrated Marketing Group, and Jon Goldman, a leading expert on unusual marketing techniques that achieve monstrous results.

Saturday, March 7

* Don’t miss Nutrition Capital Network’s 2009 Investor Forum at Expo West. The meeting will take place from 8 a.m. to 10 a.m. in room 207A of the Anaheim Convention Center. Designed for investors in the nutrition, natural products, healthy foods and green products industry, this NCN Investor Forum will present current perspective on industry trends and the investment climate, case studies of representative recent deals, and a qualified list of companies exhibiting at Natural Products ExpoWest that are also interested in raising capital. The Forum is free and open exclusively to investors registered for Expo West.

If we don’t see you at one of these events, we hope to be able catch up with you on the tradeshow floor or at one of the many social events planned for this year’s Expo West. Also, be sure to check out NBJ’s Twitter page to read Patrick’s updates throughout the show.

Strong and still growing

Faring well through the first part of 2009

Stable

Wide open and uncertain

These are just a few of the ways members of Nutrition Business Journal’s editorial advisory board described the state of the U.S. nutrition industry now and moving forward in 2009. I asked our editorial advisors to comment on the state of the industry to help us prepare for this year’s NBJ presentation at Natural Products Expo West.

One of our advisors—Scott Steinford, president of ingredient manufacturer ZMC-USA—was especially thoughtful and eloquent in sharing his views. I believe his opinions might be useful to others in 2009—a year that promises to deliver great challenges and opportunities for nutrition industry companies—so I am posting them here.

NBJ: How would you describe the current state of the U.S. nutrition industry?

Scott Steinford: The industry is at a crossroads. It can either lend itself to legitimacy and trust in the minds of the consumer or open itself up to more criticism and skepticism by the public and “competing” industries. The consumer wants and needs to believe and trust in the quality, safety and reliability of the products the nutrition industry presents. To accomplish this task the industry must accept the fact that this is an industry that will receive oversight and scrutiny by an array of governmental and private sector organizations. This is already happening. Fortunately, this industry has taken great strides in adapting to regulations such as the new GMP and AER regulations, and companies appear to not only be accepting of the new challenges but also meeting the requirements, which provide greater security and confidence to the consumer.

NBJ: What are the greatest opportunities facing the industry today?

Steinford: The industry’s greatest opportunities will come from continuing to establish a platform that synergistically creates a proactive healthcare system to complement and not compete with the more reactive pharmaceutical industry. An opportunity exists for the nutrition industry to present education to the American public that reinforces the role supplements can play to decrease total healthcare spending. It is up to the industry to provide continual clinical and scientific support to the products it presents to the healthcare consumer.

NBJ: What are the greatest challenges facing the industry right now?

Steinford: The industry’s greatest challenge in 2009 will be to overcome the attitude of many that the U.S. nutrition industry is filled with frauds and illegitimate claims. The quality of the products offered today are exponentially more proven and reliable than those offered a decade ago, but it is up to the industry members to concentrate on the education that supports these facts. It is a challenge to stay within the confines of believability and legitimacy in claims, but it is a challenge that is both necessary and supportive of the industry’s long-term success. The nutrition industry is viewed as being infantile in comparison to the pharmaceutical industry—and, in many ways, it is—but the delta between the two is shrinking and rightfully so, as our products are increasingly being manufactured at the same level of quality as pharmaceutical drugs. It is up to the industry to educate the public about this. In addition, the industry must face the challenge of educating the consumer, as well as the media, that supplements are not drugs and are not designed to be cures or reactive measures to already progressive disease states.

Finally, the industry should not appear to unduly resist oversight, as that gives the impression there is something to hide or fear. It is understandable to want to avoid the extra costs associated with oversight, but such costs are necessary to some degree if the industry is to convey confidence and transparency to the consumer.

NBJ hopes to see you at our State of the Industry: Hot New Products and Industry Trends presentation at 10:30 a.m. on Thursday, March 5, 2009, in room 204AB in the Anaheim Convention Center.

If I don’t see you at Expo West, please consider dropping me an e-mail at cmast@nutritionbusiness.com to let me know how you view the state of the nutrition industry and what you see as its greatest opportunities and challenges in this year of change.

Carlotta

Nutrition Capital Network’s Fourth Investor Meeting will be held in New York City on Tuesday, April 21, 2009. NCN IV will present professionally screened companies to motivated financial and strategic investors in the nutrition, health, wellness, natural & organic and green products arena.

Companies interested in raising growth capital are invited to apply through March 20, 2009

“Despite current economic pressures, there are positive signs that the consumer trend towards healthier lifestyles is being sustained, and investors remain very attuned to products and services in this space,” said Grant Ferrier, an NCN principal and co-chairman of the meeting. “Several companies that participated in the first three NCN meetings have raised capital, and many more have forged valuable contacts with strategic and equity investors.”

Two NCN Investors Meetings are held each year, one on the East Coast and one on the West Coast. Each Investor Meeting presents at least 20 companies screened by NCN principals.

NCN IV will feature a special track devoted to ingredient & technology companies. The first 12-15 presenters will be consumer-facing, finished product companies and the second 6-8 will be in ingredient development, supply and technology.

NCN Investor Meetings are primarily for companies at two stages:

First Round: Typically companies beyond proof of concept with revenues less than $5 million and raising outside or professional capital for the first time.

Second Round or Later Stage: Typically companies that have already raised structured capital, have revenues of $5 million or higher and are looking for growth capital.

However, Start-up companies or those working on proof of concept may also submit applications.

Companies raising capital and interested in the opportunity to present their business plan to investors are invited to visit www.nutritioncapital.com to fill in a FREE application form on line. Only companies professionally screened and selected by Nutrition Capital Network principals will be eligible to present at the meeting. Investors interested in registering should visit www.nutritioncapital.com.

Where and When: The Nutrition Capital Network day-long Investor Meeting will be held on Tuesday, April 21, 2009, at the Grand Hyatt New York in New York City. An opening reception and dinner precedes the event on the evening of Monday, April 20. For more details visit www.nutritioncapital.com or contact Mike Dovbish at 415-254-1116, email:

mdovbish@nutritioncapital.com

About Nutrition Capital Network: The Nutrition Capital Network mission (San Diego, Calif.) is to facilitate the financing process for small companies and introduce investors to the next generation of successful brands in the nutrition, health, wellness, natural/organic and green product arena. However, the NCN vision goes beyond helping to improve the efficiency of capital formation in this dynamic sector. It also aims to accelerate the impact of nutrition companies on the country’s healthcare crisis, the food industry and the wellbeing of the general population. The Investor Meeting in New York is part of a broader service platform being developed by Nutrition Capital Network to facilitate partnering between nutrition industry firms and financial investors.