State of the Industry: Will VMS Rebound in 2004?

October 6, 2004

Good financial news at last. Results from the first quarter of 2004 show vitamin, mineral, and supplement (VMS) sales have improved considerably compared with the same quarter of 2003.

Good financial news at last. Results from the first quarter of 2004 show vitamin, mineral, and supplement (VMS) sales have improved considerably compared with the same quarter of 2003. Pacific Health Laboratories' (Matawan, NJ) first-quarter revenues rose 64% to $2,303,597 on strong sales of Accelerade and Endurox R4 sports drinks, as well as "significant opening orders" for the newly introduced Countdown postworkout drink. By the end of the year, clinical studies will be under way to support Satietrol, a weight-control product based on the appetite suppressant cholecystokinin (CCK). Pacific Health also plans clinical trials to investigate what role CCK plays in insulin release and glucose regulation in people with type 2 diabetes.

New products also are the core of Pharmavite's (Northridge, CA) 2004 growth strategy. Pharmavite introduced Nature Made Advanced Supplements enhanced with phytonutrients in May. The line has antioxidant activity equivalent to approximately 500 oxygen radical absorbance capacity (ORAC) units. Advanced B contains vitamins including B6 and B12. Advanced C helps enhance utilization of vitamin C and supports a healthy immune system with bioflavonoids and Ester C. Advanced E offers natural mixed tocopherols and mixed tocotrienols, providing both natural vitamin E and gamma E. Advanced Calcium blends calcium carbonate, calcium citrate, magnesium, vitamin D, and zinc to increase the body's absorption of calcium and improve bone strength.

Mannatech's (Coppell, TX) 2004 first-quarter sales were up $4.8 million compared with the same period in 2003. Supplement starter and renewal pack sales increased 47% to $4.2 million for the three months ended March 31, 2004, compared with the same period in 2003. New associates were partly responsible; pack sales from new associates increased $2.7 million, as compared with the same period in 2003. New products helped as well. In September 2003, Mannatech launched three new products, including Ambrotose AO in the United States. Future plans call for improving Mannabars and conducting research to develop additional new products.
 
RICH GET RICHER

The year 2004 began with a record-setting but controversial quarter for America's largest supplement company, NBTY (Bohemia, NY). Sales increased 58% to $440 million in its fiscal second quarter ended March 31, including an $82 million contribution from Rexall Sundown. But on June 17, NBTY disclosed problems with Puritan's Pride and Vitamin World. Sales at Puritan's Pride sank 12% to $38 million compared with the same period in 2003, while Vitamin World decreased 1% to $36 million. The news sent NBTY shares plummeting $9.51 per share, to $26.99. Shares have since rebounded--the price was $29.37 on June 30--but the company faces at least five class-action lawsuits claiming NBTY failed to disclose important reasons for earlier sales increases.

For the fiscal year ended December 31, 2003, General Nutrition Centers (GNC; Pittsburgh) reported consolidated revenue of $1.429 billion, a 0.3% increase compared with 2002. Fourth-quarter company-owned same-store sales increased by 11.0% domestically. Internationally, same-store sales increased 11.3% in Canada and 6.9% in international franchised stores. At the end of 2003, GNC operated 2748 company-owned stores in the United States and Canada and had 1355 domestic franchised locations, 988 Rite Aid "store-within-a-store" locations, and 654 international franchised locations. Future plans call for closing 117 under-performing stores. Apollo Management LP (New York City) is preparing an initial public offering only five months after buying GNC for $747 million.

Hain Celestial Group's (Melville, NY) net sales rose 6% in the first quarter of 2004, a $139 million increase over the same quarter the previous year. The Earth's Best business grew 24%, the Snacks division 21%, Celestial Seasonings 6%, the Canadian business 24%, and the European business 36%. Hain's acquisitive ways continued this year. Its latest purchase was Jason Natural Products (Culver City, CA), one of the most prolific product development companies in the growing natural personal care category. Prior to Jason, Hain completed the purchase of the Ethnic Gourmet brand of natural ethnic frozen meals and the Rosetto brand of frozen Italian products from H. J. Heinz (Pittsburgh). The Ethnic Gourmet and Rosetto brands had combined annual sales of approximately $30 million in 2003. The acquisitions created a $45 million to $50 million platform for further growth in the healthy frozen food category.

North Castle Partners (Greenwich, CT) and Golden Gate Capital (San Francisco) will spend $650 million to recapitalize Leiner Health Products (Carson, CA). As part of the recapitalization, Golden Gate and a new fund investment vehicle managed by North Castle plan to invest approximately $265 million. Leiner's management team will retain a significant ownership in the company.

Hain Celestial's net sales rose 6% in the first quarter of 2004, thanks in part to its Earth's Best unit, which grew 24%.

Photo courtesy of Hain Celestial Group.

Twinlab's new owner, IdeaSphere Inc. (New York City), launched Integrative Health Solutions (IHS) to bring consumers to specialty natural/health foods retailers. The three-phase program was designed to improve competitive differentiation among retailers, increase their connection with consumers, and grow their business and market share. Phase One provided retailers with the IHS Platinum Plus for Business MasterCard. Phase Two is a retailer certification program designed by integrative medicine professionals, including physicians and nutritionists. The program will offer retailers science, integrative medicine, and nutrition education. Phase Three will be a consumer discount card under the IHS imprint. Consumers who use the card in certified retail stores will receive an everyday discount on Twinlab and IdeaSphere products, as well as marketing incentives.

Weider Nutrition's (Salt Lake City) net sales were $67.5 million for the fiscal 2004 third quarter ended February 29, 2004, compared with $57.7 million for the same period in fiscal 2003. The Schiff brand accounted for 67% of revenues. An initiative to promote Schiff Move Free resulted in sales of $19.2 million compared with $14.7 million in the same quarter in 2003. The initiative included incremental selling and marketing support to both defend Move Free business against competition, including private label, and increase overall market share. Active Nutrition net sales increased approximately 16.7% to $8.7 million for the fiscal 2004 third quarter. The increase came from international sales.

Ripplewood Holdings LLC (New York City) and Activated Holdings LLC (New York City) acquired Shaklee's (Pleasanton, CA) worldwide business from Yamanouchi Pharmaceutical (Toyko) for approximately $310 million. Roger Barnett, managing partner of Activated Holdings, was named Shaklee's new chairman and CEO. Barnett's family owns Activated Holdings. Shaklee products are sold through a network of more than 700,000 members.

ATKINS SOARS

Manufacturers reaped the low-carb whirlwind. New products for low-carbohydrate devotees had privately held Atkins Nutritionals (Ronkonkoma, NY) increasing product offerings to more than 50 food products and 100 nutritional supplements. Atkins' products are in 30,000 stores, including Wal-Mart, Kroger's, Fred Meyer, and nearly all GNC and natural-foods stores. The Atkins Direct catalog business offers more than 200 controlled-carbohydrate products through print catalogs and Web commerce. The book that started it all, Dr. Atkins' New Diet Revolution, has sold more than 10 million copies since its release. The controversial diet generated more than 2.5 billion media mentions in the last three years. In October 2003, Goldman, Sachs & Co. (New York City) and Parthenon Capital LLC (Boston) bought a majority stake for $650 million–$700 million.

Lifeway Foods (Morton Grove, IL) expanded its line of kefir products with a new line of no-sugar-added kefirs designed for consumers who follow low-carbohydrate diets. The new product was showcased at the Summer Fancy Food Show in New York City, and will be available in stores later this year. Lifeway's low-carb kefirs will be available in strawberries n'cream, mixed berry, tropical fruit, and strawberry-banana varieties, as well as in an original, unsweetened version. The products will have 8 g of carbohydrates and 2.5 g of fat per 8-oz serving.

Natural Alternatives International's (NAI; San Marcos, CA) first-quarter revenues climbed 55% to $21.3 million during the first quarter of 2004. Private-label contract manufacturing sales increased to $4.8 million. Products formulated for new private-label contract manufacturing customers contributed $3.4 million. NAI sees the trend continuing, with 4–6% growth in private-label contract manufacturing sales in the fourth quarter of 2004. In March 2004, the company introduced Chopra Center Essentials, a line of eight condition-specific products. The line was marketed through print media and the transformative-health.com Web site. Plans call for a direct-mail campaign in the second quarter of fiscal 2005.

Wyeth Healthcare's Solgar division (Madison, NJ) reached sales of $29.7 million in the first quarter, a 4% increase over the same quarter 2003. Centrum vitamins did considerably better. First-quarter sales increased to $139.1 million from $119.7 million the previous year. Centrum Carb Assist, multivitamins for low-carb dieters, rolled out in May. The multis were formulated with high levels of B vitamins, including niacin, thiamin, riboflavin, B6, and B12, as well as the antioxidants selenium, manganese, and vitamins C, D, and E. Carb Assist also has 100% of the RDA of iron, zinc, and copper.

White Wave Inc. (Boulder, CO), a wholly owned subsidiary of Dean Foods, reported Silk Soymilk's half-gallon Silk Chocolate is now America's single best-selling product in the chocolate milk category, according to a report published by grocery sales tracker Information Resources Inc. (IRI; Chicago). Retail sales of Silk Chocolate approached $13 million. White Wave noted Silk Soymilk is found in approximately 97% of grocery stores and 11% of homes.

Natrol's (Chatsworth, CA) net sales increased 7.5%, or $1.4 million, to $20.4 million for the three months ended March 31, 2004. Natrol-brand products accounted for about 63% of the increase. Prolab-brand products added another 6%. Natrol's Essentially Pure Ingredients (EPI) raw-material and contract packaging division made up the remaining 31%. Gross margin decreased to 38.3% from 42.8% for the period due to a shift in product mix at EPI. During the first quarter of 2004, the division's sales revenue was derived primarily from lower-margin contract manufacturing.

Finally, Usana's (Salt Lake City) net first-quarter sales were up 51% to $61.8 million on sales from South Korea, Singapore, and Mexico, which reached $1.3 million, $2.0 million, and $0.7 million, respectively. Strong foreign currencies relative to the U.S. dollar boosted sales $3.7 million. On a constant-currency basis, first-quarter net sales were up 42% compared with the prior year. Sales were also driven by a 23% increase in active associates in the first quarter. The company has 96,000 active associates in the first quarter, up from 70,000 reported in the first quarter of 2003. Usana expects consolidated net sales in excess of $65 million for the second quarter of 2004, and consolidated net sales between $255 milion and $260 million for fiscal year 2004.