WholePeople.com Launch Aims To Revive Struggling Amrion Business

Whole Foods Market remains "optimistic" that the recent sluggish performance of its former Amrion subsidiary can be reversed with new marketing support under the WholePeople.com e-commerce venture.

"We're making the investments and I'm optimistic that we'll get good results from that, but it's too early to know for sure," Chairman and CEO John Mackey maintained during a recent conference call on Whole Foods' fiscal first quarter 2000 financial results.

As part of the creation of WholePeople.com as a separate operating unit from Whole Foods, dietary supplement marketer Amrion was removed from the parent company along with the natural food chain's e-commerce unit WholeFoods.com, and established as a component of the new company.

Under the arrangement, completed in mid-January, Whole Foods issued $35 mil. in common stock to four venture capital firms in exchange for a 22% minority interest in the firm (¹ (Also see "WholePeople.com" - Pink Sheet, 24 Jan, 2000.)). Part of this seed money for the site, Mackey noted, will be dedicated to marketing efforts for Amrion's two key direct sales brands - BioEnergy and Healthsmart.

In addition, Whole Foods has discontinued Amrion's Cevan International and Natrix mass market divisions (² (Also see "Whole Foods Market" - Pink Sheet, 4 Oct, 1999.)).

Addressing the "old Amrion business," Mackey said the supplement firm's "outside sales were down about 15%" in the quarter ended Jan. 16. "Excluding the sales of the two discontinued lines, the sales were down 13% and profits for the quarter declined about 33%" to roughly $1.4 mil. before taxes.

"Basically, you had two very strong direct marketing businesses at Amrion...and when we acquired this company those were showing very strong growth," Mackey commented.

However, Amrion "overextended themselves" in attempts to expand into other businesses, including the mass market and international areas, Mackey noted.

The company was "trying to do everything and they didn't have the resources to do it, they probably didn't have the talent to do it, and they under-invested in the two important lines...which were driving the sales and profits, and transferred that money into a bunch of loser programs that we have now discontinued and taken write-offs on," the CEO continued.

"So, now that we've...jettisoned" those programs, the company is "reinvesting in the core lines which have been neglected for really four years. They've been harvesting for four years and channeling that money into black holes," Mackey maintained. "We've cut those things loose now and...we're building up the core lines which are the drivers of the business."

"Our internal plans will show strong growth for WholePeople in 2000...probably in the range of 20%-25% for a combined business basis despite the declines we've had in the first quarter," Mackey stated.

"It's darkest before the dawn; I think dawn [will occur] at WholePeople when we do the new launch, but admittedly the first quarter was not a great quarter for the core Amrion business," he added. Whole Foods acquired Amrion in June 1997 for $146 mil. in stock.

Despite the firm's goal to break even in the fiscal first quarter, WholePeople reported a net loss of $1.1 mil., largely due to the "lower than expected income from Amrion to offset our increased development costs."

Slated to debut in March, the new Web site will carry nutritional supplements, herbals and alternative health care items, as well as thousands of other new products. By year-end, Mackey noted, the site is expected to sell over 100,000 SKUs, with only a 15% overlap with the Whole Foods retail offerings.

As part of its marketing of the site, Whole Foods intends to tap into the customer network at its retail outlets across the country. The natural foods chain is devoting "a significant amount of money" to the creation of "customer information centers" within existing stores, Mackey reported.

Expected to be added in the next 12 months, the 100-150 sq. ft. areas will be "key to the marketing efforts for WholePeople," he noted. "We're going to market one-on-one to the Whole Foods Market customers," which the company estimates total about 20 mil. people, including family members.

Overall, Whole Foods' consolidated sales in the first quarter were up 21% to $553 mil. over the year-ago period. "Core retail sales" rose 23% to $532 mil. Consolidated net income increased 10% to $11.8 mil.

Effective Jan. 17, the start of the second quarter, operations from the former Amrion business and WholePeople.com are no longer accounted for in Whole Foods financial results.