Twinlab Marketing Plan Includes Convenience Store Expansion, Mass Focus

Twinlab aims to expand distribution of its energy-targeted products into convenience stores under a revamped marketing plan for 2002.

The supplement marketer is "working with some major convenience store outlets" to introduce select products such as single-serving beverages, President & CEO Ross Blechman said during an analysts call March 27.

The convenience store push is a "big initiative for the company this year," building on recent strides made by Twinlab in the mass market sector, Blechman noted. Gyms also are seen as an area ripe for expansion.

Hauppauge, N.Y.-based Twinlab's focus on new distribution avenues reflects the firm's need for diversified product placement due to its steadily declining business with specialty retailer GNC - a major factor in the company's slumping sales performance.

Sales to the retailer fell 91.1% to $1.5 mil. in the fourth quarter, compared $16.9 mil. in the year-ago period, Chief Financial Officer Joseph Sinicropi reported. For the full year, sales to GNC totaled $18 mil., just under half the $35 mil. generated in 2000.

This trend likely will continue due to reorganization strategies recently outlined by GNC parent Royal Numico. Under the plan, Numico-owned products will account for more than half the offerings on GNC shelves (¹ (Also see "Royal Numico Brands To Dominate GNC Product Offerings" - Pink Sheet, 18 Mar, 2002.), p. 3).

Although Twinlab has designed a marketing strategy that takes GNC's approach into account, the supplement manufacturer continues to stress the positive affiliation it has had with GNC and remains publicly optimistic it could again be mutually beneficial.

"We intend to do everything in our power to improve that relationship going forward," Blechman said. "We've put a very focused, competitive business plan in place for 2002 consistent with the current climate... at GNC....As we improve our product introductions and our marketing programs, as we start creating destinations and excitement in the marketplace, we believe our relations with GNC could only improve."

Twinlab's continued progress in the mass market also will be key to a financial turn-around. The firm has gained entry into roughly 30,000 new mass retail doors in the past 18 months, Blechman noted. Wal-Mart is one of the firm's "top two customers," and the supplement marketer has items in the "top four mass, top five food/drug [and] top six grocery chains," he added.

The "evolution in the mass [market] has been somewhat of a painful one" for the firm, Blechman stated. Twinlab has gone from "trying to duplicate the same product mix that we had in the health food channel" - a strategy that mass market consumers were not ready to embrace - to focusing on a "very limited number of products, very limited categories," he explained.

Specifically, Twinlab is directing its efforts toward two categories: weight management and active lifestyle. The firm's Energy Fuel line of carbonated beverages, shakes, mints and capsules, introduced in late 2001, is seeing "promising off-the-shelf pull," Blechman said (² (Also see "Twinlab Energy Fuel Line Provides Women With Low-Fat Offerings" - Pink Sheet, 9 Jul, 2001.), p. 11).

Energy Fuel bar and protein drink extensions are planned and a $3 mil.-$4 mil. ad campaign is breaking now. Looking ahead, Twinlab has 10-12 new products in its pipeline, the exec noted.

In addition to the marketing efforts, Twinlab continues to pursue operational initiatives. The firm is examining its inventory processes with an eye toward "reducing required levels of raw materials and finished goods to improve turnover," reviewing more aggressive SKU reductions and "evaluating packaging changes to lower our costs and provide a fresh, new look to our consumers," Blechman reported.

The divestitures of Changes International, PR Nutrition and Advanced Research in 2001, along with workforce reductions including a 10% cut in November and an expected 12% cut with the closure of a Tempe, Ariz. manufacturing plant, will yield annualized cost reductions of $15 mil. in FY 2002, Twinlab predicted.

Net revenue fell 25.4% to $43 mil. in the fourth quarter, mainly reflecting the fall-off in GNC sales. Excluding GNC, health and natural food sales were up 13% in the period, offset by lower sales in food, drug and mass due to the downturn following Sept. 11, the firm said. Net sales for the year dropped 17.5% to $199.8 mil., compared to $242.3 mil. in 2000.

Twinlab reported a $66.8 mil. net loss in Q4 compared to a $42.4 mil. loss in the year-ago period, including "non-cash asset impairment charges of $33.8 mil. relating to the write-down of goodwill and intangible assets" of Bronson Labs and Health Factors International, as well as a $27.5 mil. charge to write down deferred tax assets. Excluding the charges, the loss was $5.5 mil. The firm's net loss for the year totaled $91.6 mil., compared to $51.9 mil. in 2000.