Royal Numico Brands To Dominate GNC Product Offerings
This article was originally published in The Tan Sheet
Executive Summary
Royal Numico-owned products will constitute more than half of the items carried by GNC stores under the Dutch conglomerate's plan to reorganize and revitalize its U.S. operations
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Royal Numico-owned products will constitute more than half of the items carried by GNC stores under the Dutch conglomerate's plan to reorganize and revitalize its U.S. operations. Currently, Numico-owned brands - which include GNC, Rexall Sundown's Met-Rx and Nutricia's Scan Diet - represent approximately 45% of the retailer's sales, Numico said. The shift to a majority of company-owned products will be phased in and should increase the pressure on supplement marketers such as Weider and Twinlab, whose products are carried by GNC. Companies have struggled to compete with Numico's domination of the U.S. supplement market and face the possibility of being further edged out of GNC's inventory. Reducing its reliance on third-party products is part of Numico's broader strategy for improving its U.S. operational performance, as outlined by Executive Board Member Peter van Wel in an analysts presentation March 7. Numico aims to improve GNC's retail operations by placing less emphasis on sports and diets and appealing more to female customers. Improving and expanding marketing to drive customer traffic and in-store customer service enhancements also are part of the plan. The GNC strategy calls for using Numico's scientific expertise to develop up to three highly innovative, "hero" products per category that are based on the latest research findings. GNC net sales in 2001 increased 2% to $1.43 bil., with comparable company-owned store sales in the U.S. up 1.7% and U.S. franchise outlet sales advancing 3.4% (1 (Also see "GNC Sales Remain Steady While Rexall Falls Victim To Herbal Market Slump" - Pink Sheet, 28 Jan, 2002.), p. 14). However, the performance of Numico's Rexall subsidiary was disappointing in 2001. On a full-year basis, the Boca Raton, Fla.-based division's sales fell 9% to $526 mil. in its first full year under Numico. In December, the Dutch firm named Ralph Denisco as Rexall's new CEO, saying his first priority would be to bolster the subsidiary's brands' presence. Similar to the GNC action plan, Numico has outlined several strategies for improving Rexall's performance, including increasing marketing investment and prioritizing brand development, with emphasis on the Osteo Bi-Flex , Met-Rx, CarbSolutions and Sundown lines. In addition, Rexall has changed ad agencies. The firm allowed its contract with Crispin, Porter & Bogusky (Miami) to expire without renewal. Cramer Krasselt (Milwaukee) will now handle advertising across the division's four business units: specialty supplements; weight management; vitamins/minerals/herbals/supplements; and active nutrition, which includes Met-Rx. For 2001, Numico reported taking a $370.5 mil. ($1=€1.12) goodwill write-down related to the Rexall acquisition, as well as a $59.8 mil. tax charge on internal transfer of Rexall brands. Numico's U.S. business reorganization is expected to reap annual savings of $40 mil. and will involve the elimination of 600 full-time-equivalent positions. Numico said its U.S. workforce currently totals approximately 18,000. Almost one-third of the FTE reductions (270) will occur at GNC, where they will cut across three areas - stores, field support services and division headquarters. At Rexall, 20 FTE positions are slated to be eliminated in 2002; several dozen positions at the division were cut in the second half of 2001. The remaining 310 FTE reductions will occur through the Numico Operations division, which was created to support all U.S. operating companies as one organization and to streamline operations by focusing on key facilities and shifting efficiencies. Reorganizational efforts are reaching into the executive level, as Numico is consolidating management of its U.S. businesses under one executive board member. Van Wel, who previously shared responsibility for U.S. operations with U.S. Executive Committee Chairman Greg Horn, now will have sole responsibility. Horn, the former GNC CEO, will resign effective April 1 to facilitate the consolidation, but will remain available as an advisor, Numico said. Numico will implement the U.S. restructuring plans over the course of the year and expects "benefits of the restructuring will contribute to the second half 2002 results." |