GNC: Sports nutrition is not about body-building anymore
Speaking at the Morgan Stanley Global Consumer Conference in New York this week, Fortunato said GNC had a “dominant positioning in the fastest growing segment of the dietary supplements business: sports nutrition”.
And it was “significantly outperforming” the sports nutrition market, he claimed.
“Sports nutrition is forecast to grow at around 7% and we have a 25% share of a $3.2bn industry. If you look at our figures, each year we’ve doubled the industry forecasts.”
'Everyone thinks we are skewed more towards males. We’re not'
But the focus had changed, he said.
“Body-building is a segment of the business and that connotation has lived with GNC and will always be there. But this business has accelerated and expanded broadly across all fitness categories.
“This is about anybody that participates in any sport, any activity, weekend warriors… we have products for everybody… We are the place to come for fitness. We keep being innovative, we keep bringing new products to market and consumers [in this space] are willing to pay for the best products in the marketplace.”
And while some people still saw GNC as targeting men, this was not the case, he said. “Gender is split evenly. Everyone thinks we are skewed more towards males. We’re not.”
Margins at GNC.com are ‘almost unheard of for an internet business’
While GNC notched up double-digit growth in all of its divisions in the third quarter, the potential to grow in the online space was enormous, said Fortunato.
“GNC.com is a high-margin business, a very branded business, where we saw growth of 38% in the third quarter, we're looking at roughly 35% for the year, and more importantly, 27% EBITDA [earnings before interest, tax, depreciation and amortization] margin. That’s almost unheard of for an internet business.”
“We didn’t launch GNC.com until 2006, so we were very late to the game. But we’ll do $80m on GNC.com this year.”
The recent acquisition of online supplement retailer LuckyVitamin.com also gave the firm a foothold in the discount supplement market without compromising the premium GNC brand, he said.
“We want to play in this space. And we don’t have the ability to play in this space in our stores. It has no infringement on the GNC brand, so we feel it is the perfect play for us to expand and continue to take market share.”
Herbalife: We’re growing in mature as well as emerging markets
Herbalife chief financial officer John DeSimone, who was also speaking at the conference, was equally upbeat about his firm’s prospects, adding: “We’ve had 37% growth since we were here two years ago and we still think there’s a lot of runway [Herbalife presented at this event in 2009].”
He added: “If you look at the worldwide meal replacement market. Five years ago we had a 22.6% market share; last year we had a 33% market share.”
And unlike many rivals, Herbalife was still generating strong growth in developed markets such as North America (its sales there were up 12.2% last year) as well as emerging markets owing to its unusual business model, he said.
“That distinguishes us from a lot of other direct sellers.”
Distributor engagement
Crucially, Herbalife’s daily consumption model was driving increased distributor discipline and consumer engagement as the former had much more frequent contact with the latter than was traditional for direct sellers, said DeSimone.
While the traditional direct sales model was characterized by large, infrequent purchases, Herbalife had completely redefined this model through its daily consumption approach, which was all about small, frequent purchases, he said.
