Schiff Nutrition’s decision to pump all available cash into branding and innovation instead of deep discounts has paid off for its Move Free joint care brand, with posted a 25% surge in sales in the third quarter in a category that was “basically flat”, says its boss.
Speaking at the Jeffries Global Healthcare conference last week, Schiff chief executive Tarang Amin - who has repeatedly warned of the dangers of excess trade spending - said the figures proved that money was better spent on innovation and advertising.
86% of sales now from branded supplements
Schiff, which is increasing sales and marketing investment as a percentage of sales from 16% in 2011 to 23-24.5% in 2012 as part of its brand-building strategy, now generates 86% of its sales from branded products (and 14% from private label products).
It is focused on four key areas: Heart health (MegaRed, which contains Aker BioMarine’s krill oil), joint care (Move Free), immune support (via the recently acquired brand Airborne) and digestive health (Digestive Advantage - which contains Ganeden’s ultra-resilient probiotic BC30), said Amin.
“Our strategy is quite simple: We are really focused on building brands…expanding our channel and geographic footprint, pursuing acquisitions and driving world class operations.”
Our joint care business was up 25% in a category that was basically flat
While joint care supplement sales were stagnating, Schiff’s Move Free glucosamine/chondroitin brand was now growing strongly, he said.
“The joint health category has been declining slightly over the past few years, primarily because a number of our competitors have used heavy price promotion in this category.
“Well starting last year we changed our strategy in this space and instead of doing heavy price promotions we focused most of our efforts on increasing our advertising and increasing the pace of innovation - including introducing Move Free Ultra - in this category.
“[In the third quarter] our joint care business was up 25% in a category that was basically flat.”
There is a great deal of upside left on MegaRed
However, all of Schiff’s brands still had huge potential to grow, said Amin, who took the helm at the Utah-based supplement maker in March 2011 and has a strong record of building brands at leading consumer packaged goods firms including Clorox and Procter & Gamble.
“MegaRed is the number one omega-3 stock keeping unit in retail, but it only has 12% consumer awareness, and only 1.5% household penetration. For perspective, omega-3s overall have about a 30% penetration, so there is a great deal of upside left on MegaRed.”
We consciously decided to walk away from certain private label business
Schiff competes in the specialty end of the supplement market, which is growing faster than the mainstream vitamins and minerals market, he said.
“And in this category, brands really matter.”
Chief financial officer Joseph Baty added: “We consciously decided to walk away from certain private label business where the margins are too small for us to justify us keeping the business.”
15% rise in net income in Q3
Schiff, which posted a 15% rise in net income to $4.6m and a 25% rise in net sales to $72.2m in the three months to February 29, is based in Salt Lake City with a sales office in Bentonville and a sourcing office in Beijing.
Click here to read about the acquisition of Airborne.