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NBTY: ‘We must generate acceptable margins in private label’

By Elaine Watson , 13-Feb-2012
Last updated on 13-Feb-2012 at 16:28 GMT

Sales of NBTY’s vitamins, minerals and health supplement (VMHS) brands grew 10% in the US food, drug and mass merchandise channel in 2011 - more than double that of industry growth of 4.5% - according to bosses at the nutritional supplements giant.

However, private label sales continued to slide, said chief executive Jeff Nagel on a conference call with analysts to discuss NBTY’s first quarter (2012) results on Friday.

Brand ‘significantly outpacing’ market

While NBTY’s brands – from Ester-C and Solgar to Nature’s Bounty - continued to go from strength to strength, life remained challenging in its contract manufacturing and private label operation, with the latter suffering from “pricing-driven sales pressure” that dented group margins, said Nagel.

“Looking at point-of-sale data for calendar year 2011, sales of NBTY’s VMHS brands were growing at 10% in the [US] food, drug and mass merchandise channel excluding Walmart (FDMx) while private label sales fell 1%.

“To put this in context the overall category grew 4.5% over the same period.”

Diet and sports nutrition sales up 23.4% in 13 weeks to Dec 31

As for the latest quarter, Nielsen data for the 13 weeks to December 31 showed sales of VMHS products in the FDMx channel grew 2.1% while NBTY recorded a 9.8% rise in sales in this channel over the same period, he said: “We’re significantly outpacing the market”.

NBTY also gained share in the diet and sports nutrition category, he claimed. “This category grew by 15.9% [over the same 13-week period] while we grew at 23.4%.”

Price increases on whey-based products

But private label sales and profits were weaker, he admitted: “We view private label as a valuable service for retailers but one to be used primarily for key accounts… We need to make sure that we are generating acceptable margins from these key accounts on that business.”

Meanwhile higher whey protein costs also hit margins in its sports nutrition business, he said.

“We are enacting price increases on whey-based products to address the inflation issue and looking for operating efficiencies across the supply chain.”

Asked about promotional activity on brands in the supplements market, chief financial officer Michael Collins said: “When I look at some of the branded competition out there, I would certainly say there is a high level of promotional activity. And it’s higher than it was a year ago.

“But I think that promotional activity is taking share from private label, not from other brands.”

Q1, 2012, results breakdown: Quarter began slowly, but picked up strongly

NBTY posted a 16% drop in consolidated earnings before interest, tax, depreciation and amortization (EBITDA) to $147m on net sales down 0.5% to $738.67m in the three months to December 31, said Nagel.

“At the beginning of the quarter we observed a slight softening of sales in the market and also in our business. But as the quarter progressed the market strengthened and by December the business was experiencing growth across all the segments."

Net sales in NBTY’s Wholesale/US Nutrition division (which supplies branded and private label products for leading retailers) were down 2.8%% to $444.37m in the quarter due to lower net sales from the loss of contract manufacturing agreements and reduced sales of private label products.

Net sales in the European Retail arm (which includes Holland & Barrett and Julian Graves in the UK, De Tuinen in Netherlands and Nature’s Way in Ireland) were up 4.21% to $178.78m while net sales in the direct Response/E-Commerce channel were down 0.28% to $59.95m.

E-commerce: ‘There is just a ton of opportunity…’

The drop in sales in direct response was down to lower catalogue sales, however, with e-commerce sales growing strongly, said Nagel: “On the web there is just a ton of opportunity.”

North American Retail net sales (440 Vitamin World stores in the US, 80 Le Naturiste stores in Canada) were up 3.81% to $55.58m.

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