Until recently, San Marcos, California-based Natural Alternatives (NAI) has depended largely on two customers that market nutritional supplements through direct sales. Its performance has been largely at the mercy of their marketing programs, supply chain management, product launches and new market entries.
However it has started marketing its own branded products through new channels, such as a direct mail campaign featuring one of its proprietary formulas in collaboration with a renowned physician.
And since Real Health's (RHL) products are sold through a number of large retailers including CVS, Walgreens and Rite Aid, the acquisition may both reduce reliance on the company's core customers and give it some new outlets.
Real Health's revenue was approximately $11.6 million in the fiscal year ended October 31 2005.
In the quarter ended September 30 2005, NAI's net sales of contract manufacturing services fell by 4.4 percent to $21.73 million, with further declines expected in the current quarter.
It signaled that it is responding appropriately to remain profitable by reducing costs.
"We believe this acquisition will provide meaningful strategic, operational and financial benefits to both companies, including the integration of certain NAI outsourced activities into RHL's existing operation," said president Randell Weaver. "We anticipate integration of these activities to generate cost savings."
Custom manufacturing has become increasingly competitive in the food and supplements sector as more and more players offer services to the marketplace. Some have even suggested that it is becoming a commodity business.
While NAI's response is to bulk up its presence with additional product lines and channels, others have sought to diversify or offer very specialized services.
For example, Las Vegas-based Nutri Pharmaceuticals Research (NPRI) started life as a contract manufacturer, but since developing its O2P (oil-to-powder) technology to enable the use of nutritional oils in tablet and capsule formulations, it has moved away from its roots. O2P is now its core business.
Spectrum Foods announced in September that it is splitting off its functional soy and edible oils from its core custom manufacturing business, with a new food ingredients division, Nexcel Natural Ingredients.