Strategic Plan For Gnc Company Background General Nutrition Companies Inc., was founded 65 years ago in Pittsburgh, Pennsylvania on the premise that Americans wanted to maintain control over their health. David Shakirian founded the company. In 1935 he launched a dream of his by establishing a little health food store in Pittsburgh, Pennsylvania. He called it Lackzoom. The products that were offered at his store included yogurt and healthy foods such as honey, grains and healthy sandwiches.
The concept of being a health store and serving health food was thought to be a fad that would soon pass over back then. To the surprise of many of Shakarian’s critics, many people embraced Lackzoom. David and his store came a long way from its first days receipts of 35 dollars to open a second store six months later. Since those first two stores, Lackzoom, which is now GNC, has grown to be the largest manufacturer of vitamins and mineral supplements in the United States (1998 Annual Report). General Nutrition Companies, Inc., collectively with its subsidiaries, is the only nationwide specialty retailer of vitamin and mineral supplements, sports nutrition products and herbs, and is also a leading provider of personal care, and other health-related products. The products were sold through 3,757 General Nutrition Centers, 2,531 of which were owned and operated by the company and the other 1,226 stores were franchised.
Much of the growth of GNC has occurred in the last 7 years. Since 1992, the Company has opened or acquired in the United States 2,593 new GNC stores (SEC 10k form). The companys initial growth was through company-owned stores located primarily in regional malls. Many of the stores that were created in the past 7 years have been franchises. This franchise initiative has enabled GNC to expand into secondary locations as well as International markets. It appears that there is no end to the growth of GNC.
At a Franchising meeting on February 6,1999 GNC awarded and agreed to open an additional 323 domestic and 428 international franchise locations. All of these stores report to GNC headquarters, which is located in Pittsburgh, Pennsylvania. Pittsburgh is also home to one of General Nutritions three distribution centers. The other two distribution centers are located in Atlanta and Phoenix. The products that are distributed through these channels are manufactured in Greenville, South Carolina.
This facility is one of the largest and most modern vitamin and supplement manufacturing facilities in the United States. Within the coming months a new 600,000 sq.ft. manufacturing plant and distribution center in Anderson, SC will open which will double the capacity of the company (www.gnc.com/about/history). The company has many products that it distributes from their first-class distribution centers. These products include vitamin and mineral supplements, herbs, diet products, food products, personal care, and miscellaneous health care products.
These products are sold under the General Nutritions various proprietary brand names, including Ultra Mega, GNC, Pro Performance, Preventive Nutrition, and Harvest of Nature. In addition, the Company carries various third-party brand name products including Weider, Twin Lab, EAS, and Met-Rx. The companys product mix focuses on high-margin, GNC proprietary brand, value-added products emphasizing vitamin and mineral supplements, sports nutrition and herbal products. The Company has seen amazing growth over the past 5 years. Below is a chart that exemplifies their revenue growth: Company Growth (dollars in thousands except per share data) 1994 1995 1996 1997 1998 Net Revenue. $672,945 $845,952 $990,845 $1,193,485 $1,417,746 Operating earnings.
97,750 137,116 60,347 191,171 183,337 Diluted earnings per share 0.44 0.78 0.05 1.24 1.18 Operating earnings as adjusted 98,425 138,699 152,413 195,254 194,548 Total Number of Stores 2,115 2,543 3,047 3,435 4,091 Comparable store sales (GNC owned stores, not franchise) 5.80% 10.30% 0.30% 7.90% -0.20% As you can see net revenue increased to 1.4 billion dollars, an increase of 18.8 % over 1997. This increase was driven by the success of the Companys store expansion program and increased demand for the Companys products, as reflected by increased sales, across all business segments. During 1998, the Company developed a web site, GNC.com, to sell products via the Internet. Although still in the early stages of operation, the Company expects sales to increase based on the growth of the Internet. The history of GNC shows their excellence in planning and execution of these plans.
Going into the next millennium, the Company must actively scan their environment for opportunities and threats. The General Nutrition Company is exposed to many external threats. Over the past five years there has been a trend in consumer behavior towards healthy living. This trend has caused the health product and supplement market to drastically increase. Some of the most prominent external threats that GNC faces are new competitors, competing products and services, new technologies, government regulations, increasing customer expectations, general economic conditions, and the different cultural ways of the host countries.
External Threats: New Competitors Some of GNCs new competitors include Internet and mail order companies such as discountnutrition.com and the Vitamin Shoppe have entered the vitamin and supplement market recently. They have taken some of the Companys residual sales by offering different mediums of purchase. The Internet and mail order companies tend to offer discounted prices because they buy their products in bulk. A new competitor that has appeared in small regions across the United States has been Vitamin World. These shops tend to carry a similar product line with the exception of General Nutritions exclusive products. In addition to Vitamin World many other small chains have been started.
Two of these chains are Great Earth and Vitamin Specialty of New York. These stores propose more of a threat to GNCs corporate stores rather than the franchises because of the personalized service. The franchise stores also have more leniency in determining the final price and any discounts or specials. With the addition of these new competitors and the threat that they pose the Company has maintained if not increased its market share in many markets. Competing Products and Services GNC manufactures and sells several lines of supplements, vitamins and minerals, as well as a variety of health foods. These product lines carry many names.
Some of these names include Preventative Nutrition, GNC, and Pro Performance. All of these lines are sold exclusively at GNC stores and at their online manufacturer. In addition to their own product lines, GNC stores carry a variety of products from third-party vendors. These third-party vendors include big names such as EAS (Experimental and Applied Sciences), Twinlab, Met-Rx, and Metaform. All of these vendors are in the top 5% of sales for their flagship product. The Company must realize this and make their own products more attractive to the consumer.
Competing products from the third-party vendors are also sold at other stores, so this forces the Company to not only compete within their own store but to also compete in the marketplace. New Technologies Today, many companies are facing the threat of the internet. Many companies are not used to this advanced technological system and do not have the resources to compete. Not only is the Internet used for advertising purposes but it is also being used as an online ordering system. With the shift towards an online ordering system many things have to be taken into consideration and changed accordingly.
The entire supply chain must be examined to identify any and all potential problems and differences that must be made as a result of this shift. In this case, the manufacture, supply, distribution, and information flow are critical and will inevitably be modified from the traditional way of supply the product to the retail centers. Government Regulations Government regulations pose an enormous threat to the company. Potential government regulations will mandate FDA regulations and the testing of all products. This will dramatically increase the cost of production, which will ultimately be passed on to the end consumer.
Some sport and diet supplements sold by the company today could be ruled illegal in the coming months if this occurs. This could potentially reduce the number of products available as well as the customer base. Increasing Customer Expectations With the nations shift towards healthier living, many consumers have begun to experience unrealistic expectations of the products offered by the company. This can be witnessed by the fact that 45% of all adult Americans take some form of supplement. An attitude that many Americans exert today is that they want the pill or supplement to take the place of the work that they themselves would otherwise have to do. Customers are also looking for a company that offers exceptional customer service and sales associate knowledge. General Economic Conditions With todays flourishing economy, the average Americans income is at an all time high. If anything would happen to cause a negative occurrence in the economy the average Americans disposable income would, as a result, probably decrease.
This decrease in their disposable income would take away from their ability and/or desire to spend their money on products offered by GNC. The Different Cultural Ways of Host Countries The way that GNC handles their international business is through franchising. The franchising done internationally is done differently than is domestically. During the international franchising process, the entire General Nutrition rights are sold to the franchisee for the entire country, not just an individual store as done domestically. The government regulations and culture differences or preferences are left to the discretion of the potential or existing franchisee. The threat is posed as a result of the lack of assistance and guidelines that would normally come from the corporation headquarters.
As far as dealing with the individual host countrys government regulations and culture, it may discourage business in that country all together. The availability of raw materials poses basically no threat to the company at this point because of their vast resources and long term contracts with their suppliers. But, in the future with the addition of many new entrants into the market a shortage of some raw materials and components may occur. General Nutrition was the pioneer of the nutrition industry and will continue to be for years to come. On of the major contributing factors to their success has been their ability to maximize their external opportunities.
Around the late 1980’s the average Americans active lifestyle had reached an all time low. With the 1990’s came the current trend of healthier living. It was at this time that consumers turned to GNC to help maintain a healthy lifestyle. GNC capitalized on this opportunity in several different ways. They began to change the typical consumers idea and preferences about the General Nutrition stores and products.
They began advertising to all people and having specially trained employees with knowledge of all products that were carried. This helped to make the store a more inv …