Vitamins Prove Healthy to GNC’s Profits

Cary Hixson can’t remember the last cold he caught, and he didn’t miss a day of work last year.

His secret? Vitamins and herbs. Hixson believes the supplements he buys by the bagful at the GNC store in his downtown office building are keeping him healthy at the age of 54.

“I feel great,” he said. “I don’t see doctors.”

Hixson and others approaching--and passing--middle age are feeding a growing demand for alternatives to the prescription slip. General Nutrition Companies Inc.--the nation’s largest specialty retailer of vitamins, nutritional supplements and other health-related products--is opening a new store nearly every day to meet that demand.

“It’s been a real exciting spurt over the last few years,” GNC President William Watts said. He’s a believer--every day after lunch, he washes down 12 tablets, including multiple vitamins, vitamins C and E, beta carotene, zinc and selenium.

The $4.6-billion vitamin and supplement industry is healthier than ever due to an aging population, more interest in diet and health, and a spate of publicity about the possible benefits of vitamins, herbs and other forms of alternative medicine.

GNC’s sales grew to $673 million in its 1994 fiscal year, which ended in February. That’s double the total in 1990.

The company was born when Pittsburgh entrepreneur David Shakarian opened a yogurt store in 1935.

The firm sold generic vitamins by mail order from the 1950s through most of the ‘80s and became a discount retailer of vitamins and health food until Shakarian’s death in 1984.

The late ‘80s were a turbulent time for GNC as large drugstores and discount chains began selling more vitamins. GNC’s new management team closed about 300 unprofitable stores and repositioned GNC as a specialty retailer.

It expanded the product line, developing GNC’s own lines of supplements, and took much of the food off its shelves.

The new GNC stores lost the “discount” look, with bags of sunflower seeds and oat bran piled on the floor, in favor of a more polished, upscale image.

It changes products as trends shift. About 150 new products were planned for 1995, including Coenzyme Q10an antioxidantand a line of ginseng with guaranteed potency levels.

Nearly half of GNC’s sales are of vitamins. Herbal products make up about 11%, and sports nutritional supplements such as protein powders make up 24%.

GNC competes against about 5,000 privately owned health stores in the United States, but it has no single, major specialty competitor.

Still, most people buy vitamins at drugstores, supermarkets and discount chains that combined hold 80% of the vitamin industry, according to a 1995 Gallup poll. The nation’s best-selling vitamin is Centrum.

And many people prefer smaller retailers with different brands and products.

Privately owned stores offer more brands than drugstores or GNC, said Cheryl Rhodes, a manager at the Goldenseal health store in Pittsburgh.

“You have a better choice of products,” she said. “GNC has a lot of things, but it seems like it’s more interested in selling its own private brands.”

But GNC hopes to expand its market share from about 12% to about 20% in the next several years. The company has more than doubled the total number of stores since 1991 to more than 2,270 nationwide. Most are company-owned stores, but an increasing number--more than 840--are franchises, which GNC began selling in 1989.

Watts believes the company can continue expanding in the United States at the current pace through the end of the decade, bringing the store total to about 4,000 by the year 2000.

Like other retailers, GNC also is looking overseas.

It’s too early to predict GNC’s potential for growth in other countries, but the outlook is promising, said Dana Telsey, an analyst with Bear, Stearns & Co.

GNC has 100 stores in 15 other countries, all of them franchises. More than half are in Mexico. Others are in the Bahamas, Guam, Saudi Arabia, Spain, Turkey and Singapore.

Company stores are expected to open in the next few years in the United Kingdom, Canada, Australia and Japan, where demand for vitamins is especially strong. The recent acquisition of Health & Diet Group Ltd. of England will lead to the opening of 350 to 400 stores in the United Kingdom in the next several years.