FREE ESSAY ON STRATEGIC PLAN GNC

STRATEGIC PLAN 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 day's 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 company's 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 Nutrition's 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 Nutrition's 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 company's 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 Company's store expansion program
and increased demand for the Company's 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 GNC's 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 Company's 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 Nutrition's 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 GNC's 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 nation's 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 American's take some form of supplement. An attitude that
many American's 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 today's flourishing economy, the average American's income is at an all time high.
If anything would happen to cause a negative occurrence in the economy the average
American's 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 country's 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 consumer's 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 inviting place to everyone from a young high school athlete to a
middle-aged mother of two. This also lead to new product market niches. Some of the more
successful are the pro-performance line which is geared towards athletes, also the live
well concept which promotes an overall healthy lifestyle which would be more suited for
the average adult. With the change in customer preferences, GNC has the opportunity to
increase market share by creating customer loyalty and trust through groundbreaking
products. General Nutrition has done a tremendous job on utilizing these opportunities
and in order to remain atop the competition they must continue to fine tune the and
analyze the business strategy. 
Definitely one of General Nutrition's greater external opportunities is their franchising
and long-term alliance with Rite Aid. This opportunity is so tremendous that along with
697 stores opened in 1998 they also signed an alliance with Rite Aid. The alliance with
Rite Aid allows GNC to enter a new channel for marketing its supplements. With a the
average American only five miles away from a GNC, there still is such a demand for the
stores that they plan to open an additional 250 stores in the next year alone. This
combined with a total commitment to providing customer support has helped make GNC one of
the most successful franchises for the past decade. To continue to capitalize on these
external opportunities the company can look to actively pursue their franchising
capabilities while avoiding cannibalization of existing stores to allow them to remain
the pinnacle of the health food industry. 
The main reason that GNC has been and will remain the world leader in the nutrition
industry is due to their ability to use technology to receive great benefits. Their
greatest areas of technology that set them apart from the rest are their manufacturing
and distribution. This past year the company took a tremendous leap into the 21 century
with the completion of a 630,000 square foot state of the art manufacturing facility in
South Carolina. Along with the new manufacturing facility, the Company was involved in a
recent merger with the Dutch pharmaceutical company Royal Numico. This merger makes the
Company the world's largest manufacturer of vitamins and supplements. This merger
presents the company with a great opportunity to take advantage of the world class
research facilities available to them. The Company should streamline their supply chain
to fully take advantage of the new manufacturing and distribution facilities. This will
increase the Company's overall efficiency. The Company should look for a strategic
alliance with an established online drugstore to broaden the Company's market share. This
would also allow the Company to gain entry into the world of e-commerce. 
Internal Strengths
Internal strengths of the company include quality products emphasizing vitamins and
minerals along with sports nutrition. This product mix focuses on high margin value added
products, which are sold under the GNC proprietary brand. Along with vitamins, herbal,
and sports supplements the Company also offers customers the opportunity the Gold Card
program. This program enables stores to add to their product line. The basis for this
program charges a $15 annual fee that entitles each member to a 20% discount on all
products one time each month. Sales of proprietary brands represented over 50% of total
sales in 1998.
Company reputation is another strength for the company. The Company is the only
nationwide specialty retailer of vitamin, mineral supplement, sports nutrition products,
and herbs. Along with these products the Company is also the leading provider of personal
healthcare products. The company's reputation was built on two basic principles. The
first of these is strong customer service. The Company has a strong competitive advantage
over competitors because of well-trained and informed employees who have knowledge of the
entire product line. The Company's employees are knowledgeable and efficient because of
the strong employee-training program. The second principal that has built their
reputation is a superior product line. The proprietary brands along with other strong
brand names enable them to have a product line better than the competitor. 
Production capabilities at the Company have enabled them to become the world leader in
the their industry. The Company will be able to maintain their position as a leader
because of their capacity to not only meet company inventory requirements, but also
enough to sell to third parties in the wholesale market. The Company is able to maintain
strong production capabilities because of their emphasis on quality control. Each product
is tested from the beginning to the end until the final product meets their standard. 
The Company has experienced a strong sense of executive leadership. The current president
has 25 years of experience within the company and the CEO has 18 years. The executive
vice president has 19 years of experience and the head of logistics has 22 years under
his belt. Along with this experience it is evident to see that there is an extremely low
employee turnover ratio within management. Turnover within this company as with any
retail organization occurs with retail store management and part time sales positions. To
keep this factor at a low level the Company started the franchise program. The Company
wanted to bring strategic partners into their system that would personally invest in the
Company's program. Along with strong management leadership the Company maintains a strong
employee base through orientation and hiring kits that enable the new employee to adjust
quickly and become an efficient employee. The company gives their employees the
opportunity for tuition reimbursement, profit sharing, good medical and health benefits,
and 401k and stock options. All of these factors allow a GNC employee to be part of a
team.
The Company uses patents to its advantage. By having patents on their proprietary
formulas, vitamins, sports nutrition, and herbal supplements, the Company creates
barriers between themselves and competitors. Along with their patents the Company
conducts research with other companies. One such company is Proctor and Gamble. Recently
the Company has held the patent with Proctor and Gamble on calcium (calcium citrate
malate). This product was found to be more absorbent than any other type of calcium.
The Company achieves economies of scale throughout the entire organization and network of
5,000 retail stores by a close arrangement of entities. These include arrangements with
product suppliers, raw materials, packaging material, store supplies, retail advertising,
third party advertising, insurance coverage, and credit card processing. The close
surveillance and agreement of these entities allows the company to achieve greater
economies of scale.
The mission of the Company is to maintain quality over quantity in its products. The
company typically introduces 25 to 30 new products each year and reformulates existing
products on an annual basis. An annual reset is done for the stores to introduce new
vendor third party products, and new company products through expansion and deletion of
retail shelf space.
Weaknesses
General Nutrition Companies Incorporated is the leader in health products but the company
is not adverse to risk. These risks that we can find within the company are considered to
be the weaknesses of the company. The first risk is that Royal Numico has acquired GNC,
now being a part of a larger company they must now try to fit into the larger system and
integrate themselves. With the integration of the Company into Royal Numico there will be
a significant amount of cash spent, some potentially dilutive issuance's of equity
securities, incurrence of debt or amortization expenses, related to goodwill and other
intangible assets. Any of these can adversely affect the company; it's operating results
and financial conditions. In addition to the financial and operating factors we could
find difficulties in the assimilation of the technologies, products and personnel of the
integrated company. Another weakness that the company has is their leverage problem. This
means that the company has raised much of its capital through debt financing, including
loans. Based on the current level of operations and anticipated level of growth, the
company's available cash flow, together with other sources of liquidity, will be adequate
to meet to future needs of capital. Although it looks to be enough, there can be no
assurance that the company will generate enough cash flow. Along with that uncertainty
our leverage could also have these important consequences: 
1. Our ability to obtain additional financing for working capital, general corporate
purposes could be impaired in the future.
2. A substantial portion of the company's cash flow from operations will be dedicated to
the payment of interest.
3. Certain number of the company's borrowings will be at variable rates of interest,
which will expose us to the risk of increased interest rates.
4. The company's leveraged financial position may make them more vulnerable to general
economic conditions such as a downturn or recession.
Along with all of the problems associated with being highly leveraged, the Company has
the weakness that they will be affected by the general economic conditions in their
markets. The company's results of operations are significantly affected by the overall
economic trends of the company's principal geographic markets, the level of consumer
spending and consumer confidence in future spending. In periods of economic slowdown, the
company could experience negative pressures on sales volume and declining margins for
certain number of the company's products.
A weakness that is faced by the company is that they could face product liability claims.
Due to the nature of the products, it is possible that the company could be subject to
individual or class action lawsuits based upon product liability laws. GNC, like other
manufacturers or distributors of nutritional foods and supplements, face an inherent risk
of exposure to product liability claims in the event that the use of the company's
products results in personal injury. Associated with the nutrition industry, the company
is also faced with the weakness of having their products subject to regulation. The
company's industry is subject to regulation by national and local governmental agencies.
These regulations and laws govern such matters as production requirements, quality, trade
and pricing practices, labeling, packaging and advertising. Although the company believes
itself to be in compliance with current legislation, there are certain areas in the
future in which they could have breaches. To maintain compliance the company will incur
additional costs. 
The biggest weakness facing GNC in the coming years is that the company faces the
challenge of protecting their workers intellectual property. In the present to protect
the company's intellectual property they rely on a combination of patent, trade secret,
copyright and trademark laws. However, the company cannot guarantee that these measures
will be adequate to prevent the company's competitors from copying or reverse-engineering
the company's products. If this would happen the company is set-up to lose millions of
dollars as well as the all important market share.