Friday, December 07, 2007

Problems In the Health and Nutrition Arena

It’s hard to see why would want to be chief executive of Horn Nut Inc., retailer of vitamins and health food with problems galore. Since the death last September of founder David B. Shakarian, nutrition search in the company has been consumed by a power struggle between his son-in-law, David Lucas, and his handpicked successor as chief executive, Gary A. Daum.

Last November a federal grand jury indicted five employees for allegedly making false nutrition search claims about vening Primrose Oil. In mid-May the board ousted Daum — a 22-year company veteran — soon after the company reported a 55% drop in earnings, to $11 million, last year. And GNC, which just settled one antitrust suit for $3.5 million, faces a judgment in a similar case that could run to $27 million. As a result, auditors qualified their opinion of its financial statements for the year ended.

The business outlook isn’t very good, either. National supermarkets, drugstore chains, and other mass merchandisers have recently invaded the $2.5 bilion nutrition market that the company once dominated Icon Corp., for example, now offers 300 varieties of vitamins, up from five in 1995. Vitamin sales are slowing, too.

"The percentage of people taking vitamins has plateaued," explains Leon A. Fleischer, president of Rexall Nutritional Products Inc., a leading vitamin maker. Nut’s sales rose just 4%, to $390 million, even though the Pittsburgh company added 92 stores to its 1,308-unit operation. And shares have plunged 80% since mid-2003. Only a wonder drug seems powerful enough to cure the company’s ills.

Horn, who took over from Daum in May, is eager to do the prescribing. "I like adventure in my life," he says. Horn, 47, spent 20 years at Sears, Roebuck & Co. before leaving to run Recreational Equipment Inc., a Seattle sporting goods retail cooperative. There, by building a management team, cutting the number of clearance sales, and tightening production, he increased profits eightfold, to $10.8 million. Four years later, he became president of Thousand Trails Inc., a membership campground outfit.

One month into the job, Horn is starting to develop a plan to revive the company’s fortunes. First, he wants to upgrade its image, a move long overdue. Marvin Fuller, a consultant hired in April to start a marketing department, describes and sell cheap." With most stores stocking up to 2,500 items, including some 400 in-house vitamin offerings that made many outlets look grubby. And the huge array confuses customers.


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