Nutrition Business Journal

GNC capitalizing on positive momentum

GNC should see positive growth due to its strong financials, aggressive retail expansion plans, increasing presence in China, world-class management team, and strategic partnerships. 

Since Joseph Fortunato took the reins of GNC in 2005, the company has been gulping its daily protein shakes and gaining muscle. Over the next five years, the company should see positive growth due to its strong financials, aggressive retail expansion plans, growing presence in China, world-class management team and strategic partnerships. Currently, GNC holds the No. 1 spot in supplement retail, with a 10 percent market share of overall supplement sales and a 25 percent share of supplement sales via the natural & specialty retail channel. However, the company could grow this share even more with its current positive momentum.

Improved Financials

Fortunato and his team are learning how to cut costs and reduce interest expenses. The CEO helped GNC grow its net income more than 600 percent, from $18.4 million in 2005 to $112.0 million in 2010. This has led to a subsequent increase in profit margins. The company cut interest expenses in half between 2008 and 2010, from $84 million to $41 million.

GNC also boasts 23 quarters of consecutive same store sales growth. Because attracting a new customer is far more expensive than retaining a current customer, GNC’s ability to increase its repeat customer base bodes well for the company.

On top of these positive metrics the company has also reduced its debt burden by $300 million with the proceeds from its April 2011 initial public offering (IPO). Although GNC remains highly leveraged, the management team is proving increasingly capable of handling this debt.

Impressive Retail Expansion Plans

GNC plans to expand aggressively with 100 new store openings a year. The company’s total retail footprint is 12 times the size of its closest competitor, Vitamin Shoppe; while its company-owned stores outnumber Vitamin Shoppe’s by a factor of six. In comparison to the 100 stores GNC plans to open this year, Vitamin Shoppe and Vitamin World will likely open only around 50. Furthermore, GNC's brick-and-mortar retail presence is seemingly unchallengeable.

Increasing Emerging Market Presence

China, everyone’s favorite emerging market, is getting further exposure to GNC. The company is now joining forces with Rich Life, a new chain of Chinese retail stores rolled out in 2010. This partnership will allow GNC to increase its presence in China's market, building on its deal with Bright Food, a state-owned Chinese food conglomerate. GNC has joined with Rich Life to present 70 store within-a-store displays, much like its past deal with Rite Aid. Rich Life stores are managed by Osim International, Asia’s largest maker of massage chairs. GNC’s deals with Rich Life and Bright Food won’t be significant enough to greatly impact revenue yet, but the earnings potential is certainly relevant.

Experienced Management Team

GNC’s new management team boasts hires from some of the United States’ largest, most recognized companies. The current management team has experience working for companies selling a diverse range of products, unlike past GNC management teams that mostly held industry specific knowledge. Current players on GNC’s management team hail from Bath and Body Works, Abercrombie and Fitch and Best Buy.

Deal with PepsiCo

Fortunato is excited about GNC’s deal with PepsiCo, which he believes will take advantage of one of the fastest growing categories in the beverage industry. The companies plan to develop and roll out Phenom, a coconut water with electrolytes, which it will release in the second half of 2011. Initially, the drinks will only be available at GNC, but the companies plan to sell through the mass market eventually. The deal is another example of PepsiCo’s efforts to make more health conscious products.

Overall, GNC’s improved financials, increasing retail footprint, and willingness to collaborate with others to penetrate new markets and create innovative products are great moves for a company that has historically struggled to find direction due to rapidly changing management teams and private equity owners. The company appears to be utilizing the momentum of its IPO to take even bigger strides in the supplement market.


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