Natural Foods Merchandiser

Glanbia buys a whey into supplements market

by Vicky Uhland

As ingredients companies search for ways to jump-start sales in a time when profit margins are being shaved, the Irish cheese and nutritional ingredients group Glanbia has responded by entering the consumer side of the business, purchasing Illinois-based Optimum Nutrition, a manufacturer that specializes in sports supplements.

The $315 million acquisition, announced in August, expands Glanbia's presence in North America. Last year, Glanbia bought Pizzey's Milling, a Canadian company that produces fatty acids from flaxseed. In 2006, the company bought California-based Seltzer, which specializes in nutritional pre-mixes.

Natural products consultant Anthony Almada said Glanbia's foray into finished goods makes smart business sense, though it's unusual for an ingredients company.

"When margins are being shaved and not many ingredients are truly unique anymore, it's a challenging time to go after ingredients sales," said Almada, president of IMAGINutrition, a nutritional-technology think tank based in Laguna Niguel, Calif. Almada said because most ingredients today are generic or commodity, buyers mainly look for the cheapest price, which is usually offered by Chinese or Indian suppliers.

Ingredients manufacturers can improve their bottom lines by marketing their own branded, finished goods. But unlike Glanbia, "Other big ingredients companies have no professed interest in buying branded companies because they don't want to sell directly to the consumer—they prefer the business-to-business role," Almada said, adding, "Most ingredients companies aren't nearly as well-funded or have as much capital as Glanbia."

Nevertheless, Jesse Lopez, CEO and president of Chicago-based ingredients supplier Source One Global Partners, said ingredients companies that want to continue to be successful need to be "thinking of ways to add value to their ingredients through innovative application technologies, proprietary formulation expertise and consumer-focused marketing." He noted that Glanbia's decision to buy a finished-goods manufacturer "allows for greater control of the marketing message while moving further up the value chain as you get closer to the end consumer."

Glanbia is poised to make a "great profit" by cutting out the middleman.

The acquisition of Optimum gives Glanbia, a major player in the dairy-ingredients market, an entry into the fast-growing sports-supplements market. Optimum, which has manufacturing facilities in Illinois, South Carolina and Florida, makes well-known brands such as Optimum Nutrition, Gold Standard 100% Whey and ABB. In 2007, Optimum reported $185 million in sales.

Glanbia's purchase of Optimum is a "close strategic fit with our core areas of expertise in whey and sports nutrition, and brings us up the value chain into consumer markets," said John Moloney, Glanbia group managing director, in a statement. "Optimum also fits very well with the group's stated growth strategy and ambition to continue to internationalize our business. The transaction is expected to be earnings-enhancing from this year."

Almada pointed out that Optimum is Glanbia's biggest whey-protein customer, so now Glanbia is poised to make a "great profit" by cutting out the middleman and selling directly to the consumer.

Glanbia estimates the global nutrition market at $337 billion per year. The sports and fitness market has a significant chunk of those earnings, at an estimated $44 billion, with a yearly growth rate of 7 percent to 8 percent, according to the company.

"The Optimum Nutrition acquisition is a bold move and compelling statement about Glanbia's strategic plans for growth," Lopez said. "Glanbia has a vision of becoming a dominant player by executing an acquisition strategy so they are positioned to successfully compete in a marketplace that is consolidating, in which larger food and pharmaceutical companies are establishing a significant footprint, and the focus is on a consumer-driven marketplace."

Vicky Uhland is a Lafayette, Colo.-based freelance writer and editor.

Natural Foods Merchandiser volume XXVIII/number 10/p. 26

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