New Jersey-based sports supplement manufacturer PacificHealth Laboratories Inc. posted 10% sales growth in 2009, despite recording a net loss of $1.7 million, $0.11 per share, and discontinuing marketing for one of its weight loss supplement brands in the fourth quarter. The company launched and aggressively marketed its weight loss brand FORZE GPS in March 2009, which resulted in a 4% annual revenue bump and increased sales to General Nutrition Centers (GNC). However, in the fourth quarter it was determined FORZE GPS sales were not strong enough to justify the continued marketing expenses in 2010.
“Our marketing efforts in 2009 did not result in sufficient sales of FORZE GPS to be able to project that this product line would be financially viable and the decision was made to cease marketing this product in 2010,” said PacificHealth in the company’s annual 10-K SEC financial report dated March 30, 2010. Based on the report, the company does not foresee the product line returning to financial viability in the foreseeable future, which means it could ultimately be discontinued if no further marketing investments are made, but management is taking a wait and see approach for now. The company is now continuing with its 2008 restructuring strategy, which focuses primarily on the sports performance category. According to Nutrition Business Journal forecasts, the U.S. sports supplement market accounted for approximately $2.8 billion in consumer sales in 2009.
NBJ Bottom Line
PacificHealth Laboratories took a risk with an aggressive product launch and marketing campaign right in the midst of a huge consumer spending downturn. Many companies delayed product development and postponed scheduled product launches in 2009 because it was determined the market could not support new additions. While PacificHealth’s strategy paid off in the short term and provided a sales bump, it appears as though the new product line did not achieve the consumer support that the company had hoped for. Now, in addition to halting the marketing campaign for FORZE GPS, PacificHealth is forced to write off a number of raw material and obsolete product costs associated with the scaled-down production. The good news for the company is that its sport performance products are still selling—PacificHealth reported 24% growth in Q4—and the company is actively managing its business so that one failed brand won’t threaten the health of an otherwise growing company.
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