Royal Numico To Sell Rexall Sundown

ZOETERMEER, The Netherlands--Royal Numico, parent company to General Nutrition Centers (GNCs) and sundry nutritional companies, reported it would be divesting Rexall Sundown while exploring strategic options for Unicity, its direct-marketing dietary supplement division. Numico made this decision at a supervisory board meeting held Nov. 7, and expects to sell by the end of 2003. The company reported a $1.41 billion write-down, most of which was the a reflection of the two weak divisions.

This announcement came on the heels of the company releasing results from its third quarter (3Q02), ended Sept. 30 and reported Nov. 8. Revenues were down to $937.3 million compared to $1.07 billion reported in the same period last year. Because of the huge write-down the company took, net loss was $1.45 billion compared to 3Q01's net profit of $19.2 million.

Numico's president and chief executive officer, Jan Bennink, reported that while the underlying market of vitamins is strong, "We just have to cut our losses and make sure that we run with the ones we know are going to be winners."

The company's "losers" included Rexall (with a 24.6-percent decline in sales) and Unicity (with a 29.5-percent decline).

The company will instead be focusing on its Infant and Clinical Nutrition sectors, which experienced sales increases of 4.8 percent and 12.3 percent, respectively. Numico reported that it will strengthen its position in the infant milk formula segment and build a brand presence in toddler nutrition. In clinical nutrition, the company will be expanding its foothold in disease-specific products and home care.

In a more gray area, Numico will continue to stand behind GNC, even though the chain is experiencing less-than-stellar times. Presently, Numico is focusing on making prices and product assortment more competitive. "I think when you go into a GNC store and you find your vitamin C at a price that is about double the price you find it either in a mass merchandiser or even at my nearest competitor, I think there's something wrong," Bennink said.

He added that the revamp of the GNC chain that began earlier this year has given the company more of a headache than anticipated. "We thought it [would take] 24 hours to reset the whole store. It hasn't been 24 hours, and it took normally two to three days for a store," Bennink said. "So we've lost some sales and that's also why the 3Q02 results are not completely in line with what we expected." As of the end of October, approximately 80 percent of the stores had been revamped.

He added that GNC is on "probation" for the next 12 to 18 months to see if the company-wide changes will prove beneficial--or will act to push GNC on its continued downward spiral. Even though the chain already holds a 10-percent share of the market, Bennink said, "I want to grow the GNC business by carving out a special niche that it needs to have."

He also addressed how a worldwide ban on ephedra would affect the company. He said Canada, which banned ephedra in January, has served as a model for how a ban would affect the company. When Canada's ban took effect, GNC's sales dropped to about one-third of the prior month's, but after six months of impacted sales, the company rose to pre-banned levels. "So what we did is we took the model of Canada [and compared it to] the United States," he explained. "Ephedra products would [decrease to] about $110 million against an estimated $80 million. [To address this issue], we've put a new product in place called Trulean, which we'll launch in January 2003." Numico did not respond by press time as to whether Trulean was an ephedra-free product.

For the quarter, GNC had a 7-percent decrease in sales to $336.3 million, 5 percent of which was due to the hit on ephedra sales in Canada and another 2 percent reflecting the delays in re-opening stores after renovations.

More on Numico's plans can be found at www.numico.com.