A POTENT FORMULA

JOHN KAROLEFSKI

CARSON, Calif. -- Gale Bensussen knew he was in the right place at the right time. Just after a leveraged buyout by Leiner Health Products' management and AEA Investors in early 1992, Time magazine hit the newsstands with its well-known cover story on the vitamin revolution in America. "Our existing business took off," recalls the president of Leiner here, marketer of the Your Life brand of vitamins and nutritional supplements.

Specifically, annual sales rose from $140 million then to nearly $400 million now, as stockkeeping units increased from 6,000 to 9,500. Its line of herbal supplements is the latest addition to a well-rounded nutritional portfolio that accounts for 80% of overall sales. Private-label over-the-counter products (Pharmacist Formula brand) and personal beauty care items (Natural Life brand) round out the business. Today, Leiner makes and sells more vitamins and supplements than any other company in the world. It is five times larger than its next biggest competitor in private label. The company recently invested $40 million to build a state-of-the-art manufacturing facility here that is nearly completed.

Ask Bensussen what accounts for Leiner's sudden rise to the top, and he quickly lists three reasons:

Positive press coverage that has made consumers aware of the connection between vitamins and good health.

Quality of products, including Leiner's "proven release" listing on packaging that clinically ensures vitamins are absorbed into the body.

Big business in Wal-Mart, where Leiner serves as "captain" of the vitamin category. Mention the retail trade to Bensussen, and the conversation warms up. That's because Leiner's business is built on sales in the food, drug and mass channels of distribution. He has resisted venturing into direct mail where, he says, competing companies post higher volume than they do through retailers. "Our position is you can't be a competitor to your retailer," Bensussen says. "Frankly, most of our retailers respect that and that's why we are where we are. We are dedicated to the retailers' needs," he stresses, whether it be in merchandising, packaging or promotion.

It's been that way for the last 23 years, ever since Bensussen joined his college roommate at a one-year-old vitamin company. The roomie, David Brubaker, is now chairman. "When we started in business, everybody was selling vitamins everywhere -- health food trade, direct mail, door to door, mass market -- so that you hardly knew where to begin," he relates. "Our first major strategic move was to focus on where we thought the business would go, which was the food, drug, mass merchandise sectors. We consciously didn't look to market products [elsewhere]. Our whole development has been around the mass marketing trade. It's been great for us."

Leiner's products are sold in 52,000 stores in 50 states, including 24 of the country's largest drug store chains, 20 of the top 25 supermarket chains, and 14 of the 15 largest mass merchandising chains. Drug stores account for the bulk of Leiner's retail sales. Mass merchandisers and club stores are making enormous strides in sales, according to Bensussen, and supermarkets are also picking up share, especially in the larger formats with pharmacies. "So retail drug chains are under siege in this category," he says. "They need to carve out a position for themselves that leverages them as a community health care provider. They aren't going to win slugging it out with Wal-Mart. They are going to lose. "The food trade has [more] foot traffic," he adds, "so the drug trade has to do a little more. They've got to create a section and supply information, provide new products, provide product rationale, and they don't have to just cut price and promote, promote, promote." Bensussen explains that there is a "tremendous" need for consumer education about supplements and nutrition that can be fulfilled at retail. Leiner is installing spinner racks in stores with scores of information pamphlets to educate shoppers.

"Retail merchandising tools -- particularly in drug trade -- are key to maintaining their share," he says. "The drug trade is where you see new items first. They are more open to new items, so they can educate. "Eventually, as items become successful and mainstream, they trickle into the supermarket and mass outlets. So the drug stores need to be ready for the next new items. They've got to keep sustaining their life cycle and the in-store [marketing] is absolutely vital."

Something else that is becoming vital for retailers, according to Bensussen, is technology. There has to be a certain level of proficiency in such areas as electronic data interchange and category management. "The chains have to be able to do EDI if they are going to compete," Bensussen flatly states. At its best, technology enables Leiner to manage the inventory for eight major chains. In this continuous replenishment program, the company gets scanner data by store every day. "We can look at what is going on and adjust the flow of inventory from manufacture to warehouse to stores.

"As the retailers become more sophisticated in data processing, their inventories will go down. Their in-store merchandising costs -- whether they are borne by ourselves or by the retailer -- will go down. Our manufacturing and our inventory costs will go down, which will allow us to reduce our costs of goods. That day is here. We are seeing it," he says. Leiner created an organizational structure for category management four years ago. Eight category managers across four geographic territories were put in charge of managing the vitamin business for the retail chains in all three major channels. Before the change, Leiner was organized from a marketing standpoint; that is, divisions for private label, brands and new products. There were separate cost centers and separate sales forecasts for each division. "The problem was that as we grew from the small guy trying to get in, to the big guy who is in, the needs of our retailers changed," Bensussen explains. "It wasn't just a sell in to get distribution. It was a sell more where you are. We felt having someone who was responsible for the business totality was the right move for us."

According to Bensussen, the sales and category managers now take the corporate goals and mesh them with account goals. "If we are listening right, the feedback from category managers will tell us what we should be doing in the future, what our accounts need, what are their challenges, and what is going on. A lot of our category managers have been dealing with the same buyers, merchandisers or groups for three to four years. "It's improved the service level to the retailer," he says. "It's worked well for us. I think most retailers would say the system really works great for them, too." Something else that retailers appreciate, he says, is the $4 million radio advertising campaign that began last October. Going directly to the consumer to build brand awareness is a first for Leiner, he adds, and results in more promotion and shelf space at retail. Grocers such as Lucky Stores, Albertson's, A&P and H.E. Butt Grocery have "tagged" messages at the end of the radio commercials in their individual markets. Another way that Leiner is boosting brand awareness these days is through the summer Olympics. It is the official brand of vitamins for the Olympics. This designation is on every package of vitamins, along with an offer for an Olympic T-shirt. Reaching out globally is key to Leiner's strategic plans. The company began shipping overseas nine months ago. Plans call for international sales to be 20% to 25% of the business in three years. Bensussen points to receptive markets in Brazil, Argentina, Ecuador and the Pacific Rim, where there is a growing middle class. All of them have a high awareness of vitamins and nutrition, he adds. "We are following our retailers," he says. "Wal-Mart is going to South America and the Pacific Rim. We are taking our business where our customers go and into the markets that offer the most development potential for vitamins and supplements." Bensussen hopes that its newest products, herbal supplements, will be as successful in the United States as they have been in Germany and France. Leiner introduced its herbal line -- with such items as Ginkgo Biloba for cerebral circulation and Goldenseal for the sinus-respiratory system -- at last summer's Marketplace convention sponsored by the National Association of Chain Drug Stores.

There is a growing consumer awareness of these somewhat esoteric products, according to Bensussen.

"We want to be in front of nutritional science in developing products for the specific needs of our consumers. We want to lead the field in terms of self-medication and establish ourselves -- and customers who carry our products -- as No. 1 in quality and efficacy products," he says. That was the thinking 20 years ago when Leiner launched its innovative and successful daily packet of vitamins targeted to lifestyles. Thirty-day supplies of packets are packaged for men, women and seniors, as well as heavy exercisers and anyone under stress. "Retailers love it because the dollars generated per cubic inch are the best in the department. It's a nice $10 to $12 sale at a 50% margin. It's been the flagship of our brand," he says.

Thus, the formula for Leiner's success is simple. Work with retailers to give consumers what they want. With the first wave of baby boomers approaching 50 years of age, Bensussen again finds himself in the right place at the right time. "There's no question that self-medication is becoming more of an issue, as is prevention," he says. "As baby boomers get older, it's pretty nice being healthy."