COMPETING INTERESTS

CHAPIN CLARK

The party is getting crowded.

Amid rapid expansion by specialty retailer General Nutrition Centers, the successful introduction of a store-within-a-store concept by Wal-Mart, strong promotional efforts by Rite Aid and other drug chains, and aggressive pricing across the board, supermarkets find themselves just one of many options for the swelling ranks of vitamin and herbal-supplement consumers.

What follows is a look at what some of the grocery channel's most formidable competitors are doing to capture the vitamin/herbal user's attention.

According to data supplied by Information Resources Inc., Chicago, supermarkets are hanging tough. They generated $707.3 million in vitamin sales for the 52 weeks ended Aug. 16, a 25.2% jump from the prior year. Supermarket sales of mineral supplements, including herbs, were up 54.1%, to $267.6 million.

During the same period, drug chains posted comparably robust numbers. Vitamin sales in drug stores totaled $1.3 billion, an increase of 22.2%; mineral-supplement sales were up 45.1%, to $634.7 million.

However, category growth in the mass-merchandiser channel has been stratospheric: vitamin revenues up 51.5%, to $956.4 million; mineral-supplement revenues up 86.9%, to $490.4 million.

"What we're talking about is a large marketplace with a tremendous diversity of consumers. This crosses ideological and demographic barriers -- young and old, rich and poor are attuned to trying to achieve a better quality of life," said Harvey Hartman, president of Hartman & New Hope, Bellevue, Wash., a market research firm that tracks the natural-products industry. "There is room for significant growth in all channels."

Although vitamins and supplements are becoming mainstream, Hartman said, consumers still know very little about the products. "They like the experience of participating," he said, noting long-term success for retailers will depend on their ability to entice shoppers with an "experience."

Wal-Mart, Bentonville, Ark., is moving in that direction with its One Source nutrition centers. Introduced May 3, 1997, at its Bedford, Texas, supercenter, One Source is an approximately 1,000-square-foot, store-within-a-store department situated near the health and beauty care section and the pharmacy. One Source offers 1,100 different vitamins and supplements, including 600 items not available in a typical Wal-Mart store, at prices the company says are 20% to 30% lower than those found at "traditional providers of such products."

The departments also feature sports-nutrition products, some fat-free foods, herbal teas, health- and exercise-related books and magazines and selected sports gear, like knee braces.

One Source is also the name of a private-label line Wal-Mart is steadily expanding, from a multivitamin launched in January of last year, to include products specifically designed for kids and seniors.

Perhaps most important, One Source departments are manned by trained staffers who can answer questions and make recommendations.

"We're still really in the test phase, trying to listen to our customers and evaluate it," said Laura Pope, a Wal-Mart spokeswoman. She said there are currently 31 One Source units in operation, with 18 more slated to open by the end of January.

GNC, Pittsburgh, has charted an even more ambitious course of expansion. The company, which had 1997 fiscal-year revenues of $1.2 billion, operates more than 3,500 stores in the United States and about 200 stores in 21 foreign countries. GNC will have opened 550 new stores by the end of this year and aims to have 6,000 total within four years, said Gregory Miller, a spokesman.

GNC is debuting a new format, called Value Nutrition, in discount outlet malls around the country. These stores -- there are 15 planned for 1998 and 100 set to open next year -- will carry a limited line of low-priced commodity items in an attempt to combat the success of discounters like Wal-Mart and Vitamin World, an outlet-mall chain approaching 250 units that is operated by NBTY, Bohemia, N.Y.

"We just think it makes sense to put the product in front of as many people as possible," Miller said. "We're looking at ways we can leverage our investments and create new channels of distribution for the product."

As reported in SN last month, GNC also plans to roll out natural-food supermarkets across the country, based on its Lake Oswego, Ore., Nature's Northwest prototype. GNC hopes to open 10 of the stores annually, starting perhaps as early as next year.

"We want to fine-tune the model and bring the costs down, but we think it can be a viable competitor in the natural-food market," Miller said. "It's simply another way to address our core customer."

GNC's thriving customer-loyalty, or Gold Card, program was responsible for $33 million in sales last year, according to the company's 1998 annual report. The Gold Card program offers members 20% off all purchases made the first Tuesday of every month ("Super Tuesday"), in exchange for a $15 annual fee. According to annual report, there were 3.1 million active Gold Card members as of Jan. 31, with an average of 11,500 new members joining each week. Gold Card participants spend an average of $52 per transaction on Super Tuesday, GNC says, which is three times the average daily transaction.

Rite Aid, Camp Hill, Pa., launched a similar loyalty program, the Vitamin Club, last September. Vitamin Club card holders -- membership is free -- get a 10% discount off all vitamin and supplement purchases on Tuesdays.

Along with the club, Rite Aid started the Vitamin Institute, a continuing-education course on vitamins, herbs and homeopathy that each of the chain's 10,000 plus pharmacists is required to take. Rite Aid also issues a monthly vitamin/supplement-related newsletter to pharmacists to keep them up-to-date as they interact more with customers.

Rite Aid, which operates close to 4,000 stores, is promoting these efforts extensively via national TV ads, its Web site and in-store signage. The company does not break out separate Vitamin Club sales figures, and officials declined to comment. But Rite Aid's annual report noted, "Results to date are as strong as the sales increases we are achieving in cosmetics . . . one of the fastest-growing categories at Rite Aid."

Jonathan Ziegler, a San Francisco-based analyst with Salomon Smith Barney, said, "What Rite Aid is doing, and what all the drug chains are doing, is trying to compensate for the decline in pharmacy by strengthening the front end, and this concept is a part of that."

For now, at least, growth in the market for vitamin and supplement products is so explosive, there seems to be enough room for everyone wanting to sell them -- supermarkets included.

J.B. Pratt, owner of Pratt Discount Foods, Shawnee, Okla. said, "Our supplement business continues to be the leading growth category in the whole store by far," he said. Pratt said Walgreen Co., Chicago, is most aggressive among his competitors, advertising weekly vitamin and supplement specials on the front page of its local circular. " But we haven't seen any erosion of growth.

"I don't see any format that can really challenge supermarkets, if [they merchandise] properly," he continued. "Really, this is all about nutrition, and we've got produce departments, packaged goods with grains. Tying the whole store together as a one-stop shop gives us an advantage over almost every other retail format."