LENIER'S GROWTH-PACKED FORMULA

JOHN KAROLEFSKI Additional reporting: Christina Veiders

MANUFACTURER OUTLOOK

CARSON, Calif. -- How did Leiner Health Products become the world's largest marketer of vitamins and nutritional supplements?

Gale Bensussen, president of the firm here, lists three reasons for Leiner's rise to the top:

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

Big business in Wal-Mart, where Leiner serves as "captain" of the vitamin category. "We want to be in front of nutritional science in developing products for specific needs for consumers. We want to lead the field in terms of self-medication and establish ourselves, and the customers that carry our products, as No. 1 in quality and efficacy," Bensussen said.

Annual sales have risen from $140 million three years ago to nearly $400 million currently, 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. Leiner has resisted venturing into direct mail in which competing companies post higher volume than they do through retailers, Bensussen said. "Our position is you can't be a competitor to your retailer," Bensussen said. "Frankly, most of our retailers respect that and that's why we are where we are. We are dedicated to the retailers' needs," he stressed, 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 roommate, 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 also are picking up share, especially in the larger formats with pharmacies. "So retail drug chains are under siege in this category," he said. "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 added, "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 explained 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 said. "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 said. 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 said. 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 said. "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 said, is the $4 million radio advertising campaign that began last October. Going directly to the consumer to build brand awareness is another first for Leiner, he added, and results in more promotion and shelf space at retail. Grocers such as Lucky Stores, Albertson's, A&P and H.E. Butt Grocery Co. 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 1996 summer Olympics; Leiner is its official vitamin brand. This designation is on every package of vitamins, along with an offer for an Olympic T-shirt. Bensussen hopes 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.

With the first wave of baby boomers approaching 50 years of age, Bensussen sees Leiner and its retailers as perfectly positioned to capture new growth.

"There's no question that self-medication is becoming more of an issue, as is prevention," he said. "As baby boomers get older, it's pretty nice being healthy."