Thursday, August 21, 1997

Wal-Mart seeks healthy profits in nutrition

By FRED FAUST / St. Louis Post-Dispatch

ST. LOUIS - To your shopping list for Wal-Mart, along with the motor oil, soda, socks for the kids, you can add shark cartilage, ginseng and Whey Fuel.

The giant discounter wants to bulk-up its bottom line by adding vitamins, minerals, herbal remedies and sports nutrition supplements to its Made-In-America fare. It is offering those products at a new test store-within-a-store - called OneSource - at a Wal-Mart in south St. Louis County.

The chain opened its first OneSource in Texas in May; the second opened here in June. A third will open in suburban St. Louis , probably at the end of August. Others are planned in the Tampa, Fla., area, near Denver and in Fayetteville, Ark.

Sales at these first stores will determine whether more go up in many more of the company's 2,300 Wal-Mart stores.

Mass merchandisers often talk about a store-within-a-store. Sometimes, however, the highlighted area isn't all that different from the rest of the store - perhaps just containing a different style of signs and floor treatment.

OneSource is different. Located just inside the entrance, the 1,100-square-foot shop features stained wood laminate floor, special lighting and handsome signs with information beyond just quantity and price. The ambiance is meant to project a wholesome, natural aura.

"This is a stark difference from the blue and red of Wal-Mart and the in-your-face signage," said Mark Hyland, vice president of sales for Weider Nutrition International. "It's a lifestyle feel. They want to convey the message that (diet) supplementation is good, but this is also a lifestyle change. You eat right, exercise right and supplement correctly."

Weider, a Salt Lake City company that went public in May, was founded by Joe Weider, who has spent decades training body builders. Weider Nutrition and Rexall Sundown Inc., of Boca Raton, Fla., were the key "vendor partners" that advised Wal-Mart on the OneSource concept.

A third supplier, Perrigo Co. of Allegan, Mich., developed a multi-vitamin for Wal-Mart that uses OneSource as a brand name. The other products in the store carry various brand names from companies such as Weider and Rexall Sundown, as well as popular "alternative medicine" items like Ginsana.

The merchandise includes herbal teas, rice milk drinks, sports beverages, fat-free chips, granola snacks and Power Bars, health and body-builder books and magazines, homeopathic remedies for colds and other ailments, and clothing items such as knee pads, sports bras and shorts designed to maximize sweating.

Some of these products were, and still are, available in Wal-Mart's pharmacies. But OneSource has about 600 items that are not sold in other parts of the store.

For the OneSource concept, Wal-Mart is doing something else that it rarely does in the rest of its stores - providing trained staff to answer shopper's questions. The OneSource sales people, part of Wal-Mart's pharmacy staff, get special training from some of the vendors. So if a customer has a question about, say, bee pollen or blue-green algae tablets, he or she should get assistance beyond what's on the product labels or shelf signs.

If Wal-Mart's concept takes hold, it will provide dramatic evidence that interest in nutrition and alternative medicine has moved to the mainstream.

Supermarket Business magazine recently cited research by Information Resources Inc. showing that vitamin sales increased by 6 percent last year and sales of herbal supplements increased by nearly 35 percent. Information Resources tracks supermarket sales only.

Overall, sales of vitamins, minerals and supplements totaled $6.5 billion last year, according to the industry's major player, General Nutrition Cos. Inc. The company says that number should grow to $12 billion by 2001, which would be more than a 13 percent compound annual growth rate.

"With the graying of America, people are more health conscious, and there's more media attention to this area," said Stu Todd, the "Wal-Mart team leader" for Rexall Sundown. "When Wal-Mart gets involved, you know they've identified a big opportunity in a category with a lot of consumer demand."

Wal-Mart says annual sales growth in the nutritional supplement industry has been running 15 to 20 percent in recent years. Articles in the national media have undoubtedly helped.

Newsweek, for example, ran a favorable story in May on Saint Johnswort, an herb that's used to treat depression. German doctors, the magazine said, write 25 times more prescriptions for Saint Johnswort than they write for the drug Prozac.

"Saint Johnswort has been blowing off the shelves," said Alex Clarke, a Wal-Mart spokeswoman. The herb is sold both in OneSource and in the Wal-Mart pharmacy.

Other strong sellers - like the hormones melatonin and DHEA - are supposed to slow down the aging process.

Despite the relatively slick merchandising, Wal-Mart vendors Hyland and Todd say that OneSource is still price-driven. Wal-Mart says OneSource products are priced "20 to 30 percent lower than the national leading provider of nutritional items."

That would be General Nutrition Centers, with more than 3,100 stores, both franchised and corporately owned. Sales last year were $991 million. At corporately owned stores, sales averaged $262 per square foot and $21.48 per customer.

A spokesman said General Nutrition has about 14 percent of the market. No competitor comes even close to that.

In its latest annual report, General Nutrition says it wants "broader consumer positioning." Part of that strategy is to locate stores in major shopping centers, which the company has often avoided in the past. Another effort at becoming more mainstream is reflected in the company's decision to advertise on network television.

Dana Telsey, an analyst who follows General Nutrition for Bear, Stearns & Co., doesn't see Wal-Mart as a major threat. She thinks General Nutrition will continue to improve its already impressive market share.