In the last year, I have been extremely fascinated with sports nutrition legacy brands. At my finance-focused core, I have always been a “buy low, sell high” kind of guy, so I understand the attention these sports nutrition legacy brands have fostered from private equity firms and conglomerates in the last decade. The truth is, I think turning around a sports nutrition legacy brand would be one of the most rewarding challenges in the industry. From my memory, I have yet to see a sports nutrition legacy brand “rise from the ashes” and regain its strong position in the industry. For that alone, I have looked very hard at a few opportunities that would have put me in a position to change that record.
Just to backtrack a bit, I define a “legacy” brand differently than the general business community. In my eyes, a legacy brand was created products that were extremely relevant in an industry, but the brand was unable to maintain their relevance (or “cool factor”) over time. Since the sports nutrition industry is still relatively young, I believe a legacy brand has to be in business for only 10 or more years. For example, here would be a list of a few sports nutrition legacy brands:
- Energy Athletics Strength (EAS)
- Prolab Nutrition
- Twinlab Nutrition
- Maximum Human Performance (MHP)
- Labrada Nutrition
- Gaspari Nutrition
- Vital Pharmaceuticals Inc (VPX)
I would also like to say in advance that I will be generalizing and summarizing a great deal in this article. This is due to a vast majority of our industry being privately held and also that there is little to no legitimate business news coverage. I do not know EVERY internal business communication, strategy, or tactic at these “legacy sports nutrition brands” so focus on what I am saying at the macro-level.
Firstly, why would investors, be it private equity (PE) or M&A activity, be so attracted to legacy brands? This question is easy to answer in my opinion…
- Sports Nutrition is a relatively simple business
- Sports Nutrition legacy brands have demonstrated consistent earning potential
- Upper Management is usually already in place
- Opportunities are prime on the operational efficiency side of the business to immediately increase operating margins
- Immediate financial restructuring savings that will boost profitability
- Established brand equity and assets
- Established and mature sales channels
Usually its a combination of those above areas and it depends highly on how the PE or acquiring company likes to evaluate their business targets (hands on or hands off essentially). These PE or acquiring companies usually do a great job at pulling the profitability out of the legacy brand and slightly increasing revenue year or year. I respect that because that’s probably the main goal. Why though not go a few steps further and assess the turnaround value? Is it too risky?
What they have seen and assessed as too risky is probably what I have also seen during this research of opportunities…
#1 – Legacy brands have zero understanding of how to build a brand in the new Millennial-focused economy. Back in the 90s and 00s, brand elements took a backseat to product development. Today, your company needs to be a marketing company that also happens to sell sports nutrition. I know that statement pisses off the purists but our industry is not the only one that is dealing with this shift. Marketing has also changed from the “good ole days” of magazine ads and trade show booths. Today you need to be a heavy practitioner of social media marketing, digital influencer marketing, content creation and marketing, digital marketing analytics, email marketing, brand storytelling, and anything that has to to be voyeuristic brand building. Today, customers want to know EVERYTHING about your brand and either legacy brands are transparent and document this “rebrand building” or they are going to look even more tired and old as they do right now!
#2 – Legacy brands have zero understanding of the digital channel. The marketing/branding piece of this was touched on in number one but this is focused on the digital sales channels. The old way of building your brand through GNC and Vitamin Shoppe is NOT GOING TO WORK long term. If you want to turnaround your sales then you need to know how to optimize Amazon and your direct to consumer (D2C) website and content. (Note: That being said, I believe Amazon will likely make a shift to “private labels” soon in the category, so beefing up your D2C channel is going to be key for the next 5-10 years.) Legacy brands need to understand that the digital channel is where customers are finding your brand and its as much about the information and reviews as it is about “knowing the buyers.” Anyone can get listed, get banner space, and have eyes put on their brand with etailers but that isn’t the core focus. The issue is creating the information for the consumer to get the right message from your brand to trust it. There is no longer a sales rep touching your customer so you need to give the customer useful and easily digestable brand/product information through whatever method they use; amazon for search, social media, your influencer’s YouTube channel, or your website.
#3 – Legacy brands have zero understanding of true competition landscape in the industry. My interactions with legacy brands have been eye opening when it comes to their understanding of the current market landscape. They wonder why margins are slim but yet deny the fact that competition is at a near optimal level with little to no areas of differentiation left for sports nutrition brands. They are stuck in their bubble of 10-15 brands being carried in major food, drug, and mass (FDM) accounts yet they are baffled when they hear brands around doing $20M+ solely on Amazon. The reality is that any small “boutique” sports nutrition brand can become a major competitor in 1-2 years with the emergence of social, digital, and other marketing. They are faster, nimbler, cooler, and smarter than you are legacy brands and you need to think like them to be successful again. Take a note from brands like Microsoft, IBM, or GE. They didn’t rest on their laurels and neither should you!