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FDD Talk 2015: The GNC Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on June 9, 2015

in FDD Talk 2017: Retail Franchises, Franchise Earnings, Retail Franchise, Sports Nutrition Franchise

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GNC Store Photo by RetailByRyan95

In this FDD Talk 2015 post, you’ll learn the following:

  • Section I – Background information on the GNC franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a GNC franchise, based on Item 7 of the company’s 2015 FDD
  • Section III – Presentation and analysis of GNC’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
  • 2014 average gross retail sales for the 975 franchised GNC Stores that operated within the United States from January 1, 2014 through December 31, 2014
  • number and percentage of franchised GNC Stores that attained or surpassed the average gross retail sales for the fiscal year 2014

Section I – Background Information

GNC Looks to Jump-Start Testing of Supplements

Following accusations it had sold supplements whose ingredients could not be verified or that contained ingredients not listed on the labels, GNC announced in March 2015 that it will adopt better testing practices as part of an agreement with New York Attorney General Eric Schneiderman.

Schneiderman in February 2015 barred GNC, Walmart, Walgreens and Target from selling store-brand supplements in New York after 79 percent of the products tested were found to have none of the plant DNA listed on the bottle, or contained unlisted ingredients. The supplements were ginkgo biloba, St. John’s wort, ginseng, valerian root, garlic, echinacea and saw palmetto.

In the agreement, Schneiderman acknowledged that the supplements actually met FDA standards for manufacturing practice; he also implied that these standards may be insufficient. Pittsburgh-based GNC had argued in February that the attorney general’s use of DNA barcode testing was flawed, and an independent lab hired by GNC refuted Schneiderman’s findings.

Dietary supplements are not subject to FDA approval and are not subject to the same safety regulations as drugs. Consumers can look for USP (U.S. Pharmacopoeia) on the labels of supplements for assurance that the products have been tested and certified by an independent agency.

Chain Turns 80

GNC was founded in 1935 by David Shakarian, who opened a small health food store named Lackzoom in Pittsburgh. Shakarian opened a second store six months later. Both were destroyed a year later when the Ohio River flooded, but Shakarian rebuilt the two stores and continued to expand, turning to mail order during World War II. He expanded outside Pittsburgh in the 1960s and renamed the chain General Nutrition Center.

Shakarian led the company until he died in 1984, shortly after GNC went public. After going private and changing hands a few times, the company was sold to the Ontario Teachers’ Pension Plan and Ares Management in 2007. GNC went public again in 2011.

GNC stores sell a variety of products including vitamins, nutritional supplements, weight-loss aids, and health and beauty products. The chain has more than 4,000 stores in the U.S. GNC also sells products on its website and on Drugstore.com.

New Agency Partners

GNC Holdings announced in March 2015 that it had added three new agency partners to help drive brand growth. The agencies are Consigliere for brand management, creative and advertising; CROSSMEDIA for media and communications planning; and 22squared for digital and social media.

The three agencies replace Carmichael Lynch, GNC’s previous agency of record since January 2014.

Archbold named CEO

GNC Holdings, amid dwindling revenue and same-store sales, announced in August 2014 that Michael G. Archbold was named CEO and that Joseph Fortunato, chairman, president and CEO, had left the company.

Archbold, who has more than 25 years of retail industry experience, is known for turning companies around. He most recently was CEO and CFO of The Talbots Inc., a women’s apparel retailer. Mike Hines, lead independent director, was elected non-executive chairman of GNC’s board of directors. Archbold became a member of the board.

In other appointments, Jeffrey R. Hennion was named executive vice president and chief marketing and eCommerce officer, and Daisy Vanderline was hired as Chief Human Resource Officer.

CFO Resigns

Michael M. Nuzzo, executive vice president and chief financial officer at GNC Holdings, resigned in June 2014 to take another position. The position remained open until March 2015 when Tricia Tolivar was hired as CFO and executive vice president.

GNC No. 11 on Top 100 Global Franchises List

Franchise Direct named GNC Holdings Inc. as the world’s top franchise in the Health & Beauty category of its list of Top 100 Global Franchises. GNC was No. 11 overall on the list, which was announced in February 2015.

New Supplement Lines

GNC added a new whole-food-based supplement line in November 2014. PUREDGE products include powdered formulas featuring fruit and vegetable blends and a gluten-free protein bar line featuring flax and chia.

The company also came out with the GNC Accelerator Series, a new supplement line for fitness, sports and training, in March 2014. The products are GNC Accelerator Leucine, GNC Accelerator Glutamine and GNC Accelerator Creatine.

Section II – Estimated Costs

  • Please click here for detailed estimates of GNC franchise costs, based on Item 7 of the company’s 2015 FDD.

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis

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