In this FDD Talk 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 2018 FDD
- Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a GNC franchise, based on Items 5 and 6 of the company’s 2018 FDD
- Section IV – Number of franchised and company-owned GNC outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD
- Section V – Presentation and analysis of GNC’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:
- 2017 average, median, highest, and lowest gross retail sales for the 1,065 franchised GNC Stores that were open and operating in the United States as of December 31, 2017 and had been in business continuously from January 1, 2017 through December 31, 2017
- number and percentage of franchised GNC Stores that attained or surpassed the average gross retail sales for the calendar year 2017
Section I – Background Information
19 Things You Need to Know About the GNC Franchise
Receives Full Funding of $300 Million Investment by Harbin Pharmaceutical Group
1. In mid-February 2019, GNC announced that Harbin Pharmaceutical Group Co., Ltd. (“Hayao”) had completed the final $150 million investment of Hayao’s previously announced $300 million strategic investment in the company. Hayao completed the funding of the first $150 million of its strategic investment in GNC in two installments: $100 million on November 8, 2019 and an additional $50 million on January 2, 2019. The closing of the Hayao investment represents the culmination of a year-long effort to complete the partnership between Hayao and GNC and enhances the company’s capital position.
2. The partnership started in early 2018 when Hayao purchased a 40 percent stake in GNC. As part of the deal, GNC had agreed to sell 299,950 convertible preferred shares to Harbin Pharmaceutical at $1,000 apiece. Hayao is now the largest shareholder in GNC and has exclusive rights to use the U.S. firm’s trademarks and manufacture and distribute its products in mainland China. GNC will receive royalties on all products sold by the joint venture.
3. In the same February 2019 press release, GNC also announced the formation of a Hong Kong-based China e-commerce joint venture with Hayao. This represents the first and most significant step towards the completion of the China joint venture previously announced by GNC. The parties expect to complete the formation of the second, retail-focused joint venture located in China following the completion of certain routine regulatory and legal requirements, expected in the second or third quarter of 2019.
Appoints Ken Martindale as Chairman
4. In early August 2018, GNC announced that its Board of Directors had unanimously approved the appointment of CEO Ken Martindale to the additional role of Chairman, effective immediately. Martindale succeeds Bob Moran, who will remain on the board and assume the role of Lead Independent Director.
5. Moran said, “Ken has demonstrated exceptional leadership and strategic insight in his role as CEO, and the Board looks forward to continuing to benefit from his insight and expertise as he assumes the role of Chairman. We are confident that under Ken’s continued leadership we will be even better positioned to effectively implement our strategic plans and drive shareholder value.”
6. Martindale added, “I am honored to take on this new role as we accelerate our efforts to reposition GNC to drive growth, improve our financial strength and performance and enhance shareholder value. We continue to expect the transaction with Harbin Pharmaceutical Group to close later this year, and I look forward to working with the rest of the Board as we execute our strategy to build on the strength of the GNC brand, leverage our capabilities in product and service innovation, expand our international presence and deliver a compelling, integrated customer experience.”
Opens First Experiential Store
7. At the beginning of December 2018, GNC announced the grand opening of its first experiential store in South Hills Village Shopping Center in Pittsburgh, Pennsylvania. The new store incorporates several unique offerings to allow consumers to customize their wellness regimen.
8. Joe Gorman, Executive Vice President of Operations at GNC, said, “This experiential store represents the continuous innovation and consumer-focused mindset that is the foundation of GNC. We are focused on providing a personalized approach to wellness and now GNC consumers have the opportunity to experience this firsthand and connect with us in a truly customized way.”
9. Becoming a one-stop shop for all health and wellness needs, the store will offer several installations, including:
- GNC Smoothie Lab: Order delicious and healthy drinks, grab-and-go snacks, and other prepared meals made with high-quality ingredients and top GNC products at the GNC Smoothie Lab.
- Body Composition Analysis: Step onto the InBody Body Composition Analyzer to gain insights on your health and find the right solutions for your lifestyle.
- Registered Dietitian Consultations: The in-house dietitian will be available to provide free consultations to help you develop a customized plan tailored to your specific health goals.
10. Ken Martindale, Chairman and CEO of GNC, added, “This store gives us an opportunity to learn from our consumers and get a better understanding of their engagement with specific concepts. We hope to leverage these insights to inform our retail strategy in other locations.”
Launches Nature-Inspired Earth Genius Product Line
11. In late September 2018, GNC launched Earth Genius, a new line of more than 40 nature-inspired products. The entire line of Earth Genius products is gluten-free, non-GMO, and crafted with no artificial colors, flavors, or sweeteners. Additionally, many products meet the needs of customers with diets that are vegan or have no soy, no added sugar, or no dairy.
12. Ken Martindale, Chairman and CEO of GNC, said, “Earth Genius helps meet the demands of a broadened customer base, particularly those looking to live a healthier, cleaner lifestyle. The market for more natural health supplements continues to grow rapidly – expected to hit $68 billion by 2024 according to Persistence Market Research – and we believe strongly this can be an area of opportunity for the business.”
13. The Earth Genius line offers solutions spanning multiple categories, including energy, digestive health, immune support, metabolism, beauty, relaxation, and exercise performance. Products range from vitamins and minerals, to superfoods, greens, plant-based proteins, and oils and vinegars. Among the key products that are being introduced are:
- SuperFoods Supreme: A blend of 35 different superfood ingredients that includes six different organic mushrooms, along with protein, probiotic, and enzyme support.
- Smart Greens: A way to infuse more than 40 fruits, vegetables, greens, mushrooms, and botanicals into a daily diet in a convenient way.
- OrganIQ Eats: An organic plant-based protein with 24 vitamins and minerals that support energy and lean muscle.
14. The Earth Genius line also includes several new detoxes and TonIQ products, helping GNC to reach consumers looking for different healthy living solutions. For example, GNC is growing its offerings around beauty and skincare with products like Earth Genius Beauty TonIQ, a combination of collagen and Sicilian blood orange extract, an antioxidant-rich botanical that protects and improves skin tone.
15. GNC traces its history to 1935 when founder David Shakarian opened his first health food store, called Lackzoom, in downtown Pittsburgh, Pennsylvania. Lackzoom specialized in yogurt – a food that Shakarian’s father helped introduce in the United States – but also sold other healthy foods such as honey, grains, and “healthy sandwiches.”
16. Six months after opening the first Lackzoom, Shakarian opened a second store. Unfortunately, a year later, both stores were destroyed when the Ohio River flooded. However, Shakarian quickly bounced back and by 1941, he opened five additional Lackzoom stores.
17. During WWII, Shakarian stayed in business by delivering his products by mail since his customers were no longer able to drive to his store due to gas rationing. In the 1960s, as the health food craze started to pick up, Shakarian changed Lackzoom’s name to General Nutrition Center (GNC) and expanded outside of the Pittsburgh area for the first time.
18. Shakarian continued to run GNC until his death in 1984; his family sold the business not long after. GNC started franchising in 1988 and since then, has expanded across the United States as well as internationally.
Entrepreneur’s Franchise 500
19. GNC ranked No. 142 on Entrepreneur’s 2019 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of GNC franchise costs, based on Item 7 of the company’s 2018 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on GNC’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 1,070
- Outlets at the End of the Year: 1,084
- Net Change: +14
- Outlets at the Start of the Year: 1,084
- Outlets at the End of the Year: 1,178
- Net Change: +94
- Outlets at the Start of the Year: 1,178
- Outlets at the End of the Year: 1,099
- Net Change: -79
- Outlets at the Start of the Year: 3,152
- Outlets at the End of the Year: 3,222
- Net Change: +70
- Outlets at the Start of the Year: 3,222
- Outlets at the End of the Year: 3,143
- Net Change: -79
- Outlets at the Start of the Year: 3,143
- Outlets at the End of the Year: 3,054
- Net Change: -89
Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis
- Below is an historical financial performance representation that is based on information from existing franchised GNC stores that have been open for business to the public within the United States for at least one year during a one-year measuring period from January 1, 2017 through December 31, 2017.
- As of December 31, 2017, there were 1,099 franchised GNC Stores that were open and operating in the United States. Of those 1,099 franchised GNC Stores, 1,065 of them had been in business continuously from January 1, 2017 through December 31, 2017, and the franchisor used the financial performance data from those 1,065 franchised Stores for that period in arriving at the financial performance representation below.
- The financial performance representation does not include information for franchisees who were terminated, reacquired, not renewed, or left the system for other reasons during the 2017 calendar year, nor does it include information from GNC stores operated by the franchisor or GNC/Rite Aid or from GNC stores located on military bases.