Strategy analysis and diagnostic

Anthony LORI[pic 1]

Julien MILLE

Mathieu Jonglez de Ligne

Strategy analysis and diagnostic

Case Study N°2: NUMICO

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To Mr Gaultier                                                         Year 2013/2014

SUMMARY

1.        Making good use of matrices described in CH 07 (7.2 + 7.3 + 7.4 + 7.7 + 7.8), explain NUMICO’s strategy entering the nutritional supplements & personal care market        

2.        Making good use of matrices described in CH 07 (7.2 + 7.5 + 7.7 + 7.8), explain why NUMICO failed this diversification and why NBTY had been successful after purchasing REXALL SUNDOWN from NUMICO        

3.        Making good use of matrices described in CH 07 (7.7 + 7.8) and appropriate personal researches, explain why DANONE bought NUMICO        

1. Making good use of matrices described in CH 07 (7.2 + 7.3 + 7.4 + 7.7 + 7.8), explain NUMICO’s strategy entering the nutritional supplements & personal care market

NUMICO’s developed a particular strategy in 1998 to enter the nutritional supplements and personal care market:

        Until 1998, the company focused on her main market, baby food and clinical nutrition. NUMICO tends to find growth on existing markets by internationalising its offer.         

        In 1999, NUMICO bought GNC, the biggest company in nutritional supplement and sport nutrition. By buying the best competitor in this market, NUMICO tried to diversify its activities (nutritional supplements) as well as to obtain a dominant position immediately in this new market. The company tried to be quickly an important actor on the supplement nutrition market. This was reinforced by the fact that NUMICO’s researches could help GNC to create new products, which would help them to strengthen their position on the supplement nutrition market. NUMICO wanted to take advantage of GNC’s distribution network to enter GNC’s 25 country markets and to develop itself on new markets.[pic 3]

In 2000, NUMICO bought Enrich international and REXALL SUNDOWN, two companies of the supplement nutrition market. This was a related diversification move : NUMICO became the most important supplement nutrition producer, with a worldwide presence and a sale strategy that covered every type of store, from the small retailer to mass market, through Internet and its own shops. Thanks to those purchases, NUMICO built the biggest R&D network, which could help each brand to improve its competences. This aimed at creating synergies between brands, which would reinforce the whole company’s position on its different activities. In 2000, NUMICO was the leader on the supplement nutrition market.

Diversification can be an opportunity to grow :

• Companies NUMICO  brought it new advantages, mainly on R&D, distribution network and products. NUMICO tried to develop synergies with its subsidiaries to benefit from these advantages.

• Synergies on R&D can be profitable for both NUMICO and its subsidiary as they can develop products with a common base, and strengthen each company’s R&D power by working on common researches. Both company can reduce its R&D bill by developing synergy between each other.

• Shared distribution network can be used by NUMICO and its subsidiaries. This will reduce distribution costs and allows each company to develop its presence on new markets, so to develop its market share on previously inaccessible markets.

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• Complementary products can be developed. NUMICO’s consumers can buy complementary product from subsidiaries while purchasing NUMICO’s products. This strategy allows NUMICO to reinforce its market share.

NUMICO created a fully integrated business thanks to those acquisitions :

• Backward integration : the biggest R&D of the whole market and more efficient R&D.
• Horizontal integration : a wide range of products, including competitive (nutritional supplement) and complementary (vitamin, health care) product.

High market share as direct competitors became NUMICO’s subsidiaries

Forward integration : distribution channels get back from NUMICO’s subsidiaries, covering every type of shop (from small retailer to mass markets and Internet). Worldwide presence in every type of shop, more income for NUMICO. A fully integrated business built for efficiency

NUMICO’s global strategy was to create a fully integrated business. By purchasing GNC, REXALL SUNDOWN and Enrich, NUMICO developed both backward, horizontal and forward integration

• Backward integration was ensured by NUMICO’s, GNC’s and Enrich’s R&D that provided each company with new products and continuous innovations and researches.

• Horizontal integration matched with competitive and complementary products NUMICO acquired while purchasing each company : vitamins (Rexall), health care products (Rexall and Enrich), and nutritional supplements (GNC, Rexall and Enrich). This allowed NUMICO to be present on its direct competitors markets (after GNC purchase), then to buy these competitors (Rexall and Enrich) to become the biggest company on nutritional supplement market.

• Forward integration consisted in NUMICO’s use of its subsidiaries distribution network to develop its presence all over the world. This created excellent commercial conditions for NUMICO to grow on new geographical markets.

Two kind of products are targeted: stars and cash cows

• Cash cows : products with high turnover and dominating market shares with GNC to earn money
• Stars : products in the growing nutritional supplements market with Rexall and Enrich to earn more market shares and reputation

In their purchase policy, NUMICO elaborated a two steps plan :

First, NUMICO bought cash cow products: GNC’s ones. Its products were profitable products, and the company had a large market share. GNC had a high turnover and a dominating market position. Thanks to these good conditions, GNC allowed NUMICO to benefit from a higher cash income, which would give NUMICO money to finance its expensive R&D programs and future investments.

Lastly, NUMICO bought star products: REXALL SUNDOWN’s and Enrich’s ones. Their products were in the growing nutritional supplements market and had a comfortable market shares. With those companies, NUMICO acquired the biggest market share on nutritional supplements market, and some reputation.

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