International Business
IBUS5701
Course Instructor: David Cray,
Paper 2
Student Name: Shengjie Cao (Neo Cao)
Student ID: 101171572
Case Study --- GNC’s Market Entry Strategy in Australia
GNC Holdings, Inc. is regarded as a leading consumer health retailer and
specialized in providing sports nutrition and dietary supplements to more than
24 countries and regions, over approximately 6,000 stores (GNC). If the
company proposes the business expansion in Australia as a potential market
place where is proven a considerable market in consumer health with distinct
speediness in growth in 2019 (Euromonitor, 2019). It should study business
conditions, the market landscape of the industry and geographical, and further
to complete readiness of entry by right market strategy.
Company Profiles
GNC is headquartered in Pittsburgh, Pennsylvania, in the United States.
According to the Euromonitor (2019) described, the company plays a
significant role in the global consumer health market due to the worldwide
reputation of the wellness brand powered by substantial product benefits. In
which, the best-selling classification is the sports protein category, including
AMP and Pro Performance, while the brands gained a total of 2% shares in
the global sports nutrition market in 2019. Meanwhile, the GNC’s multivitamin
supplements, including Ultra Mega and GNC Fish Oil, also generated
considerable income and occupied nearly 1% market share in global dietary
supplements. Moreover, the company develops and markets other health
specialties of herbal supplements and weight control products as well (GNC,
2019).
The company’s successful business model is relying on value-added
premium products, as well as depending on multi-channel sales and
partnerships to gain a considerable market place. GNC sales products
through company-owned channels, including retail store and online shopping,
and through reliable global partners including nationally recognized third-party
distributor or cooperation with the multi-domestic counterpart to manufacture
and market product under GNC proprietary brand in the target country
(MarketLine, 2019, p.3). Underlying is the multi-domestic strategy with a
flexible resilience market channel to create various sources of profits and
reach a broad base of audience, as well as to divide its operational risk with a
partner.
The globalization has let the GNC build an extended business network
across Europe, North America, Asia and Greater China, and the international
operation covered over 24 countries and regions. Meanwhile, more than
6,400 employees are available to serve a large group of customers in every
corner around the world (GNC, 2019).
The company is undertaking a profit loss; according the GNC financial
statement (2019) reported, the company generated revenues of 1.5 billion
U.S. dollars in the past nine months since 2019 with a year-on-year income
decline of 13%. As a result, it is caused by the heavy dependence on the U.S.
market while indifference to the global business. According to MarketLine
(2019) described, the majority of income was contributed by business
operations from the U.S. market. Under the circumstances, GNC exposes its
majority of business to the increasingly rigorous native business environment
and more strict regulations on the formulation and production chain of
consumer health goods that add the expenditure of the company’s
manufacturing activity. Meanwhile, as the U.S. consumer health market
attracts many of the influential players, which leads to the increasingly fierce
competition in this industry, such activities posed a severe threat to the GNC,
and could significantly affect the profitability. Currently, the company is
confronting brutal competitors from domestic and international nutrition
retailers, as well as from other industries involving large pharmaceutical and
food companies, grocery retailers, and direct selling companies (MarketLine,
2019, p5). Key players recall Herbalife Nutrition, Amway, and Walgreens
(Euromonitor, 2019). The above pieces of evidence suggest that GNC should
trade-off current domestic and international market strategy, and take
advantage of the strong product to impact foreign market place. Thus able to
create extended global sources of revenue, as well as to reduce its
overdependence on the domestic market. Therefore, the company should
invest in the target country, which has an ideal consumer health market, a
relatively loose legal and political environment.
GNC’s Strategy
GNC puts emphasis on innovative product development, as the effort that
values market demand. The company keeps sensitivity of dynamic tendency
in customer needs via multiple sources of information, including market
survey, customer interview and intelligence network from partnerships and
distributors.
Such a complete information system enabled GNC to capture the up-to-date
consumer trends to assist in the develop and deliver new product to meet
demanding consumers. GNC has a strong research and development sector,
in an agile response to innovate new formula to cater to the dynamic market
demand. (MarketLine, 2019, p4). After all, the strong product development
capabilities and market-oriented strategy led the company to generate a
competitive product portfolio, thereby establishing worldwide recognized
brand all over the world.
Expect the R&D capability, GNC operates vertically integrated supply
chain to control the production costs, the complete process starts from
product production, packing, storage and inventory management, and
distribution center to support the marketing network worldwide. The system is
efficiency oriented, designed to lower the cost of production for all kinds of
packaged products. Therefore, GNC's vertically integrated supply chain
allowed the company to control costs, shorten the lead time of before the
product launch and ensure the quality of finished goods. Eventually the
system helps the company to offer strong brand portfolio of proprietary
products with competitive prices (MarketLine, 2019, p4).
The company fosters a strong partnership with Amazon.com and other
third-party e-commerce, to develop the overseas online shopping platform
across the company’s global business networks. Therefore, GNC can export
its brand product to the international market place through online shopping
activity.
Multi-channel sales helped GNC build diversified sources of revenue, in
which the major distribution channels involving stand-alone brand stores and
franchised operation. As the strategy to sell the product to the accurate
market and to reach a target audience on demand, GNC takes the effort to
build the franchised distribution networks with drug retailers and gymnasium.
Relying on those partnerships with the mature market network in consumer
health, GNC can hit its competitive products, including multivitamin
supplements and sports nutrition in the right store, and further to meet health
product consumers’ demands (MarketLine, 2019, p5). From the perspective of
those partners, they appreciate promoting a strong brand portfolio of GNC
proprietary products due to the well-known reputation of its brand featured by
good quality. Sometimes, in return, GNC helps to sell products through the
company-owned store for a significant foreign partner in the U.S. market.
GNC exports merchandise to the target country meanly through international
or local franchiser; currently, the company has over 2,000 multi-domestic
franchise stores (GNC, 2019). In this case, such characteristics could help the
company to rapidly grow a complete and flexible business network to serve
large bases of audiences worldwide.
To summarize, GNC is characterized by the worldwide recognized brand
portfolio of proprietary products, especially its sports nutrition and multivitamin
product, which take the extended brand share in global markets. The
company builds various market channels through company-owned stores,
distributors, and online market place. Meanwhile, GNC is undertaking a profit
loss in its domestic country; so far, the tendency of sales decline seems to
continue in the future. Under the circumstances, GNC should consider
seeking business opportunities on the global market places, further to grow its
multi-domestic strategy on the target country, thus able to create sustainable
operation with various source of revenue. Australia, with the broad base of
consumers who focus on health products, maybe the ideal market place to
invest.
Key Characteristics of Australia
The estimated population in Australia is around 23.5 million. The majority
of residential areas are located on the periphery of the land, in which the east
and southeast coast contained the highest density of residences. So far, New
South Wales has the largest population, its capital city-Sydney and Canberra
are the major urban areas in the state. The second-largest population is
located in Perth and its surrounding area. The inland region has a very sparse
population (Central Intelligence Agency [CIA] the world factbook, 2019).
From the economic aspect, the consumption intention in the private sector
is depressed in response to the decline of house pricing and reduced the
confidence of consumption, as well as the relatively slowing wage growth that
encouraged the restriction of expenditure (HIS Markit, 2019, p16). The
consequence has led the nation to a transition from consumption to deposit
and resulted in the subdued GDP growth of just 1.8% in 2019 (Fitch Solutions,
2019, P9). Hopefully, the Australia government currently proposed a
deduction of individual income tax and expected a positive growth rate of up
to 2.4% (HIS Markit, 2019, p3). It is regarded as a significant financial
incentive to encourage consumption. Under the situation, the foreign
investment activity, especially in the consumer goods and retailer industry, is
recommended to initiate by export or joint venture. Because they are low risk
and offering buffers to study domestic knowledge of customers from the local
business partner, and direct investment is considered a higher risk unless the
operator is confidence in business.
Despite the depression of national consumption, Australia is considered a
business-friendly environment due to the healthy and developed legal system
with the transparency of taxation. Therefore, the country builds an equitable
business context featuring a fair competition. Moreover, the government
issued a contract law to reassure the equal treatment of foreign investment
(HIS Markit, 2019, p4). After all, the country takes advantage of its well-
developed legal and regulatory environments to appeal to foreign investment.
Australia signed on a free trade agreement with the U.S. in 2004, aimed at
a strong partnership tied with bilateral economic development. Since then, the
deal has significantly facilitated the mutual investment, and make the U.S.
become Australia’s most significant source of investment (HIS Markit, 2019,
p13). Therefore, it is the greatest temptation if the GNC chooses to invest in
Australia.
In Australia, the health care products which comprise nutritional
ingredients, including minerals and vitamins, numerous nutrient additives are
regarded as supplementary medicines by the Therapeutic Goods Association.
And they are under strict supervision and regulations imposed by the TGA on
purpose to ensure the excellent quality of product and safety in the consumer
health market. In some terms, the consequence has led to boost a high
degree of consumer confidence in purchase the TGA approved product, and
the TGA certification is also recognized by traditional western markets, such
as the United Kingdom, Germany, Canada and so on (Therapeutic Goods
Association [TGA], 2019).
This means the obtainment of TGA certification is necessary for any
consumer health manufacturer in Australia. However, it can be worth the
investment to obtain the certification as an effort to gain full recognition from
the domestic market, as well as from the global market.
There exist a few factors which are not able to influence the business
operation. The first, Australia, is remote from the U.S., and shipping is
dependent on access to the market. Transportation is time-consuming and
lengthens the delivery cycle of goods. The fact challenged the accuracy of the
sales forecast in merchandise. The supply chain to the local distributor might
get a cut, further to cause a stock out before the next replenishment, or
unsalable inventories may increase. The second, the mega wildfire, which
devastated infrastructure at few times every year; therefore, separated
locations of stock next to each staple market is essential (HIS Markit, 2019,
p4).
Consumer health in Australia
Consumer health in Australia is a considerable market and maintained an
acceleration in growth by 2019, according to the data provided by the
Euromonitor (2019), the annual sales of consumer health is more than 5.3
billion, with an expected increase by 10% each year. Because of the demand
increased across diversified nutritional consumption and strong desires of
well-being among the sizeable urban consumer bases. The majority of
Australian urban people are suffered from increasing stressful lifestyles,
working longer hours, and the increasingly awful air pollution also posed
threats to their health. Therefore, Australians tend to raise spending on health
care products and well-being. Consequently, it could be good news for the
consumer health business.
The most prevailing categories in consumer health present vitamins and
Dietary supplements; their annual sales are up to 2.1 billion and occupied
nearly 40% in the general consumer health market. The nonprescription drugs
take second place, to be followed with sports nutrition, and presented a total
of 0.9 billion sales in 2019. with the sharp acceleration of growth up to 10%
annually (Euromonitor, 2019). The tendency of consumption fits GNC’s
strategy in product development.
The native customers have a preference in Australia-made product, due to
the TGA regulation that provides the guarantees in good quality and safety, as
well as the domestic companies, are aware of the needs of local customers.
By far, there are over twenty main competitors in the Australia consumer
health market. The key players are both domestic companies --- Swisse
Wellness and Blackmores; they kept on top of the rankings and occupied
nearly 20% in the consumer health market (Euromonitor, 2019). The
performance gives credit to their superior product portfolio in vitamins and
dietary supplements. However, the Swisse remains blank in sports nutrition
(Swisse, 2019). As well as the Blackmore (Blackmore, 2019). The information
implies the importance of TGA certification to gain the consumer confidence in
select GNC’s product, and also indicates an opportunity to access to the
market by sports nutrition.
In Australia, the primary distribution channel of consumer health includes a
pharmacy, drug store, and supermarkets. Customers also prefer professional
consulting through specialist retailers. In recent years, the internet retailing
thrives, such as Amazon and a bunch of official shopping website. The multi-
channel retailing can be applied to the Australia market to rapidly build an
extensive business network (Euromonitor, 2019). And local distributors are
available and reliable to access to the target audience, as well as to gain
knowledge from customers.
GNC’s business expansion plan and market strategy in Australia
From the perspective of foreign investors who represent a health care
business, Australia seems a considerable consumer health market, with the
accelerated growth of recent years. Moreover, the country has a well-
developed legal system and transparent taxation to remain an impartial
business environment. Plus, the bilateral free trade agreement with the U.S.
has significantly lowered the threshold to invest in Australia for any of the U.S.
company. From the aspect of GNC, its current domestic sources of revenue
are shrinking due to the increasingly fierce competition as well as the limited
regulation has condemned its business operation to a risky situation.
Therefore, GNC should expand its global business in Australia, as the effort to
generate a significant source of sustainable income, as well as to lower its
overdependence in the domestic market.
The entry strategy in the Australia market could be divided into three
phases. GNC Initiate business operation by prudent solution in this country
regarded the depression of the Australia economy that encouraged a
restriction of national expenditure, and the circumstances could remain for a
period. Therefore, it's recommended that GNC export its product portfolio
through current third-party online shopping partner --- Amazon, which also
provide access to the widely Australia online shopper, with this budget entry
method, the business risk remains a lower level. GNC could export its top-
ranking product series --- AMP sports nutrition and Ultra Mega multivitamin
supplements, as they are considered well-recognized brands from the global
market, and both categories are demanded from the majority of Australia
consumers. Meanwhile, GNC could deploy each small business entity in
every major city--- Sydney, and Canberra in New South Wales, and Perth, to
access a large group of audiences. The business entity could be a company
owned brand store to promote its uniqueness of competitive GNC product, as
well as to gain insight from local customers and facts from local competitors.
Plus, recommended to conduct marketing campaigns and roadshow to
facilitate brand exposure to the public. The business entity helps to boost its
online shopping performance, elevate public awareness of branding,
demonstrate product acceptability, conduct market survey and gain insight,
and further to develop local partnerships.
After sufficient readiness for the feasibility study of product marketing,
GNC ought to determine the product launch to search the matching
distributors further to build an extensive marketing network to reach large
customer bases. Regarded, the Swisse Wellness and Blackmores keep on
top of the rankings in consumer health, and they are mainly specialized in
vitamins and dietary supplements. Thus, GNC could force on promoting its
AMP series to match the increasing national demand for consumption in
sports nutrition. The Ultra Mega multivitamins take a back seat temporarily.
Accordingly, GNC should put emphasis on franchise activity with large
domestic gymnasium, and drug stores to market the sports nutrition product
mainly, due to the specific consumer scenarios are valued by the target
audience, plus, utilize the in-house nutritionist and professional trainer to
promote the product. To secure a reliable partnership, GNC could sell its
brand story with the worldwide reputation of the wellness history and
substantial brand share in the global market. And even demonstrate its
profitability by 1.5 billion of annual sales, as the effort to develop a shared
perspective to fosters strong relationships with partners.
Pricing is another factor that influences marketing. According to the fact
that urban consumers demand diversified nutritional categories due to rising
expenditure, the price elements are less sensitive to the market. Therefore,
GNC could launch a special promotion combining AMP sports nutrition with
Ultra Mega multivitamins, and offering a bundling price. As the effort to
increase sales, underlying is an attempt to take a share of the dietary
supplements segment.
After the distributors created a comprehensive channel and have gathered
a broad base of consumer, GNC could then make a significant movement, by
invest local supplements manufacturer, further apply TGA certification. Rely
on the joint venture with reliable Australian manufacturers, such as Vitaco ---
with leading fitness and supplement manufacturing technology, and the public
recognized brand (Vitaco, 2019), the GNC will then gain significant
improvements in its competitiveness. It becomes feasible to initiate innovative
product development and reformulation to launch an improved version to
cater to the consumption demand, lower operational cost, and facilitate
economic efficiency. In return, GNC helps to sale the brand portfolio of Vitac’s
proprietary through the company-owned store in the U.S. market.
Eventually, a joint venture with local manufacturers will help GNC to obtain
the TGA certification. The consequence will lead to boost a high degree of
consumer confidence in the domestic market, as well as to gain full
recognition in the global market.
Summarize
In conclusion, it is recommended that GNC invest in Australia. From the
external aspects, Australia has a continuous-growth market in consumer
health, as well as has an impartial business environment. The threshold of
investing in Australia is lower due to the bilateral free trade agreements
between the Aus. And the U.S. From subjective aspects, GNC can generate a
significant source of sustainable income, and lower its overdependence from
the increasingly awful home market.
GNC could establish the business by exporting product portfolio and first
access to the Australian online market through the e-commerce partner –
Amazon. Because of a budget entry method that could remain a lower
business risk. GNC could export its top-ranking product series --- AMP sports
nutrition and Ultra Mega multivitamin supplements because both categories
are generally demanded from the Australia consumers. Meanwhile, GNC
could deploy a few company-owned stores in the major cities to promote the
uniqueness of the GNC brand and to gain initial insight from a local customer.
Plus, the company could conduct a marketing campaign and roadshow to
facilitate brand exposure to the public.
GNC should then emphasize franchise activity with large domestic
gymnasium and drug stores to build an extensive marketing network to reach
large consumer bases. Regarded the main competitors that are mainly
specialized in vitamins and dietary supplements. Thus GNC could force on
promoting its AMP series to match the increasing national demand for sports
nutrition.
The price elements are less sensitive to the market; therefore, GNC could
launch a bundling promotion combining AMP sports nutrition with Ultra Mega
multivitamins as they attempt to take a share of the dietary supplements
segment.
After the distributors gathered large bases of the consumer, GNC could
then invest native supplements manufacturer --- Vitaco. Thus, the GNC can
initiate innovative product development and reformulation as the effort to
create Australia-made versions of the product to cater to the consumption
demand.
The joint venture with local manufacturer will helps GNC to obtain the TGA
certification. The consequence will gain a high degree of consumer
confidence in both Australia and the global market.
References:
Blackmores. (2019). Product store
Retrieved from https://www.blackmores.com.au/#
Central Intelligence Agency. (2019). The world factbook: Australia.
Retrieved from https://www.cia.gov/library/publications/the-world-
factbook/geos/as.html
Euromonitor. (2019). Country report: Consumer health in Australia.
Retrieved from https://www.euromonitor.com/consumer-health-in-
australia/report
Euromonitor. (2019). Sports nutrition in World.
Retrieved from https://www.portal.euromonitor.com/portal/analysis/tab
Euromonitor. (2019). Dietary supplements in world
Retrieved from https://www.portal.euromonitor.com/portal/analysis/tab
Fitch Solutions. (2019). BMI research: Australia country risk Report.
Retrieved from
http://search.ebscohost.com.proxy.library.carleton.ca/login.aspx?
direct=true&db=bth&AN=139643376&site=ehost-live
GNC. (2019). Company overview.
Retrieved from https://gnc.gcs-web.com/
IHS Markit. (2019). Executive summary - Australia. Retrieved from
http://search.ebscohost.com.proxy.library.carleton.ca/login.aspx?
direct=true&db=bth&AN=139928629&site=ehost-live
IHS Markit. (2019). Country: Territory report - Australia. Retrieved from
http://search.ebscohost.com.proxy.library.carleton.ca/login.aspx?
direct=true&db=bth&AN=140030004&site=ehost-live
Market Line. (2019). GNC holdings, Inc: SWOT analysis. Retrieved from
http://search.ebscohost.com.proxy.library.carleton.ca/login.aspx?
direct=true&db=bth&AN=135507771&site=ehost-live
Swisse Wellness. (2019). Stocking stuffers. Retrieved from
https://www.amazon.com/stores/page/57C36D68-120A-464D-852F-
935FEAB31D00?ingress=0&visitId=f2e1281c-a8cc-49ac-891c-
d47deff67cac
Therapeutic Goods Association. (2019). About TGA.
Retrieved from https://www.tga.gov.au/about-tga
Vitaco. (2019). Vitaco history
Retrieved from https://www.vitaco.com.au/about-us
