Nutrition Business Journal – The Changing Face of Commerce

Nutrition Business Journal, April 2012
Direct ellers extend multichannel model to retail as lines blur between core MLM, media & internet players

Direct sales have long served as that “other” channel in the world of commerce. Retail is mainstream. Direct-response television is fringe. Shop owners are trustworthy. Internet marketers are shady. Though the promise of the middleman-free, price-slashed sales in catalogs may be an intuitive buy-in for consumers, nothing seems to compare to the legitimacy of a storefront and shelves.

But a shift has occurred. Concomitant with the unparalleled growth of the internet – both as a sales channel and as a way of life – direct-to-consumer commerce has gained new stead. Even when it’s not the final point of sale, the internet adds multiple touchpoints to foster credibility for a brand. Meanwhile, online retailers like Amazon has mainstreamed the B2C internet economy, while eBay, Etsy and Paypal have made peer-to-peer exchange of capital a commonplace. QVC and HSN have made TV a fun, safe place to shop.

Now, startups like Square (a mobile credit card reader) and Dwolla (which facilitates direct bank account transactions, sans interference from credit card carriers) look to streamline buying and selling to new levels. The commerce revolution is in full swing.

Social, Mobile, Local

Even multi-level marketers – long cast off as hokey pyramid schemes – stand to gain credibility from the commerce revolution. ViSalus Sciences, a network marketer of weight loss meal-replacement kits, is one such MLM.

“The whole direction we think commercie is going to go is social, and then mobile,” says Blake Mallen, co-founder and chief marketing office of ViSalus. “We actually rolled out a whole application that turns people’s Facebook pages into commerce sites.”

The company then unveiled a mobile commerce app for distributors. “They can track sales, commission, organizational reports – all the funcationality they need to run their business,” says Mallen. Taking a cue from Square, ViSalus also launched a mobile credit card swiper to sync with the app. ViSalus covers the merchant fees (Square, by contrast, takes 2.75% off of every purchase) and distributors pay for subscription to the app. “It has a coolness to it, and it alleviates the awkwardness of taking down credit card information and typing it into a phone,” says Mallen. About 50,000 distributors use the app every month.

Novelty continues to function as a primary driver of growth in the MLM market. How else can the sales force keep customers engage? “R&D has been a continuing challenge, and that’s true all across the industry,” says Loren Israelsen, executive director of the United Natural Products Alliance. “Direct selling demands much more novelty and exclusivity than any other category.” But it would seem that the dramatic success of ViSalus in recent years has shown that product innovation is not only innovation that matters. There’s more than one way to skin that proverbial cat.

“Our strategy is in product development, certainly, but that not what’s going to make us a multi-billion-dollar company,” says Mallen. “What’s going to make us a multi-billion-dollar company is innovation on the distribution side. Grassroots marketing. Innovating in the mobile arena. It’s taking what Groupon has done and capitalizing on that for weight loss. It’s social, mobile, local.”

In a channel once so dependent on faddish ingredients and fickle tastes, it’s certainly refreshing to see companies working aggressively to meet consumers right where they are. As the world of commerce continues to change at an ever-escalating pace, MLMs occupy a unique position in that world to be legitimately social, to be mobile, to be local. Who would have thought that the tired, old multi-level model could play such a crucial and effective role in redefining the terms of mainstream commerce.

Weight Loss Leads in MLM

ViSalus has the slaes to bolster this big talk. The company grew nearly 700% last year, leaping onto Nutrition Business Journal’s MLM leaderboard with $230 million in U.S. sales. And it doesn’t stop there. “Most companies in direct sales, historically, have hit a North American wall at around $500 million,” says Mallen. “We’ll pass that this year. I believe, with our model, we can do $1 billion in revenue before we exit North America.”

If this company’s growth has anything to tell us, it’s that meal replacements are back in vogue. According to the NBJ estimates, MLM sales of weight loss meal replacements grew 26% in 2011, cracking the $1.0 billion mark. This outsized growth propelled overall MLM sales of supplements to double-digit growth, a strong bounceback after a 1% dip in 2010. That strength is carrying into 2012 as well. “The weight loss category was strong a year ago,” says analyst Scott Van Winkle, managing director at Canaccord Genuity. “It’s even stronger now.”

AdvoCare is another company feeling the good vibes in meal replacements. According to vice president of R&D Mark Miller, AdvoCare saw around 50% sales growth in both 2010 and 2011, and numbers closer to 90% thus far in 2012. Weight loss is leading the charge, with the 24-Day Challenge Bundle driving a good deal of repeat sales.

ViSalus builds its line around a challenge model as well. “We lead with our Body by Vi 90 Day Challenge,” says Mallen. “We lead with the benefits of the kit. Then we incentivize consumers to spread the word via our ‘Refer 3 – Get Your Next Month Free!’ message. And then on the back end comes the opportunity. It’s more of a mainstream, consumer-focused message.”

“I like that big solution type of model,” says Van Winkle. “This is not a hot new wonder drug hitting the vitamin space. The products achieve what they tell you they’re going to achieve.”

A look at the public companies shores up the fact that the energy is in meal replacements. Says Van Winkle: “Herbalife’s growing. Nu Skin’s growing. But even Nu Skin softened in the United States. Beyond that, all the other public companies are flattish or down: USANA, Reliv, Nature’s Sunshine, Manatech. I hear that most of the juice guys are down too.”

No wonder then that the juice guys are starting to jump on the weight-loss challenge bandwagon. In 2011, XanGo rolled out FAVAO, a 12-week weight loss and exercise program that employs cleanse, fiber, protein and metabolism boosting supplements. And MonaVie, hit hard during the recession, has also diversified and added a challenge to the mix. “Our RVL Premier Weight Solution, introduced in January 2011, enjoyed resurgence this year after we launched the MonVie 90-Day RVLution in January 2012,” says Shawn Talbott, MonaVie’s vice president of R&D.

Beyond weight loss, sports nutrition is on the up-and-up as well, growing U.S. MLM sales 12% to $320 million. Long a nascent category in the MLM space, renewed consumer interest in protein and meal replacements has prompted many companies to take the logical leap from weight loss to sports. Herbalife, for one, entered the space in a big way, complementing its launch of sports line Herbalife24 by signing an historic $44 million, 10-year sponsorship extension with Major League Soccer team the LA Galaxy.

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