SUpplement King - Vanier College · use supplements.v Most of the Canadian spending is focused on protein bars, powders and liquids. According to Robinson Pharma, a leading American

SUPPLEMENT KING Where to Now?

© 2020. This case was prepared by Dr. Peggy Cunningham and is not intended to illustrate either effective or

ineffective handling of a management situation. Some information may have been disguised in the interest of

confidentiality. This case is for educational purposes and is not to be reproduced for other purposes other than the

case competition without the permission from the author and the Scotiabank Vanier College National Marketing

Case Competition.

2020 SCOTIABANK VANIER COLLEGE NATIONAL MARKETING CASE COMPETITION

Prepared by Dr. Peggy Cunningham

R.A. Jodrey Chair, Rowe School of Business, Dalhousie University

Saturday, February 8, 2020

ENGLISH VERSION

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Supplement King – Where to Now?

This case was written by Dr. Peggy Cunningham, R.A. Jodrey Chair, Rowe School of Business, Dalhousie University ([email protected]) for the 2020 Vanier/Scotiabank National Marketing Case Competition. It is not intended to illustrate either effective or ineffective handling of a management situation. Some information may have been disguised in the interest of confidentiality. The author wishes to thank Mr. Roger King, President, Supplement King, Daniel Rogers, Jon Sharpe, and Nikki Reilly for their time, support and insight. (This material may not be reproduced without the express written consent of the author.)

Roger King, President of Supplement King, and his head office retail operations team are meeting once again to brainstorm about how to foster on-going growth. It has used franchising to foster its growth, and it is one of largest and fastest-growing supplement sellers in Canada with stores in every province except Quebec. While the company has been very successful in terms of attracting new licensees and opening stores in small towns, medium-sized cities, and suburban areas across Canada, it has been hesitant to open outlets in the downtown core of Canada’s largest urban centres – Vancouver, Toronto, and Montreal.

Supplement King was founded on personalized service and unbeatable pricing. It views its purpose as helping “Canadians improve, achieve and create better health and fitness.” Each new location enables the firm to share this philosophy with more people.

Relationship marketing has been one of the keys to Supplement King’s success in its current marketplaces. When Supplement King’s licensees open a new outlet in a small or medium sized town, there is always a big celebration. New businesses mean a lot to smaller towns. It is also easier for licensees to build relationships with customers since they know their neighbours. They work diligently to spread the word about the new business through their existing relationships and networks of acquaintances. While personal relationships are highly effective marketing tools, they may be somewhat impractical when it comes to entering large urban centres where people often commute long distances between home and work. The team sitting around Supplement King’s meeting room table needs a strategy to penetrate the urban cores of Canada’s larger cities.

Supplement King History

Roger King counts himself a lucky guy. As a teenager, he won a new car in a 50/50 draw at a hockey game. He sold it immediately to finance his business studies at St. Mary’s University in Halifax. He covered other costs associated with his education by selling supplements to his friends and fellow athletes, and then he set up a delivery business and sold to others out of the

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trunk of his car. His sales pitch was simple: convenience and price. He could buy the supplements in bulk and deliver them to his customers’ apartments or dorm rooms faster and cheaper than they could buy the products themselves at traditional retail outlets. “I had no fixed costs!” Roger exclaims. He describes his role at the time with a laugh as “a glorified pizza delivery boy.”i He grew his customer base by slapping flyers on car windshields and outside local gyms. Before long he couldn’t keep up with demand, so he decided to take a term off to devote himself to the business. He never looked back. He opened a kiosk in a local Halifax mall next door to a Goodlife Fitness gym. Roger quickly opened two more kiosks in other Halifax malls and then bought and rebranded a competing supplier.

Roger had found a gapping hole in the market. Much to his surprise, many customers weren’t athletes or body builders. They were office workers looking for a nutritional boost and a healthier lifestyle. They were health-conscious young millennials who had fitness goals but needed advice and products to achieve them.ii To this day he describes Supplement King as a fitness goals retailer.

Today, Supplement King sells 4,500 products through a mix of retail stores and on-line sales. Products range from whey protein1, to all-day, energy drink powders to its own lines of workout gear and mixing bottles. In May 2019, the 50th Supplement King store opened. The company is still privately owned and is headquartered in Dartmouth, Nova Scotia.

Franchising

There are many franchises in Canada (over 700). They contribute over $100 billion per year to the Canadian economy and create over 1.9 million jobs.iii Franchising is an arrangement where a small business or founding firm (like Supplement King) develops a strong business model and brand name. In order to grow, it sells the rights to use the company’s brand and sell a specified line of products to “licensees” -- people who want to have their own business. Licensees pay a one-time fee to acquire the rights and then they pay royalties to the franchise owner based on the outlet’s annual sales revenues.

Licensees face lower risks than they would if they built a business from the ground up. They can start a business faster and become part of an organization that has already demonstrated the success of its business model. Licensees also benefit from the existing relationships the franchise has established with suppliers. The franchise owner also offers licensees ongoing training and support, marketing insights and programs to help them grow their business (e.g., website, promotional offers, shelf space management, etc.)

Experience has taught Supplement King that certain things are essential for a licensee to be successful. While it only costs $30,000 for a Supplement King license, potential licensees must

1 Whey protein is a mixture of proteins isolated form whey, the liquid that is created as part of cheese production.

It helps people build muscle, it can lower cholesterol, and aids in the burning of fat.

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be able to invest between $180,000 - $350,000 to open and grow their business (See Appendix 1 for a photo of a typical Supplement King store interior). Over time, Supplement King has learned that franchisees need to operate in towns with a minimum population in a 10 km radius of 20,000. The median income for households must be $35,000, there must be a well-defined commercial area (i.e., shopping area), and employment rates must be high. Some licensees operate only one Supplement King outlet, but others have grown to own five or more stores.

Supplement King gets two to three applications for licenses every week. When entering a new geographic area, Supplement King grants a license to open one store. It uses the store as a pilot project to learn about the factors that drive success in that geographic region before it allows that licensee to open more stores.

Target Market

From its inception, Supplement King has targeted health-conscious millennials2 who have fitness goals but need advice and products to achieve them. The company describes its core target market as people who are:

Goal-oriented

Planners

Determined

Health-conscious, and

Social.

The global supplement market is forecast to grow between 2019 to 2025 by 7.8%iv, but it is fragmented and includes a wide range of products from vitamins to protein products and sports nutrition products. In Canada, this translates into a $190-million a year market. Approximately 15.7 million Canadians (45.6%) take supplements. Older consumers (51 years of age and older) are the heaviest users of supplements, and females use more supplements than males in all age groups. With regard to the millennial age group, approximately 45% of women and 33% of men use supplements.v Most of the Canadian spending is focused on protein bars, powders and liquids. According to Robinson Pharma, a leading American manufacturer of supplements, Canada has become “one of the global leaders” in the supplements sector.vi

Competition

Supplement King has two major competitors. Both have considerably more outlets in Canada than the 50 outlets in the Supplement King system. The first competitor is US-based GNC (General Nutrition Centers). It has 7,000 stores worldwide and approximately 215 stores in Canada. Using the tag line, ‘Live Well’, GNC is targeting families seeking a wellness lifestyle. GNC has been closing retail stores as it relies more and more on sales made through Amazon.

2 A millennial is anyone born between 1981 and 1996 (people aged between 24 to 39 in 2020).

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Supplement King’s second competitor is Canadian-based Popeye’s that operates over 140 outlets across Canada. Popeye’s outlets often vary in terms of the products they carry and their layout and displays. Popeye’s describes itself as ‘Canada’s Sports Nutrition Leader Coast to Coast’.vii Its target market is largely bodybuilders. Popeye’s website claims: “Popeye's Supplements Canada's exceptional growth and success rate throughout these years can be attributed to extreme hard work, but also servicing customers' needs by offering optimum results and solutions with superior service, accurate information, real knowledge, the best of the best in products on the market, and incredible value for their hard earned money with the LOWEST PRICES IN CANADA GUARANTEED!”viii

Brand Values and Identity

Supplement King is a values-led company. Focusing on customer success and creating a memorable experience for its customers is its primary value. Learning is its second value. Not only does it strive for superior product knowledge, it also seeks to deeply understand its customers’ objectives, stories, patterns of behaviour and preferences so it can help them optimize their fitness journey. Achievement is its third value. Everyone at Supplement King is passionate about helping others crush their goals. Both competition and ambition sustain the company’s work ethic. Its final value is respect, and it is mindful, trustworthy and non- judgmental.

Since Supplement King wants to attract everyday people who wish to be more fit and healthy, it changed its branding three years ago. In particular, it deleted its tagline “Lowest prices Guaranteed” to “Fuel Your Goals.” Management believes the change helped Supplement King accomplish two things: better differentiate itself from its competition and avoid targeting consumers focused only on discount pricing. The management team also hoped the change would help people see the value of Supplement King’s educational guidance and support, and remove the stigma around “Supplements” and the perception that they are only for bodybuilders. To support the change, Supplement King and its licensees work to make its stores less intimidating. Its product arrangements are easy to explain to anyone entering a store looking for a product to meet their specific goals. Supplement King also trains its store associates on how to have goal-based conversations with customers rather than pushing certain products.

Supplement King takes great pride in its brand identity which forms a core piece of its marketing strategy. It has worked hard to build a strong set of benefit-associations for its brand. It helps its customers ‘amp’ up their lives by offering supplements and insights that energize, restore and optimize. It helps its customers achieve their goals and get tangible results by offering high quality products at affordable prices. It creates a community of customers and franchisees. The environment in its stores is collaborative and supportive. Supplement King sees its stores as places where people can interact, learn and grow. It prides itself on the fact that all Supplement King’s team members have expert knowledge about its products, health and wellness. When describing its brand personality, Supplement King uses the words competitive, charismatic, approachable, professional and inquisitive.

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Marketing

Franchisees pay a percentage-of-sales fee into Supplement King’s advertising budget. To help with its marketing, Supplement King partners with an agency -- Revolve Branding. Revolve makes recommendations as to the base advertising budget for each store. Licensees also benefit from the creative work Revolve does. This encompasses the development of flyers, in-store materials and digital content. Revolve also assists with posts to the National-level pages of Instagram and Facebook, and it measures the effectiveness of ad spending in all media.

Supplement King relies heavily on social media. Since Facebook is used by 70% of Canadian Internet users (14 million people use Facebook daily), this is one of Supplement King’s major channels. It also uses Instagram since it is the world’s largest mobile ad platform and usage continues to grow. Sixteen percent of Canadians have an Instagram account, and 90% of the account holders are under the age of 35. Display ads are developed for the stores and are posted online. Display ads account for 80% of Supplement King’s per store budget. The display ads a person looks at on-line helps Supplement King categorize the person. In Supplement King’s case, they are looking for ‘Health and Fitness Intenders’ as their targets. The display ads are posted to Facebook (75%) and to Instagram (25%). Twenty percent of the budget per store is currently allocated to two Facebook posts per month that are planned nationally but are targeted locally.

During periods such as store openings, Supplement King uses ‘boosted posts.’ A boosted post is one where the firm pays a fee to have the post appear higher on a target’s news feed. The fee depends on how many people you want the post to reach, and the payment depends on the number of impressions the post achieves over time. No matter whether it is a regular or boosted post, Supplement King works to ensure that all posts from its franchisees are aligned with the firm’s brand values.

Supplement King avoids using forceful, sales-oriented messaging. Instead it creates sites where its customers can share their goals. Supplement King posts exercise videos, healthy recipes, and product education posts. Says Roger King, “If we do a good job showcasing our brand, our personality and our values, our customers make their own decisions about shopping.”ix

Key word targeting through Google Ads is another of the tools used by Supplement King. Revolve works with Google to assess the number of keyword searches in each of its stores’ markets. Google is an important partner since 90% of all Internet users rely on Google as their primary search engine. Supplement King only pays for clicks that deliver direct traffic to Supplement King’s website. The top keywords searched in recent months include:

Supplement stores

Protein powder

Weightlifting supplements

Whey protein

Supplement King flyer

Pre workout powder.

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Supplement King also uses in-store “everyday value programs” to help reward people purchasing its products. With a $30 purchase, the customer gets a Supplement King Stadium cup and a product sample. Customers have a choice of a free shirt or a shaker cup if their purchase total is $125 or more. It also has multiple loyalty programs, the first of which is Supplement King Royalty Rewards. A customer gets one Royalty Buck for every $25 spent plus bonus bucks on select products. Royalty bucks are stored in the customers’ account file so they are scannable in-store with their key card or they can be used when making on-line purchases. The program not only improves customer retention, it also helps steer customers to high margin items.

To attract customers who are key influencers in the health and fitness industry, Supplement King offers the “Elite Program.” To qualify for this program, a customer must be either a first responder (firefighter, police, paramedic), or be gym staff in the local area. Instead of collecting ongoing Royalty Bucks, Elite members get a discount ranging from 15 to 30% every time they shop with Supplement King.

In 2019, Supplement King launched its company-owned on-line delivery system called “Next Day Delivery”. It allows a customer to place an order on the Supplement King webstore by 11am, and have it delivered the next day by 5pm. It has enabled every store to turn into its own shipping department. The new system exploits the growing consumer trend of on-line shopping. It also provides the company with a wealth of data ranging from customers’ postal codes (that allow headquarters to see which physical locations are closest to the buyer), to information about whether or not the closest store has the products ordered in stock so they can be delivered the next day. If the retailer closest to the customer has the product in stock, it is shipped from the store. If the closest store is out of the item a customer has ordered, it is shipped from Supplement King’s central warehouse. Customers must pay a $10 shipping fee for orders under $99, but larger orders are shipped free. Customers are also given the option of picking up their order from the closest Supplement King store within two hours of placing their order. Having an online webstore presence with the new Next Day Delivery service has helped both licensees and Supplement King be more successful. Furthermore, it has helped Supplement King differentiate itself from other supplement retailers in Canada.

Another important part of Supplement King marketing occurs around store opening events. Its action plan has been used consistently to support new store openings. Supplement King keeps silent about new store openings (in a mall or close to a gym) until all the remodeling and set up work has been done. The Supplement King sign is the last thing to be added to the storefront. It doesn’t want to make the launch obvious to the competition. A week before the store opens, a Grand Opening flyer is published online, and daily contests are launched using social media. Outreach to gyms also begins on day one and photos are taken of Supplement King’s outlet staff in front of the gym or store for posting on Instagram. Store staff training begins on day three of the pre-opening events. A VIP night with demonstrations of Supplement King’s products takes place on day five. The grand opening weekend event is held on day six and seven.

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The Current Marketing Budget allocated by Supplement King to a new store Grand Opening is $4000. It is split between online, social media channels ($1500) and Community Efforts ($2500). Community Efforts vary from one location to another and depend on what the local licensee views as being helpful. Typical community efforts may include print advertising ($500), the distribution of Supplement King Shakers ($500), and radio advertising ($400 to $2000 depending on the location). See Appendix 2 for the budget breakdown.

The Decision

The team sitting around Supplement King’s meeting room table have had a long day. As a successful small firm, the road ahead clearly requires continued growth. Nonetheless, as a small firm, Supplement King only has a limited budget, and it must avoid highly risky moves. Its ‘launch a store—learn—adjust’ model has served it well. The team, however, knows that its existing marketing tactics, specifically during their grand opening event, may have to be adjusted if it wants to penetrate the core of Canada’s largest cities successfully. The team keeps coming back to the same questions: Where should it launch its first pilot project in an urban core---Vancouver, Toronto or Montreal (and why is one city preferred over the others)? The cities vary greatly in terms of their culture and demographics (see Appendix 3).

Toronto is one of the most multicultural and multiracial cities in the world with 51.5% of the residents belonging to a visible minority group. Vancouver is the most densely populated city in Canada, but much of its growth has been in the suburban areas surrounding the city. To do business in Montreal, Supplement King must follow Quebec law (The Charter of the French Language). The law’s provisions include the requirement for the business to have a French business name, and advertising (with some exceptions) can be in French and English (or another language) as long as the French is clearly more predominant. Labelling must be in French but other languages may be included with the French. The majority of the people living in Montreal are bilingual (56.6%). Those who speak French only are the second largest group (29.5%), and those who speak English only (23.5%) make up the remainder.

Five additional questions/considerations about the pilot project are also repeatedly debated among the team. They are:

The budget and its allocation in large urban centres. Supplement King’s current new store Grand Opening Budget of $4,000 has been adequate to drive success in small towns and suburbs; however, the team wonders if this will be sufficient in large cities. Roger suggested increasing the budget allocation to $10 000 for the selected urban market but even if this amount is used, questions remain about how the budget should be allocated.

The Ideal target customer. Before launching in an urban core, Supplement King must understand the characteristics of the ideal customer in the market selected for the pilot project.

Differentiation from competitors. Supplement King’s competitors already operate in cities’ downtown cores. The company needs to be clear about how it is positioned against competitors. In particular, one team member is concerned about the terms used in

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customers’ key word searches and believe some potential customers may not fully understand Supplement King’s positioning.

Brand Identity. While it is important to keep the brand identity consistent nationally, some members of the team believe it might be helpful to stress different aspects of the brand in a larger urban area than would be stressed in small town markets.

Communications: The team wonders if the current social media platforms are the best ones and if the budget is allocated optimally across different media.

The management and marketing teams could debate these issues for months it seems. CEO Roger King has decided to call it a day. Perhaps having a fresh perspective from an outside consulting group is needed. What marketing plan would be ideal for the urban core pilot project he wonders? Even if the consulting group can’t address all of the company’s questions, an outside view might be helpful. He picks up his phone.

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APPENDIX 1 - Typical Supplement King Interior with Product Displays

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APPENDIX 2 – BUDGET STORE OPENING, SMALL TOWNS AND SUBURBAN AREAS

The budget devoted to store openings in smaller cities and suburban areas typically involves the following:

o Budget for Grand Opening : $4000

o Online, Social Channels : $1500

o Community Efforts : $2500

Community efforts can vary; they include but are not limited to

Print (Newspaper/Magazine etc.) : $500

Distributing Shakers (to local gyms and any places that fall into one of our Loyalty Programs “Elite Customer”, “Military Customers”, Goodlife Member Rewards Awareness / Local Businesses in the area with likeminded consumer) (100 Shakers = $500)

Radio and any other efforts an owner may find beneficial ($400 to $2000 depending on location)

Other initiatives as determined by the licensee to be beneficial in supporting the store opening

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APPENDIX 3 – DEMOGRAPHICS MAJOR CITIES (from Statistics Canada unless otherwise noted)

Population* Annual Growth in Pop

Most predominant visible minority

% with Bachelor’s Degree

% Unemployment

Mean Household Income

Vancouver 631,485 4.4% Chinese (27.7%)

65.8% 4.7%i 72,662

Toronto 2,956,024 4.3% Chinese (12.5%)

31.5% 6.4% 98,174

Montreal 1,704,694 4.2% Blacks (28.4%)

15.1% 5.8% 50,227

*Population is for the city core only. Vancouver, Toronto and Montreal are surrounded by many suburbs. Supplement King has already been successful in the Vancouver and Toronto suburban areas. If the city is selected as a pilot for Supplement King’s new urban strategy, it is the core of the city that will be the target.

Population % by Age

20-24 25-29 30-34 35-39 40-44

Vancouver 7.0% 10.1 % 9.8% 7.8% 7.1%

Toronto 7.1% 8.5% 8.2% 7.2% 6.7%

Montreal 7.3% 8.5% 8.3% 8.0% 6.7%

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REFERENCES

i Stephen Kimber, King of the supply chain, Atlantic Business, May 12, 2019, (https://www.atlanticbusinessmagazine.net/article/king-of-the-supply-chain/). ii Ibid. iii Canadian Franchise Association, https://www.cfa.ca/about-cfa, accessed October 4, 2019. iv Grand View Research, “Dietary Supplements Market worth $194.63 Billion by 2025,” https://www.grandviewresearch.com/press-release/global-dietary-supplements-market, accessed November 25, 2019. v Statistics Canada, Use of nutritional supplements 2015, https://www150.statcan.gc.ca/n1/pub/82-625- x/2017001/article/14831-eng.htm, accessed November 25, 2019. vi Information in this paragraph came from Stephen Kimber, King of the supply chain, Atlantic Business, May 12, 2019, (https://www.atlanticbusinessmagazine.net/article/king-of-the-supply-chain/). vii From Popeye’s website: https://www.popeyescanada.com/ accessed October 31, 2019. viii From Popeye’s website: https://www.popeyescanada.com/ and https://www.popeyescanada.com/history.html, accessed October 31, 2019. ix Stephen Kimber, King of the supply chain, Atlantic Business, May 12, 2019, (https://www.atlanticbusinessmagazine.net/article/king-of-the-supply-chain/).