GNC seeks elixir for bonding with franchisees

Atkins and the other seven board members “opted out,” of the settlement, he says, because they felt they had to give up too many rights down the road. And, although “something is better than nothing,” in this case, they amount being handed out wasn’t worth signing away future rights, he points out.

The Franchise Times
January 1, 2002

GNC seeks elixir for bonding with franchisees

PITSBURGH – More than 75 percent of General Nutrition Companies Inc.’s franchise operators have accepted the company’s proposed settlement of three lawsuit’s that were seeking class-action status.

The lawsuits, by the way, stemmed from previous management’s deeds that are not being cleaned up by the present management team.

The total settlement - $2.7 million in wholesale credits or purchases of the company’s private-label products over a 24-month period – works out to about $3,000 per franchisee over two years, or $125 a month for 24 months, says Mike Meyers, president and COO of GNC.

The lawsuit’s issues go back at least four years and involved a small number of franchisees, says Meyers, who joined the company as president 18 months ago. He was promoted to chief operating officer in November 2001.

While Meyers sees the 75 percent as an affirmation of the settlement, franchisee Jim Atkins, a three-store owner in Indiana who sits on the franchisee advisory board, sees it another way.

“The settlement was on in which you had to be proactive to get out of it,” he says. In other words, if a franchisee did nothing, he was part of the 75 percent accepting the settlement.

Atkins and the other seven board members “opted out,” of the settlement, he says, because they felt they had to give up too many rights down the road. And, although “something is better than nothing,” in this case, they amount being handed out wasn’t worth signing away future rights, he points out.

Scott Taylor, who owns four stores in the Knoxville, Tenn. Area, said he opted out on “moral grounds. I’m very enthusiastic about GNC and the direction we’re heading (under Meyers’ leadership)…(but) I’m still bitter about what’s happened,” he says.

In an effort to compete with other health chains, GNC implemented “deep discounts on products,” do deep, in fact, Taylor says, that franchisees margins dropped 9 points. “That’s 4 points below what we needed to survive,” Taylor says. The good news is that since Meyers has taken over he’s raised the margins by 5 points, Taylor adds.

While the settlement is not the panacea that company hoped it to be, Atkins, like Taylor, is complimentary to Meyers. “The council members feel that under Mike Meyers, GNC is doing some good things,” he says. “I’m not unhappy, I think they’re a good company and good people.”

In the past GNC has put company stores first, Taylor says. That, however, seems to be changing, Atkins adds. The new COO Meyers is more in tune with the franchisees and takes into account how decisions will affect its 1,360 domestic franchise locations and 26 foreign ones, he says. (The Pittsburgh-based company has a total of 5,300 retail outlets.)

The settlement is more than just money, Meyers says. GNC has offered its franchisees several ways to improve their sales and margins, including a new program to add smoothie bars to he existing stores.

The “New Deal,” which was announced at the franchisee convention during the summer, was based on the issues brought up by store owners as Meyers visited thousands of his franchisees in their markets.

“We took the issues and ideas – mostly ideas, good ideas – back to work on,” Meyers says. “I’m a big believer in communications and I felt we had room to improve in that department.”

From those visits, Meyers implemented some new programs, including lowering franchisees Gold Card costs from $8.50 per member to $5. There are 5 million active members using Gold Cards for savings in stores, and by allowing the franchisees to keep more of the cards’ fee, additional dollars reach their pockets.

GNC also initiated a free monthly shipping program in which one free shipment a month is allowed, and a volume-based rebate program.

The co-op ad structure was eliminated and the national ad campaign was expanded, along with other perks.

GNC, which is bringing back its Preventative Nutrition line, a popular seller, is also promising franchisees science-based products and a new line called the ProPerformance Elite Series.

“A lot of the settlement were things we were going to do for franchisees anyway,” Meyers says. “The only ones who win in a lawsuit are the lawyers.”


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Risks: Lawsuits, class-action, Franchisee advisory group (lap-dog), Discount programs destroy retail margins but boost wholesale profits, United States, 20020101 GNC seeks

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