Building Brand Value

Building Brand ValuePresentation and Conference Call

Wednesday, September 14, 2011, 11 a.m.–12 p.m. (PST)

Agenda

Introduction Mike Dovbish, NCNInvestor Context David Thibodeau, PCGProduct and Positioning Rick Sterling, Sterling-Rice GroupChannel Strategy Peter Vitulli, DNA Diagnostics CenterIn-Market Voice John Grubb, Sterling-Rice GroupQ&A Speakers and AudienceConclusions and Upcoming Events Mike Dovbish, NCN

2September 14, 2011

Purpose of Presentation

� Introduce Nutrition Capital Network (NCN): create context for upcoming events

� Discussion on building brand value– Investor/investment banker perspective on the value of branded

nutrition companies with scale

– The essential attributes of product differentiation

– Positioning construct: branding guardrails

– Channel strategy considerations

– Maximizing your in-market voice

3September 14, 2011

Nutrition Capital Network Mission

� The mission of Nutrition Capital Network (NCN) is to:

– Facilitate the financing and partnering process for small and medium-sized companies

– Introduce investors to the next generation of successful brands and technologies in the nutrition, health and wellness, natural and organic, and green product industries

– Facilitating capital flow for the betterment of business and society at large

4September 14, 2011

Nutrition Capital Network Mission

� NCN accomplishes this mission by:

– Creating a series of events and virtual tools to connect companies and investors

• Conference Calls

– Q1 “Building a Winning Team: Tips on Hiring and Team Building for the Entrepreneur”

– Q2 “Product Positioning in Nutrition and Health and Wellness: Bringing Your Supplements, Medical Foods, and Pharmaceutical Drugs to Market”

– Q3 “Building Brand Value”

5September 14, 2011

NCN’s Focus

Companies in the nutrition and health and wellness industry

across the value chain, including the following sectors:

Dietary Supplements: VMS, H&B, Sports, LMRs

Ingredients, Medical Foods, Technology for OTC/Pharma

Natural and Organic Foods H&W Enabling Technology

Functional Foods Health and Fitness; Green Products

Healthy Foods, BFY Foods, Weight Loss

N&O Personal Care, Cosmetics, Household and Pet Products

6September 14, 2011

Sponsors

Law Firm Partner

Executive Search PartnerBranding and Strategy Partner

Government Trade Partner

Investment Banking Partner

NCN Investor Meetings are presented in association with

Life Science Partner

7September 14, 2011

Thanks to Our Cornerstone Investors

8September 14, 2011

NCN Historical Summary

43 of 89: 48% through NCN 4; 66 of 180: 37% through NCN 6

NCN Apps/Eval. Pool Selected Secured Funding

I 98 24 12

II 84 22 13

III 78 22 8

IV 80 21 10

SSW Ing and Tech I 35 10 3

V 78 20 5

VI 85 19 5

SSW Ing and Tech II 35 8 2

VII 90 21 4

9September 14, 2011

NCN Deal Flow Summary

Apparel and Textiles 3 <1%

Functional Beverages 87 12%

Functional Foods 63 9%

Ingredients 129 18%

Medical Foods 6 1%

Natural and Organic Foods 162 22%

Natural Personal Care and Household 82 11%

Packaging 5 1%

Retail and Service 50 7%

Supplements 117 16%

Technology 32 4%

Total 736 100%

10September 14, 2011

NCN 2011 Calendar

NCN Seminar at Expo East: Baltimore� September 21–24, 2011

NCN at Supply Side West: Las Vegas� October 11, 2011: 8–10 companies

http://www.nutritioncapital.com/NCN_at_SupplySide_October_2010

NCN IX Fall Meeting: Los Angeles� November 14–15, 2011: 20–22 companies

http://www.nutritioncapital.com/NCN_IX_Fall_2011

NCN X Spring East Coast Meeting� May 2012: 20–22 companies


Nutrition Capital Network Selection Criteria

NCN and members of our screening committee use the following basic criteria to evaluate potential presenting companies, and they believe that similar criteria would be used by any experienced investor to screen business ventures.

Novelty and Unique Position

� A demonstrated point of differentiation

� New company or concept for investors; not “shopped around” too much

� Potential for leadership in a defined subsegment, channel, or niche of some size


Nutrition Capital Network Selection Criteria (continued)

Insulation

� Protectability of product or service or technology; defense against copycats

� Intellectual property: trademarks and patents

Economic Potential

� Size and growth rate

� Scalability; potential for economies of scale

� Profitability; demonstrated gross margins

� Exit potential: a variety of interested parties


Nutrition Capital Network Selection Criteria (continued)

The Management Team

� Pertinent experience of executives: health and wellness, medical, startups, CPG companies, a specific distribution channel, and/or marketing and sales

� Demonstrated track record in early stage or returning capital

� Surrounding team: investors, partners, marketing and distribution alliances, legal team

� Star power and charisma; name recognition

Tangibles

� Good branding or brand name, good quality and taste, unique packaging or presentation

Intangibles

� The “WOW” factor; head-turning potential


NCN Results

� Received 520 applications since October 2007

� Selected 131 companies to present at seven NCN events—five dedicated meetings and two smaller satellite events

� 37% of companies (33/89) that presented up to NCN, four had received funding by February 2010


David T. Thibodeau

� David T. Thibodeau is co-managing partner of Partnership Capital Growth Investors (PCGI). David is a seasoned corporate finance executive within the wellness industry with a successful history of entrepreneurship, corporate strategy, merger and acquisition, and equity raising. He was an early player in the consumer healthy, active, and sustainable living sector

� Prior to PCGI, David spent 10 years at the investment bank Canaccord Genuity (formerly Adams, Harkness and Hill). As the head of the Health, Wellness and Lifestyle corporate finance group he focused on merger, acquisitions, public and private financings. David led the evolution of the firms’ Healthy Living practice into the broader and more robust Health, Wellness and Lifestyle sector. David served as transactional advisor in many important industry deals, including:

– ZonePerfect Nutrition’s and EAS sale to Abbott Laboratories

– Metagenics joint venture with Alticor

– Martek Bioscience’s purchase of Amerifit Nutrition

– Garden of Life’s sale to Atrium Innovations

– SunPure’s sale to Kerry Group PLC

– Pure World’s sale to Naturex SA

– Imagine Foods sale to Hain Celestial Group


Rick Sterling

� Rick Sterling is the founding partner of the Sterling-Rice Group. For over 35 years, Rick has been working in the area of brand strategy and innovation. It was his very diverse marketing experience with sophisticated, consumer packaged goods firms, coupled with his entrepreneurial experience that shaped the beginnings of Sterling-Rice Group. Before founding Sterling-Rice Group, Rick worked at Stop & Shop, Quaker Oats, and Celestial Seasonings in marketing leadership roles

� Rick and Michael Rice founded the Sterling-Rice Group in 1984, in Boulder, Colorado with the premise that both large and small firms would be interested in the pair’s experience in both sophisticated and entrepreneurial marketing environments. Twenty-seven years later—with 140 professionals—Sterling-Rice Group has become one of the country’s leading integrated brand development firms recognized for the fusion of strategy and creativity. Clients include Kraft, Walmart, ConAgra, Pepsi, Frito-Lay, General Mills, Horizon Organic Dairy, Kashi, and Rudi’s Organic Bakery


Peter Vitulli

� Peter Vitulli is CEO of DNA Diagnostics Center, one of the world’s leading DNA-testing companies

� He has over 34 years experience within the consumer products and nutrition industries in both a large corporation and entrepreneurial companies

� Peter spent the first 16 years of his career at the Quaker Oats Company, most recently as president of the North American Gatorade Business, one of the premier functional food products in the world

� He served as president and CEO of Everfresh Beverages, a private equity-backed juice drink company and later as president and CEO of Amerifit Nutrition, Inc., a nutritional supplement company focused on women’s health

� Peter was also president and CEO of Sciona, Inc., a pioneering personal genetics company that provided customized health and wellness solutions and chaired the Board of Efficas, an omega-3–based medical food company


John Grubb

� John Grubb is managing partner at Sterling-Rice Group

� John’s passion for strategy runs throughout his 30 years of business experience—half of which has been as a consultant and half in senior executive marketing roles. He began his career with Bain & Company, and has run marketing organizations in retail, manufacturing, and food companies. His business development efforts include significant joint venture, licensing, and acquisition work

� At SRG, John runs the research and strategy practice area for clientele that includes a full range of global blue-chip companies, as well as more entrepreneurial businesses and private equity-backed brands. He has deep experience in ingredients, medical foods, functional foods and beverages, and natural and organic brands. He is a frequent speaker at forums, including the Grocery Manufacturers’ Association, Natural Products Expo, Nutracon, NBJ Summit, and others

� John serves on the Advisory Board of the Yale Center for Customer Insights


Presentation Overview

1. Nutrition Industry Market Context

2. Product and Brand Positioning

3. Channel Strategy

4. In-Market Voice

5. Q&A


Health and Wellness Market Overview Nutritional Products

� Long-term perspective on the evolution of the nutritional products marketplace—past 25 years

� Maturation of the health and wellness sector– Consistent track record of growth

– Innovation comes from small companies

– Experienced sector entrepreneurs are doing it again

– Market rewards innovation and strong brands with attractive exit multiples

� Significant sector growth ahead– Penetration of heath and wellness very low

– Sector is the answer to out-of-control healthcare costs

– Private equity has become the de facto public market for growing companies in the sector

– CPGs are looking for long-term engines of growth

• More recently CPGs have been looking at smaller ventures for acquisition, brand, science, and technology play a key role in CPG interest level

� The role of a strong brand in enterprise valuation


Friends & Family

Company Growth Curve

Time

Valuation

Angel/Venture Private Equity Public Markets

- Private Placement – Series A- Patient Debt- Merger and Acquisition

- Private Placement – Series B …………- Debt - Merger and Acquisition - IPO

- Debt- Merger and Acquisition- Follow-on Offerings- Shelf Takedowns- Take Private Trx.

-Seed capital

Brand Strength Drives Financing Options and Valuation

Strong Brands Drive Value


Public Markets Activity

� Public markets have been rewarding growth and size– Successful IPOs of both Vitamin Shoppe and GNC have clearly and meaningfully

increased investor interest

– Public market M&A activity highlighted by the Martek acquisition

• DSM telling its nutrition story more since Martek acquisition

– Valuation is strongly correlated with market capitalization in the supplement sector. Bigger is better from the investor’s standpoint


Larger Cap Investors Are Thirsty for the Sector’s Growth

� Valuation is strongly correlated with market capitalization in the supplement sector

– The five largest market cap stocks in the Healthy Living Index are up 66% vs. the total index performance of 12% this year

– The 10 largest market cap stocks in the Healthy Living Index are up 49% vs. the total index performance of 12% this year

– On a multiple of EBITDA, there is a roughly 20% premium being paid for the midcap vs. small-cap stocks

• This data is not adjusted for growth. As opposed to almost all of our experiences in the past, growth rates are not inversely correlated with size at present, which we believe illustrates a lack of quality small-cap growth stocks in the sector

– Investors are paying for the perception of quality that comes with size

Source: Canaccord Genuity.


Robust M&A Activity

� Mega deals are back, with ingredients taking center stage

– NBTY taken private by Carlyle for $3.8 billion in July 2010

– Royal DSM announced acquisition of Martek for $1.0 billion in December 2010.

– BASF acquired Cognis for $4.2 billion in February 2011

– DuPont announced acquisition of Danisco for $6.1 billion in January 2011

� Sports nutrition is in

– Glanbia purchased BSN in January 2011

– Star Avenue Capital announced investment in Maximum Human Performance in December 2010

– TA Associates announced investment in Dymatize in January 2011

– GlaxoSmithKline announced acquisition of Maxinutrition from Darwin Private Equity in December 2010

� New players from other industries looking to enter the supplement business

– Pharma

– Ingredients

– Big food

Since early 2010, the supplement industry has experienced an

unprecedented wave of both strategic and financial transactions.

Source: CapitalIQ, Pitchbook.


M&A Valuations Attractive


Case Study:Amerifit Nutrition

1998

Medical Foods and Amerifit merge to create Amerifit Nutrition

Funded by Bio-tech Venture Capital

Valuation±$10M

2005

Amerifit Nutrition sold to private equity

Charterhouse Capital, New York

Valuation±$100M

Amerifit Nutrition sold to strategic acquirer

Martek BioSciences

Valuation±$200M

2010

Martek sold to DSM

DSM

Valuation±$1.1B

2011

Event

Investor

Value


Nutritional Supplement ActivityAnother Cycle Occurring

� After three years of strong growth in all channels, the last 18 months have seen much higher profile corporate activity in supplements

– Successful IPOs of both Vitamin Shoppe and GNC, along with a healthy premium paid for NBTY Inc., have clearly and meaningfully increased investor interest

– The private equity opportunity for roll-ups in the sector has increased, as has the rewards of broadening sector scope by public companies

• DSM telling its nutrition story more following Martek acquisition

– There will be demand for the next wave of IPOs

– Valuation is strongly correlated with market capitalization in the supplement sector. Bigger is better from the investor’s standpoint



Branded Products Companies with Scale are Driving Valuations Upward






3. Channel Strategy

4. In-Market Voice

5. Q&A


Building Brands Requires Preparation and Practice

PracticeConsumer Immersion

Brand Equity Leverage

Distinct Brand Positioning

Lighthouse Identity

Creating Life’s Moments

PreparationPlan to Win

Product Integrity

Profit from Good Work

Focus on Fundamentals

People Matter

Brands

Full of

Life


Plan to Win

� Situation Analysis

– External Factors

• Competition

• Regulatory

• Trade

• Economic

• Cultural Shifts

– Internal Factors

• Trends

• SKU Analysis

• Competencies

• Supply Chain

• Positioning

– SWOT Analysis

– Keys to Success

� Strategy

– Vision

– Objectives and Strategies

• Financial

• Product

• Distribution/Channels

• Key Accounts

• Awareness

• Trail

• Repeat

• Pricing

• Innovation

– Resource Requirements

– Financial and Activity Summary

The plan should express your vision, commitment, and advantages.


Values

� What truly matters to you?

� What do you believe in?

� What will you expect of your people?

Set a foundation built on values and culture.Our future is strongly influenced by the quality of our work. Customers will only return to SRG if they feel our work has been done in an excellent fashion with reasonable value. Excellence is defined as work that exceeds a client’s objectives, provides creative solutions to their business problems, and leads to new business for the client.

The quality of our work will by strongly governed by the imagination and innovation we apply to client problems. To succeed, we must commit ourselves to creative excellence. That includes doing the homework that positions us to provide strategically correct creative, devoting the time and effort to develop exceptionally creative products, refusing to accept only adequate ideas out of expediency, and tapping a broad range of resources with demonstrated creative talents. We will study the art and science of creativity and train ourselves in the techniques that expand these skills.

SRG will flourish in proportion to its professional expertise. As an organization committed to excellence, it is essential that we are at the forefront of knowledge and methodology that directly relates to our business. There is an obligation toward aggressive, ongoing education of all members of SRG.

SRG will operate on only the highest levels of ethics. We will do what we say and say what we mean. No legal or ethical improprieties will be tolerated among SRG employees, suppliers, or clients.

All personal interaction among employees, suppliers, and customers will be of the highest order. SRG employees will respect and treat fairly all individuals and will insist upon similar treatment for themselves.

SRG desires to be an active contributor to life. We will use our successes to help those less fortunate by contributing a significant portion of our income to charitable organizations.

SRG will maintain a healthy, balanced outlook on life. We will work hard and do excellent work. But we will also work hard at maintaining a sense of humor and a lifestyle that allows success and happiness outside of work.

Every employee has a responsibility to help make SRG successful …financially, socially, and organizationally. Each employee should always look for opportunities to improve the quality of our work and the condition of our work environment. To feel and act any less responsibly will certainly fail our clients – and ourselves.



� Invest in productivity enhancements—information systems, process improvements, supply chain

� Spend margin back to build brand

Gross margin, gross margin, gross margin.



� Push to maximize targeted ACV

� Shelve where people shop

� Manage for optimal share of shelf

� Right items in the mix

� Manage relative pricing

� Walk-by awareness

The fundamentals of sales execution always have a big impact.


Creating Brands Full of Life Requires Preparation and Practice

PracticeConsumer Immersion

Brand Equity Leverage


Lighthouse Identity

Creating Life’s Moments

PreparationPlan to Win

Product Integrity



Right People

Brands

Full of

Life


Consumer Immersion

Deep insights into target consumer should ground

all brand building and strategy.

Sources: � Secondary

� Syndicated

� Observation

� Interviews

– Qualitative

– Quantitative


Consumer Immersion

Understanding the underlying human values and emotional

needs help define unique spaces for a brand.


Consumer Immersion

Strong and memorable brands discover and own an emotional benefit.

© 1995 Sterling-Rice Group

Passion

Commitment

Proactive

Narrowed

Brand Set

Price Inelastic

Measured

Arms’ Length

Reactive

Multiple Brand Set

Price Elastic



Target audience: Your passionate core users

Frame of reference: What you compare to/substitute for

Differentiating benefit: The distinctive, emotive benefit to your brand

Reason to believe: The reason to believe the differentiated benefit

Positioning is a process of distinctively owning a benefit space.



“Baked on the Bright Side” “It’s Not Delivery...”


Lighthouse Identity

� Create an intensity of preference

� Break from all forms of convention

� Be an inspired thought leader

Building a “lighthouse” identity is particularly

key for a challenger brand.


Life’s Moments

Building interactions between brand and users builds lasting bonds.

Cascadian Farm

First-ever in-game integration into FarmVille

� 16 million users planted over 700 million CF crops in a single week

� Sales up 25% during the promotion and up double digits in following weeks

� Brand awareness up 20%





3. Channel Strategy

4. In-Market Voice

5. Q&A


Nutritional Products, in Particular, Can be Relevant to a Wide Range of Channel Options

� Food, drug, and mass offers a huge number of potential points of distribution, but with a variety of incumbent challenges:

– Market entry costs often include some version of slotting fees, not always true but can be a meaningful consideration

– The route to market may include specialty distribution and/or brokerage fees. Each participant in the supply chain takes a share of the sales dollar—and can make it very difficult to hit target manufacturer margins while maintaining an attractive on-shelf price point

– If paying substantial market entry costs into this channel, must be prepared to support the distribution with consumer and trade promotion

– It is not atypical to see emerging companies develop very opportunistic distribution. We would often advise discipline in deciding which markets to enter. Limited ACV in the large number of geographic markets can be a very difficult proposition to successfully market against


Sales by Channel Highly Variable by Product Type

Source: Nutrition Business Journal.


Supplement Sales by Channel Look Very Different than Nutritional Food and Beverage



Nutritional Products, in Particular, Can be Relevant to a Wide Range of Channel Options

� The natural channel has been very friendly to the nutritional product offerings:

– The natural channel can often be entered without slotting fees or equivalent, subject to the ingredient panel conforming to natural channel standards

� Direct-to-consumer is an increasingly important option—especially for higher-priced specialty products

– Without retail partners, it can be easier to manage at target price point while maintaining margins

– Direct-to-consumer offers a unique engagement opportunity with your consumer

– Be mindful of the regulatory requirements and risks associated with any claims language

� Multilevel marketing is a major force in this segment

– This form of selling often facilitates a much deeper conversation with the consumer about what can be a very complex sale

� The practitioner channel is also a very important channel for some specialty nutrition products

– Practitioners act as expert endorsers

– It can be a very big investment to develop this sales channel—and remember, the practitioners take their cut of the product sales price


Nutrition Industry Value Chain: 2010

2010 $M Consumer Retail Direct Mfgr Wholesale Supply

Vitamins 9,576 6,390 3,186 5,896 1,108

Herbs/botanicals 5,046 2,577 2,469 2,928 460

Sports nutrition 3,218 2,132 1,086 1,828 364

Minerals 2,244 1,669 575 1,384 253

Meal supplements 2,754 1,733 1,020 1,848 257

Specialty supplements 5,219 4,000 1,219 3,060 796

Supplements 28,057 18,501 9,556 16,945 3,237

Natural/organic food 39,021 36,225 2,796 22,001 5,016

Functional food 39,075 38,513 561 26,742 1,070

NPC 10,955 7,931 3,024 5,874 882

Total Nutrition Ind. 117,108 101,171 15,937 71,561 10,205



Lessons Learned

� Gatorade’s early quest to drive point of thirst distribution

– Coke/Pepsi owned the up-and-down-the-street locations

– Essentials—strong brand, functional packaging, investment, experience

� Expanding Amerifit’s retail distribution methodically to over 60K locations

– Prioritization of accounts critical

– You cannot have it all

– Ensure systems are in place (Walmart)

– Patience (Costco)

� Challenges of marketing to Practitioners with innovative personal genetics product

– Solid science only the starting point

– Solid economics for practitioners important

– Work diligently prior to testing, how product effectively fits into their protocols

� Never ever take the regulatory environment for granted





3. Channel Strategy

4. In-Market Voice

5. Q&A


Cost-Effectively Developing Meaningful Market Reach Can be a Huge Challenge—Particularly for Early-Stage Companies

� Companies with larger scale often have tremendous marketing advantages and pricing power, particularly with more traditional media

� But the power of an authentic brand voice must not be underestimated; in many cases entrepreneurial companies outwit their larger competitors

� Consumers are hungry for authentic brands, are often cynical about advertising and skeptical about large companies

� Emerging companies often have a great advantage in the intimacy of the conversation they have with their core users and the authenticity of their stories

– Many large CPG marketers have yet to adapt to the realities of the digital marketplace

– Vital to be transparent with consumers and authentic with message

– A world where most brands cannot effectively send a one-way message on mass media


Share of Voice

Paid EarnedOwned

Strangers Customers Fans

Paid: TV, radio, print, outdoor, digital banners, adwords, SEM

Owned: website, content, packaging, stores

Earned: PR, links, endorsements, testimonials, peer-to-peer


Where to Best Place Marketing Sales Support Bets

� Highly dependent on knowing your target customer and your channel strategy– Intimately know your target consumer and her habits and do not

ask for behavior change

• Humans are creatures of habit—a bit lazy

• Very social beings; provide social cues and rewards

– Go where you know they already are

• Event sponsorship

• Class of trade (e.g., natural channel)

• Online, social media


Where to Best Place Marketing Sales Support Bets

� Highly dependent on knowing your target customer and your channel strategy– Carefully plan channel and distribution strategies—distribution at

retail can cut both ways

• Holy Grail for sales team to gain points of distribution

• Can also be a disaster for marketing team

– Craft your approach for success in targeted—even if very concentrated—specific markets

• Experiment to identify the tactics that can prove your concept before going with big bets


A Winning Media Mix Recipe Is Not Formulaic

� Solve for demonstrable and measurable ROI

� Place many small bets to quickly test tactics

� Some advertising and promotion tactics are inherently difficult to measure– Generalized print, broadcast, or outdoor campaigns

– FSIs (not redemption, but incrementality)

– Other general brand awareness-building efforts

� Do not emulate big companies with bad habits– Some categories have unhealthy competitive intensity

• Frozen meals, ice cream, vitamins all >50% of sales on-deal

– Do not follow → disrupt!


Emedia Elaborate Ecosystem

Source: JESS3 and Brian Solis.

� Rich earned and owned media opportunities with authentic brands

– Content generation, SEO, blogging

– Remember that “likes” don’t pay the rent

� Many technology channel choices:

– Email, Facebook, Twitter, blogosphere, QR codes, banners, keywords, YouTube, others

– Focus on the already motivated consumer

– Intersect with the consumer where she is already going

– Disaggregate activation steps and make call-to-action very visible and easy





3. Channel Strategy

4. In-Market Voice

5. Q&A


Q&A

At this point, Nutrition Capital Network principals will kick off Q&A followed by the conference call moderator to give instructions to the audience for Q&A.


NCN 2011 Calendar

NCN Seminar at Expo East: Baltimore� September 21–24, 2011

NCN at Supply Side West: Las Vegas� October 11, 2011: 8–10 companies

� http://www.nutritioncapital.com/NCN_at_SupplySide_October_2010

NCN IX Fall Meeting: Los Angeles� November 14–15, 2011: 20–22 companies

� http://www.nutritioncapital.com/NCN_IX_Fall_2011

NCN X Spring East Coast Meeting� May 2012: 20–22 companies

THANKS FOR JOINING US

We Look Forward to Seeing You at

Supplyside West and NCN IX!

Building Brand Value

Business

Transcript of Building Brand Value