Hafts Bring Deep-Discounting Competition to Vitamins E-tailing
Published: Thursday, July 01, 1999
Nineteen ninety-nine, it now appears, has ushered in the era of deep discounting, especially online. Two of the pioneer players in the deep discounting of drugs and books, Herbert Haft and his son Robert Haft, have chosen this year to compete with each other in the online vitamins and supplements business with the senior Haft’s entry, HealthQuick.com, and the junior Haft’s Vitamins.com.
The decision by the two Hafts, who have been estranged since they clashed over the leadership of Crown Books, a deep-discount bookstore chain founded by Robert Haft, may well turn up the heat in this competitive sector.
But HealthQuick.com President and COO Howard Diener says there is room in the industry for both Haft companies because they appeal to different customers.
“We look at [Vitamins.com] as a boutique operation,” Diener says. “Its customer is more high-end and upscale. Vitamins.com offers the lowest price on the brands it carries, [but] it carries more health food store items. ”
Indeed, HealthQuick.com considers e-tailer Drugstore.com as one of its main competitors because both appeal to the same customers, Diener says.
Robert Haft also includes Drugstore.com among Vitamins.com’s competitors and mentions VitaminShoppe.com, MotherNature.com, eNutrition and HealthQuick.com as competition as well.
In April, three months before it was scheduled to go online, Herbert Haft’s HealthQuick.com, which claims never to be undersold, announced that it had signed a two-year, $10 million deal with America Online (AOL) to market its products on AOL networks. AOL also has taken a minority position in HealthQuick.com, according to Herbert Haft, who is the company’s CEO.
In June New Horizon’s Venture Capital, a Washington-based private-equity firm, invested $20 million in convertible preferred stock in the company. The investment represents a 30% stake in HealthQuick.com
“Our claim to fame is price,” HealthQuick.com’s Diener says. “We’re not going to be a heavily branded company. We’ll carry the best in quality and keep a lean inventory.”
Founded in February, HealthQuick.com was scheduled to launch July 1. The company plans to be profitable in FY00, and an IPO is not out of the question, Diener says. HealthQuick.com anticipated 10,000 hits on its site on opening day and expects vitamins and nutritionals to account for 80% of its overall sales, with the balance in OTC, skin care, and body and bath products.
HealthQuick.com contracts out production and has hired a mail-order fulfillment company to assemble and ship orders. The company carries national vitamin brands and private-label brands.
Robert Haft launched Vitamins.com, on June 2. In early 1999, Haft’s two-year-old Washington, DC-area, 10-store bricks-and-mortar retail chain, Vitamin Superstore, purchased the website Vitamins.com from Kent DeLong, M.D. DeLong now serves as the company’s medical director. Haft then changed his company’s name from Vitamin Superstore to Vitamins.com.
The Vitamins.com website says it offers a lowest-price-or-free guarantee and 15% to 52% discounts vs. national store prices every day. In what could be an indication of the sizzle in this competition, on June 14 Vitamins.com launched a $1 million vitamin giveaway to the first 40,000 people who visit the site.
Vitamins.com already has raised $20 million and planned to raise another $25 million in private capital by the end of June to market the company and ensure fulfillment from its warehouse in Falls Church, VA, says Robert Haft, who serves as Vitamins.com’s president and CEO.
Vitamins.com plans to be profitable in two to three years.
But Robert Haft thinks there will be a slower shift by consumers toward purchasing vitamins online than there has been with other products like books or computers, because vitamins are information intense and taken internally. Haft’s goal is to duplicate on the Vitamins.com site the personalized experience he says customers have in the company’s bricks-and-mortar stores. He thinks online customers are looking for personalization of their vitamin-buying habits and automatic reordering.
The looming question for the dietary supplements industry is what impact the Hafts’ discounting strategies will have on online vitamins and supplements sales.
If history offers examples, the story of Herbert Haft’s Dart Drug experience may be illuminating to other dietary supplements e-tailers. Back when Herbert Haft started the first Dart Drug store in 1954 in Washington, DC, and began selling products at an average 40% below suggested retail prices, the practice was considered illegal, according to a report from Hoover’s Online Service, and Dart’s competitors did not follow suit. Suppliers filed suit, however, and in 1960 the U.S. Supreme Court upheld retailers’ rights to set prices, thus opening the way for deep discounters to do business.
As a result, discounting is standard practice in the retail climate of the ’90s. And according to Yudi Bahl, an analyst in the Minneapolis office of U.S. Bancorp Piper Jaffray, the Hafts’ business savvy and discounting strategies will impact product sales. “It’s going to add to the competitive environment,” Bahl says.
However, Bahl also says that price alone does not drive the
sector. He sees two types of online customers: those who shop for price only and those who make buying decisions based on the quality of the online shopping experience. That quality measure includes content provided, site personalization and customer service. “Over time, a larger portion of Internet shoppers will shop on these issues,” Bahl says.