Weekly News Update

November 15, 2001

NNFA and NSF Form Supplements Certification Joint Venture

The Newport Beach, Calif.-based National Nutritional Foods Association (NNFA) has allied with NSF International (NSF) in Ann Arbor, Mich., to provide a comprehensive certification program for the dietary supplement industry. NSF will use NNFA's Good Manufacturing Practices (GMP) materials as part of its dietary supplements program, recognizing NNFA's GMP audits as meeting the requirements for the NSF Dietary Supplement Certification Program.

The program requires manufacturers to meet a rigid product standards policy. Upon certification, manufacturers are permitted to use the NNFA's GMP seal on their product labels. NNFA and NSF hope that this effort will set clear standards for manufacturers and offer enhanced credibility of supplementation products for manufacturers and consumers.

DSHEA Update: More Funding Requested by Harkin, Hatch

Additional language in the Senate's version of the 2002 Farm Bill, sponsored by Sens. Tom Harkin, D-Iowa, and Orrin Hatch, R-Utah, would authorize $3 million to upgrade and modernize the adverse-event reporting system for dietary supplements. That amount is in addition to an amendment granting $1 million for FDA's Center for Food Safety and Applied Nutrition (CFSAN) to fund enforcement actions against dietary supplements that bear false or misleading labeling.

The industry's two biggest champions on Capitol Hill have also successfully amended a second piece of legislation, HR 3061, the Labor-Health and Human Services (HHS) bill, to provide $500,000 to cover legal activities associated with enforcing the product labeling provisions of DSHEA. HR 3061 also addresses the importance of the quality and scientific study of supplements and suggests that Good Manufacturing Practices be published within 15 days of the bill's enactment. It also provides $110 million to the National Center for Complementary and Alternative Medicine at the National Institutes of Health (NIH), some of which would be used to develop the science of supplements.

The bill could potentially result in the designation of $20 million to the Office of Dietary Supplements at NIH, according to the five trade associations representing the majority of U.S. dietary supplement makers, who joined together on Nov. 5 to issue a press release in support of Harkin's and Hatch's efforts. The industry coalition, comprised of the American Herbal Products Association, Consumer Healthcare Products Association, Council for Responsible Nutrition, National Nutritional Foods Association and the Utah Natural Products Alliance applauded the senators for recognizing that only adequate funding of key agencies will make vigorous enforcement and full implementation of existing law happen.

Both appropriations bills are being debated in joint Congressional conferences before final versions of the regulations are released to the president for his signature. At press time, there was no indication whether the amendments will survive the reconciliation process.

Whole Foods Reports $11 Million in Net Income for 4Q01

Whole Foods Market Inc. (WFMI) reported 4Q01 net sales of $576.6 million, a 21 percent increase over 4Q00's sales of $438.3 million. Net income was $11 million or $.20/share vs. a net loss of $42 million or $.81/share in the same quarter last year. Store comps came in at an average of 10.2 percent-above management's guidance range--with new stores (between one and two years of age) showing a 25 percent comparable sales increase.

In anticipation of the report, Adams, Harkness & Hill analyst Scott Van Winkle upped his WFMI target price to $39 based on a 25 P/E on fiscal 2003 estimate earnings and reiterated the firm's Buy rating.

In a conference call on Nov. 14, WFMI CEO John Mackey addressed the effects of the slowing economy on WFMI, saying that, ""While it is too soon to give a definitive answer, we believe that because of our strong and differentiated brand, we are proving to be somewhat insulated from an economic slowdown. We have a very loyal core customer base with approximately 20 percent of our customers accounting for 75 percent of our sales. … We believe that the impact from crossover shoppers who might be trading down during a soft economy is being somewhat mitigated by consumers who are switching from eating out to eating at home.""

WFMI recently completed the acquisition of three Harry's Farmer's Market stores and has opened two new stores so far in 1Q02. The company plans to open three to five new stores in each of the remaining quarters of FY02. Additionally, the company has increased its marketing budget by $4.5 million for the upcoming year and expects diluted earnings per share for FY02 to fall between $1.30 and $1.36.

In other news, Natural Business has learned that after a several-year hiatus, WFMI has rejoined the Natural Nutritional Foods Association (NNFA) as a retail member. ""It's great to have the Whole Foods folks back in the association again. It shows not only their support for the industry through their membership, but also indicates they share the goals and mission of NNFA. In addition, it underscores the fact that NNFA has something to offer all natural products retailers, whether large or small,"" notes NNFA President Mark Stowe.

Postal Service Irradiation of Mail May Impact Organic Foods

In response to the recent outbreak of anthrax, the federal government has purchased eight ""e-beam"" irradiation devices for U.S. Postal Service to use to ""zap"" the mail. According to a story on the email news service AlterNet, this type of irradiation could cause unanticipated environmental and health hazards, including the irradiation of foods and the decertification of organic foods. Additionally, the report says it is unlikely that seeds would be able to germinate after such irradiation. Although the e-beams used to irradiate the packages supposedly only penetrate 1.5 inches through a package, allegedly not enough to kill or sterilize contents packaged deeper, there is no guarantee that they won't, according to the AlterNet report.

Did Numico Pay Too Much for Rexall Sundown?

On the heels of a disappointing 3Q report and a dropping stock price, Dutch food conglomerate Numico NV says it may have overpaid two years ago for its U.S. subsidiary, Boca Raton-based Rexall Sundown, which underperformed during the quarter. The company is reviewing a goodwill write-down for Rexall, which according to The Wall Street Journal Europe, could amount to an estimated $443 million. The company also announced that it has appointed Peter van Wel as its new CEO, effective January 2002.

USA Today Reports on Ephedrine Controversy

An article in USA Today once again has placed the ongoing controversy surrounding ephedrine in the mainstream media. Last week's article, which appeared on the front page of the paper's sports section, focuses on the safety of the substance. In recent months, arguments regarding the safety of ephedrine have been fueled by several high-profile deaths in the sports world as well as the National Football League's banning the use and endorsement by its players of products containing ephedrine. The article discusses cases of young athletes using ephedrine and experiencing side effects, but notes evidence linking adverse health effects to the substance is inconclusive. It also presents the industry's position on the issue and discusses the importance of consumer education. According to San Diego-based Nutrition Business Journal, ephedrine sales reached $1.05 billion in 2000, up from $800 million in 1999.

In addition, the article mentions that the Washington-based Council for Responsible Nutrition will hold a conference in conjunction with the National Institutes of Health on Jan. 8-9, 2002, titled ""Science and Policy of Performance-Enhancing Products,"" which will target physicians, coaches and trainers.

News from Food Ingredients Europe Trade Show

The recently completed Food Ingredients Europe tradeshow in London provided the opportunity for U.S. ingredients group National Starch to launch two new potato-based starches, Novation 6600 and National 10270-4. Both starches are designed to enhance meat products and soya and vegeburgers. Also, Archer Daniels Midland debuted a cold-water dispersible natural-source vitamin E that is a form of d-alpha tocopheryl acetate, which the company says has little or no odor or taste. It is a concentrated source of vitamin E and is suitable for multivitamin supplements.

Stocks & Financial News:

Lifeway Foods Inc. (LWAY) has announced record 3Q01 revenues of $2.66 million vs. $2.28 million in 3Q00, an increase of 17 percent. Net income was $239,850 or $.06/share vs. $276,144 or $.06/share last year.

The founder and chairman of Subway, Fred Deluca, has purchased additional shares in Galaxy Nutritional Foods (GLXY). Deluca now owns 571,429 or 5.8 percent of the outstanding GLXY shares.

Whitewing Labs Inc. (WWLI) announced 3Q01 net sales of $148,658, down from $187,375 in 3Q00. Net loss was $139,063 or $.02/share vs. a loss of $90,858 or $.03/share in 3Q00.

Carrington Laboratories Inc. (CARR) reported a 3Q01 net income of $77,000 or $.01/share vs. a loss of $1.2 million or $.13/share in 3Q00. Net sales were $4.4 million vs. $5.0 million a year ago. The company attributes the decline to a marketing agreement with a key distributor.

Twinlab Corp. (TWLB) has announced 3Q01 net sales of $54.0 million vs. $67.5 million in 3Q00, excluding the operations of Changes International, which has been accounted for as discontinued. Net loss was $1.8 million or $.06/share vs. a loss of $12.3 million or $.43/share on 3Q00.

Lucille Farms Inc. (LUCY) reported net sales of $13 million for 2Q02, up from $11 million a year ago. Net income was $145,000 or $.05/share vs. a loss of $222,000 or $.08/share in 2Q01.

Reliv International Inc. (RELV) reported a net income of $406,907 or $.04/share for 3Q01, almost doubling 3Q00's income of $234,752 or $.02/share. Net sales totaled $13.4 million, down from $17.3 million in 3Q00.

Omega Protein Corp. (OME) announced a $2.44 million or $.10/share net income for 3Q01 vs. a loss of $10.2 million or $.43/share in 3Q00. Revenue totaled $36.8 million, an increase of more than 50 percent on 3Q00's revenues of $17.9 million.

Spectrum Organic Products (SPOP) announced 3Q01 net income of $195,900 vs. a 3Q00 net loss of $636,300. The company attributes the turnaround to improved gross margins, sharply reduced interest expenses, reduced operating expenses and a non-recurring loss on the shutdown of an under-utilized manufacturing facility recorded earlier this year.

Chai-Na-Ta-Corp. (CCCFF) reported revenues of $4.4 million for 3Q01 vs. $573,000 in 3Q00. Net loss was $217,000 or $.02/share vs. a loss of $13,000 of $.00/share last year.

Integrated Health Technologies Inc. (IHTC.OB) announced a 109 percent increase in revenue for 1Q02 of $5 million vs. $2.4 million in 1Q01. Net income was $822,000 or $.13/share vs. a loss of $327,000 or $.06/share a year ago.

Briefs:

United Natural Foods Inc. (UNFI) announced it has hired Eric Zitelli, former president of California-based nSpired Natural Foods, as the new president of UNFI's wholly-owned subsidiary, Hershey Import Co. in Rahway, N.J. Hershey imports, processes, packages and markets nuts, dried fruits, seeds, trail mixes, and natural and organic products.

Nature's Best in Brea, Calif., announced it has completed a 60,000 sq.-ft. expansion of its distribution center complex, bringing total area to over 300,000 sq. ft. Additionally, the company recently completed a new 18,000 sq.-ft refrigerated storage facility.

Corte Madera, Calif.-based ScienceBased Health has announced the introduction of its newly reformulated dietary supplement, MaculaRx Plus, which is designed to help promote macular health.

Zila Inc. (ZILA) has invested an additional $3 million to speed up Phase III clinical trials for its OraTest product. The funds come from proceeds of the recent sale of Zila's dental supply division.

Wild Oats Markets Inc. (OATS) has announced plans to launch a campaign to encourage more governmental restrictions on the use of antibiotics in animals.

Starbucks Corp. (SBUX) is now offering to pay coffee suppliers up to 10 cents more per pound of coffee if they commit to protecting the environment and agree to abide by local minimum wage and worker safety laws.

PowerBar Inc. has signed a three-year contract with Tour de France winner Lance Armstrong, thereby acquiring the right to use his name, likeness, signature, voice and image for PowerBar advertisements and products.

General Nutrition Centers, based in Pittsburgh, announced it would open approximately 300 GNC Smoothie Bars in 2002 as branded elements of the company-owned franchise stores. The shops will offer healthy frozen fruit drinks combined with supplements in a variety of categories, including Sports Nutrition, Energy, On the Lighter Side, and Lifestyle.

Horizon Organic (HCOW) has launched its holiday packaging, organic brand of eggnog, and Bake-it-Organic promotion. Teaming with companies such as Boulder, Colo.-based Frontier Organic Spices and Florida Crystals Organic Sugar of West Palm Beach, Fla., HCOW is promoting the exclusive use of organic ingredients in holiday favorites, and is also offering coupons for organic products and organic recipes at various supermarkets and health-food stores.

After 27 years, the Boston-based New Age Journal has changed its name to Body & Soul. The company will re-launch the magazine under its new name beginning with the March/April 2002 issue and will publish as a bi-monthly with two annual special issues.

Research Briefs:

A study conducted by researchers at Tuffs University concluded that kids who have oatmeal for breakfast perform 5 to 12 percent better in school then those who have cold cereal or no breakfast at all.

Following a five-month study conducted with 18 women, researchers at the Breast Centre at Sir Charles Cairdner Hospital in Australia have concluded that the dietary supplement red clover isoflavone can be useful in treating breast pain associated with the menstrual cycle. David Ingram, director of the Centre, said, ""We suspected that the phytoestrogens in red clover would offset the breast pain observed during menstrual cycle hormone fluctuations. We found women who received the red clover extract to report a significant reduction in their pain."" The study was designed and supported by Novogen Ltd. (NVGN).

According to a report by Chicago-based Mintel Consumer Intelligence, ""The U.S. Diet Aids Report,"" teenagers in the U.S. make up a significant segment of the market for diet aids. Approximately 14 percent of teen dieters use meal replacements, and 6 percent use diet pills. The report found that fewer than one in 10 U.S. teenagers are on a diet to lose weight. Dieting is most common among teenagers aged 16 and 17, but almost 5 percent of America's 12-year-olds say that they are on a diet. According to Mintel, teenage girls are more than four times as likely as teenage boys to be dieting. Total revenues from the Diet Aids market increased 159 percent between 1996 and 2001, with sales growing from $753 million to $1.95 billion. Overall sales of weight-loss products and services, which include prescription weight-loss drugs, diet soft drinks and health clubs, was $34.5 billion in 2000. For more information, visit www.ci.mintel.com.

In a separate Mintel report, ""The U.S. Functional Food Market Report,"" 75 percent of Americans said they would consider eating functional foods to combating certain health conditions, such as osteoporosis or cholesterol. According to Mintel, the functional foods market grew 14 percent in 2001 to $1.36 billion, with the bakery segment reaching $728 million, and bars, candy and snacks reaching $105.6 million. For more information visit www.ci.mintel.com.

According to U.K.-based market research firm Organic Monitor, the global market for organic foods is expected to expand by 23 percent in 2001, reaching approximately $26 billion, with global sales reaching $80 billion by 2008. The company notes that the highest market growth has been seen in Europe, where market revenues are expected to expand to $12 billion because of high growth in Germany, Italy, France and Britain. The U.S. market represents the majority of the $9.7 billion revenues in North America. Japan is the third-largest market, with additional high growth in other Asian markets such as Singapore, Hong Kong, and Taiwan, according to the report.

A report published by the Washington-based Food Marketing Institute, titled ""Organic Shoppers May Not Be Who You Think They Are,"" notes that organic consumers comprise about one-third of all shoppers and represent nearly half of all grocery shoppers in stores that carry organic products. The report noted that organic shoppers rank high-quality fruits and vegetables as the No. 1 factor in choosing a store to shop at; they earn high annual incomes (35 percent earn more than $50,000/year); and they are usually highly educated. Sixty-nine percent of those surveyed noted they shop where natural or organic foods are offered. According to Janice Jones, director of research at FMI, ""The Pacific Coast, the Northeast and college towns remain the most fertile markets for sales of organic products, but other regions of the country are experiencing the fastest rate of growth."" For more information, contact: 202.452.8444 or visit www.fmi.org.

International Briefs:

The European Commission has asked the Scientific Committee on Food (SCF) to review its opinion on creatine supplementation. In September of 2000, SCF adopted an opinion, which stated that it had found little information on the short-term or long-term safety of the supplement when taken in high doses. SCF now will now review the adverse effects of dosages lower than 2 grams/day.

U.K.-based The Organic Spirits Co. has announced the launch of the world's first organic rum, Papagayo, a 37.5-proof single-estate white rum.