Internet Vitamin Sites Prepare for Possible $1.5 Billion Market

ACTON, MA—Gearing up to mine an on-line marketplace variously estimated at between $400 million and $1.5 billion by 2002, vitamin and supplements retailer MotherNature.com announced in June it had secured $6.5 million in first-round venture-capital funding to upgrade its Internet site, expand its management team, and accomplish other related objectives.

Venture investors include Bessemer Venture Partners, CMG@Ventures, Morgenthaler Venture and Shad Run. Two have experience investing in on-line commerce companies. CMG@Ventures in particular has a stake in the Internet search engine Lycos and owns a third interest in Geocities.

MotherNature.com has been selling vitamins and supplements via its link-enriched website since 1995—with modest success, it says. By some estimates, in 1997 less than $1 million worth of dietary supplements in total were sold on the Net. MotherNature’s has had a storefront retail presence in Southhampton, PA, since 1962.

It is but one of many retailers and several manufacturers that believe the on-line market for vitamins and supplements is primed to grow enormously over the next five years.

“The market size is small in comparison with the overall vitamin and supplements market, which most people put at $10 billion to $12 billion,” says new MotherNature.com CEO Michael Barach. “Maybe 1% is sold on-line now. In five years maybe 10% will be. But that’s $1.5 billion in five years.”

Barach believes there is room for two strong on-line players in this marketplace. Currently, he sees MotherNature’s primary competition as the Vitamin Shoppe, a 30-store NJ-based retailer that began selling product over the Net in April at www.vitaminshoppe.com.

Another on-line vitamin seller on most competitor lists is Swansons, selling products at what it says are 50% discounts at swansonsvitamins.com.

Others, however, say there is room for more than one or two at the top.

Don Kendall, CEO of GreenTree Nutrition Inc., an on-line vitamin retailer planning to fully launch its site in September, says there is room for four or five.

“I don’t think there will be one dominant player, meaning one with more than 50% of the market,” he says. “But I do think there will be four or five, with the largest player having about 35%. And we think there is revenue potential of between $20 million and $30 million over the next 12 months.”

Kendall says that while there is nascent purchase demand for on-line dietary supplements of all kinds, there may be an even stronger information demand.

Another on-line vitamin and supplements store recently garnering funding in the several-million-dollar range is www.healthshop.com. According to VP Katherine Bergen, the site is information-heavy and will launch in 4Q98. Vitamins, herbs, homeopathy, supplements and some personal care items will be sold.

Boulder, CO-based natural foods retailer Wild Oats Markets (OATS), one of the big two so-called super-naturals will begin selling Wild Oats-brand vitamins and supplements, nonperishable food, body care products and clothing on-line sometime in 4Q98, according to Steve Taormina, OATS’ web developer. Perishable food items, such as organic produce and meat, may be included later. “We see it as allowing people who don’t have access to natural foods and supplements in their hometowns to get that access on-line,” Taormina says.

At the end of June, OATS signed a contract with e-business turnkey services provider Pandesic LLC, owned by Intel and SAP America, to do order fulfillment and inventory management of its on-line sales division.

Amrion, the vitamin and supplements manufacturing subsidiary of Austin, TX-based Whole Foods Market (WFMI), has been selling vitamins and supplements on-line for about two years at healthsmartvitamins.com. An Amrion spokesperson says the site is generating credible numbers per month and is paying for itself.

Other recent entries into on-line vitamin sales are VitaSave, which opened for business at www.vitasave.com in mid-March and is selling product at what it says are 30% to 50% discounts, and Redmond, WA-based Nutraceutics (NUTX), which is selling its BioPower supplement brand exclusively on-line at www.biopowr.com.