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Vitamin e-tailers slug it out
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January 31, 1999: 11:00 p.m. ET
MotherNature.com and competitors make for crowded health-food space
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SAN FRANCISCO (The Red Herring) - "We're really into saving the world and being all nutty-crunchy," says Michael Barach. "As long as it's making us heaps of money."
The CEO of online vitamin store MotherNature.com admits he may be taking a little too much ginseng, but says vitamins will create "the perfect e-commerce space."
MotherNature.com has just closed a $16 million second round of funding, bringing total funding to about $23 million in the past year. The round was led by Commonwealth Capital Ventures and includes 11 other venture capital firms, including Bessemer Venture Partners and BancBoston Ventures.
An overdose of vitamin retailers
Jupiter Communications e-commerce analyst Ken Cassar says the Internet vitamin and natural supplements space has arrived out of nowhere. MotherNature.com, along with its online competitors GreenTree Nutrition and Vitamin Shoppe, have all "appeared out of the mist" in the past three to six months.
GreenTree has raised more than $14 million from its investors, which include Softbank Technology Ventures, 21st Century Internet Partners, and the former CEO of Apple Computer (AAPL), John Sculley. It has used the funding to launch an aggressive acquisition strategy, buying small vitamin retailers Acumin in December and VitaSave this month.
Barach is not concerned about the competition. "Oh my God, we're killing GreenTree. We even thought of buying them a few months back, until we saw their books."
He claims GreenTree has a 0.2 percent conversion rate of visitors to spenders, compared to MotherNature.com's 0.48 percent, and that MotherNature.com has three times the number of orders per day.
"And I know that's true, because Don told me," he says, referring to GreenTree's cofounder and CEO.
A natural fit
Vitamin and mineral supplements are natural products to sell over the 'Net. They are light-weight for easy shipping, small enough to store in a distribution center, there is no "look-and-feel" quality that make some products better suited to brick-and-mortar stores, and they must be replenished, so customers return for repeat buys.
According to IDC analyst Juliana Nelson, the biggest advantage to buying vitamins on a Web site is a site's capability to offer in-depth information about a complex and confusing topic. "A site may sell 85 types of Vitamin E, but if it can provide also provide content about which one is best for me, that is a great advantage."
GreenTree's recent acquisition of Acumin allows just that type of service. Web surfers can go to the site, fill out a questionnaire on lifestyle and health issues, and then purchase a vitamin supplement manufactured just for them. But Barach says MotherNature.com offers the same service without shelling out $2 million in stock and cash to buy a company. "We used Acumin over the summer for $25,000, and we're replicating the entire thing for less than $100,000."
The main differentiator between the two startups is their distribution capabilities. MotherNature.com has set up its own in-house distribution center, while GreenTree has outsourced its distribution.
Cassar says ownership of a distribution center is more expensive in the short-term, but is a better business decision, giving the retailer more control over customer service. "It means you don't have to hand off each purchase and pray that some other guy is going to deliver it properly."
Where's the drugs?
While rivalry between the two startups is intense, Cassar says MotherNature.com and GreenTree should be more concerned about the offline brands coming on to the Internet, and existing online pharmacies such as Drugstore.com and PlanetRX that offer a broader range of products.
"I don't know if vitamins alone will take off without prescriptions as the Trojan horse," he says.
And he is not even convinced that the sites would make good acquisition targets for the better-known online drug-stores.
"These startups are really just a virtual shelf," Cassar says. "You have to wonder about their value. They don't even have a customer base."
Nelson is more positive. "I'm bullish on MotherNature.com. They have a lot of funding, a memorable name, and a lot of funding, which is key to capturing mindshare."
The startup is planning an aggressive offline advertising campaign, starting next month, to try to capture some of that mindshare. "We're going to be everywhere: newspapers, billboards, even television."
"I'm very excited about this, I think I might have to take some kava to come me down," Barach says.
"I take a lot of vitamins, you know," he adds. "I'm a very heavy user." We don't doubt it.
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