Health food isn’t an easy place to be, thanks to rampant inflation, stiffening competition and the coming VAT hike. But Peter Aldis, CEO of Britain’s biggest health food player Holland & Barrett, is up for the fight. Rob Brown reports.
It used to be all beans and lentils. But as the supermarkets branched into veggie food and vitamin supplements, health food retailers have been forced to change. Today Holland & Barrett the biggest of the bunch is doing a brisk business in sports supplements and organic toiletries. It's even doing a nice little line in, erm, "intimate massagers".
But back to business. Aldis is in a jubilant mood. He has just opened Holland & Barrett's 600th store, next to Moorgate Tube. And Aldis says the store shows just how much health food retailing has changed in recent years.
As well as the core lines in vitamins, the Moorgate shelves are chock-full with sports supplements and the company's own Dr Organic toiletries, a range that today accounts for about 6% of Holland & Barrett's total sales, but is expected to rise to 10% in coming years. There's even hot coffee and food to go, points out Aldis. "We've had to change to stay competitive."
That's a particularly tall order today. Not only is he up against the supermarkets and Boots' permanent three-for-two deals on supplements in particular inflation is taking a huge toll. Apricot and nut prices have doubled, whey protein has increased by 30% and sports supplement costs are up 10% in the past year. Some of these hikes, inevitably, have been passed on to customers. "It's not been this hard to retain growth since back in the 1990s," says Aldis. But he seems to be doing something right. Retail sales climbed 10.2% in 2009 to £282m, while profits hit £59.8m, up 14.7% on the previous year. By Christmas Aldis expects to have opened a further 20 Holland & Barrett stores. By 2014 he says he will have some 750 outlets.
It hasn't all been plain sailing, though. The omens were not good when the Lehman Brothers collapsed within days of Aldis signing the takeover of the Julian Graves chain back in September 2008. The subsequent turmoil and uncertainty caused significant difficulties, but that was just the start of the trouble.
A Competition Commission inquiry left Aldis unable to make any changes to the loss-making Julian Graves business for a year. The inquiry cost the business £4m in legal fees alone and took up a considerable amount of his management team's time and energy. It's still a sensitive issue.
"It was a nightmare," says Aldis. "Julian Graves' overall market share of dried fruit, nuts and seeds was 6% and ours was 7%, so we weren't anywhere near the 25% needed for us to have a dominant position. The OFT in its wisdom didn't include the supermarkets, so we had a dominant share of the specialist market. It took up a whole year and we have no comeback. I'm extremely pissed off."
When the green light was finally given, no time was lost in turning around Julian Graves. While Aldis admits the chain is still underperforming, there are positive signs. In 2009 the chain turned in sales of £64.6m and operating profit stood at £2.4m. Margins have been widened thanks to the integration of back office, packaging and distribution operations with Holland & Barrett's. A number of Julian Graves stores have been shuttered, 19 are now trading under the Holland & Barrett fascia and Aldis expects 100 stores to have been pared from the 350-strong estate by the time the restructuring is complete.
This year Holland & Barrett's parent company NBTY Europe Group forked out £7m on a new plant in Burton-on-Trent. As a manufacturer, Aldis is able to stay competitive, cutting out middlemen and giving the company greater agility in responding to rising costs.
He points to the decision to source raw materials for sports supplements from Europe (such products usually come from the States, attracting a high rate of duty) as a move that has helped "generate millions of pounds in extra margin".
The competition shows no sign of letting up. A key weapon in the war with the supermarkets and Boots is having a well-trained workforce, says Aldis. "We can explain to people what they should be taking, what they should be taking with it, how and when you don't get that in Asda or Sainsbury's," says Aldis.
Aldis also attacks Boots' permanent three-for-two strategy as "disingenuous to say the least", adding: "We're hearing through the grapevine they'd like to get away from that because it has tied their hands."
Instead Aldis opts for a more flexible approach with a host of ads showcasing promotions as aggressive as 'buy one get the next for a penny' already in the can.
"They're ready to be shown as and when we need them," he says. And come January he could need them badly. "The VAT increase won't help," says Aldis. "If you go to other European countries supplements aren't VAT-able. We're talking about people trying to look after their health and it's just making it more expensive for them. Talk to our million customers a week. We're not selling snake oil."
Indeed. The fact that, at 46, Aldis is expecting his fifth child shows that something he's taking seems to be working.
It used to be all beans and lentils. But as the supermarkets branched into veggie food and vitamin supplements, health food retailers have been forced to change. Today Holland & Barrett the biggest of the bunch is doing a brisk business in sports supplements and organic toiletries. It's even doing a nice little line in, erm, "intimate massagers".
Snapshot
Name: Peter Aldis
Age: 46
Lives: Leicestershire
Career: Peter's first job was as a trainee manager at Currys, and after a spell with Asda he joined Holland & Barrett in 1990 as area manager. He became commercial director in 1998, and rose to managing director in 2003. He took over as CEO in October 2008.
Hobbies: Peter plays golf and squash and supports Tottenham Hotspur and the Leicester Tigers. Other hobbies include travelling and DIY.
What keeps you awake at night? We have the same problem as everyone else raw material prices are going up. The food supplements directive is concerning, depending on how they set the maximum permitted levels. And what really doesn't help is VAT going up.
"Sexual health is definitely one of the categories that's growing the massagers are doing remarkably well online," says Holland & Barrett CEO Peter Aldis. The category includes massage oils, vegan condoms and even natural viagra. Natural viagra? He blushes slightly as I ask the inevitable question. "It does work and, yes, I've tried it. I am 46 after all." Name: Peter Aldis
Age: 46
Lives: Leicestershire
Career: Peter's first job was as a trainee manager at Currys, and after a spell with Asda he joined Holland & Barrett in 1990 as area manager. He became commercial director in 1998, and rose to managing director in 2003. He took over as CEO in October 2008.
Hobbies: Peter plays golf and squash and supports Tottenham Hotspur and the Leicester Tigers. Other hobbies include travelling and DIY.
What keeps you awake at night? We have the same problem as everyone else raw material prices are going up. The food supplements directive is concerning, depending on how they set the maximum permitted levels. And what really doesn't help is VAT going up.
But back to business. Aldis is in a jubilant mood. He has just opened Holland & Barrett's 600th store, next to Moorgate Tube. And Aldis says the store shows just how much health food retailing has changed in recent years.
As well as the core lines in vitamins, the Moorgate shelves are chock-full with sports supplements and the company's own Dr Organic toiletries, a range that today accounts for about 6% of Holland & Barrett's total sales, but is expected to rise to 10% in coming years. There's even hot coffee and food to go, points out Aldis. "We've had to change to stay competitive."
That's a particularly tall order today. Not only is he up against the supermarkets and Boots' permanent three-for-two deals on supplements in particular inflation is taking a huge toll. Apricot and nut prices have doubled, whey protein has increased by 30% and sports supplement costs are up 10% in the past year. Some of these hikes, inevitably, have been passed on to customers. "It's not been this hard to retain growth since back in the 1990s," says Aldis. But he seems to be doing something right. Retail sales climbed 10.2% in 2009 to £282m, while profits hit £59.8m, up 14.7% on the previous year. By Christmas Aldis expects to have opened a further 20 Holland & Barrett stores. By 2014 he says he will have some 750 outlets.
It hasn't all been plain sailing, though. The omens were not good when the Lehman Brothers collapsed within days of Aldis signing the takeover of the Julian Graves chain back in September 2008. The subsequent turmoil and uncertainty caused significant difficulties, but that was just the start of the trouble.
A Competition Commission inquiry left Aldis unable to make any changes to the loss-making Julian Graves business for a year. The inquiry cost the business £4m in legal fees alone and took up a considerable amount of his management team's time and energy. It's still a sensitive issue.
"It was a nightmare," says Aldis. "Julian Graves' overall market share of dried fruit, nuts and seeds was 6% and ours was 7%, so we weren't anywhere near the 25% needed for us to have a dominant position. The OFT in its wisdom didn't include the supermarkets, so we had a dominant share of the specialist market. It took up a whole year and we have no comeback. I'm extremely pissed off."
When the green light was finally given, no time was lost in turning around Julian Graves. While Aldis admits the chain is still underperforming, there are positive signs. In 2009 the chain turned in sales of £64.6m and operating profit stood at £2.4m. Margins have been widened thanks to the integration of back office, packaging and distribution operations with Holland & Barrett's. A number of Julian Graves stores have been shuttered, 19 are now trading under the Holland & Barrett fascia and Aldis expects 100 stores to have been pared from the 350-strong estate by the time the restructuring is complete.
This year Holland & Barrett's parent company NBTY Europe Group forked out £7m on a new plant in Burton-on-Trent. As a manufacturer, Aldis is able to stay competitive, cutting out middlemen and giving the company greater agility in responding to rising costs.
He points to the decision to source raw materials for sports supplements from Europe (such products usually come from the States, attracting a high rate of duty) as a move that has helped "generate millions of pounds in extra margin".
The competition shows no sign of letting up. A key weapon in the war with the supermarkets and Boots is having a well-trained workforce, says Aldis. "We can explain to people what they should be taking, what they should be taking with it, how and when you don't get that in Asda or Sainsbury's," says Aldis.
Aldis also attacks Boots' permanent three-for-two strategy as "disingenuous to say the least", adding: "We're hearing through the grapevine they'd like to get away from that because it has tied their hands."
Instead Aldis opts for a more flexible approach with a host of ads showcasing promotions as aggressive as 'buy one get the next for a penny' already in the can.
"They're ready to be shown as and when we need them," he says. And come January he could need them badly. "The VAT increase won't help," says Aldis. "If you go to other European countries supplements aren't VAT-able. We're talking about people trying to look after their health and it's just making it more expensive for them. Talk to our million customers a week. We're not selling snake oil."
Indeed. The fact that, at 46, Aldis is expecting his fifth child shows that something he's taking seems to be working.
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