06.01.05
Since FDA issued proposed dietary supplement GMPs over two years ago, there has been much speculation as to when the dietary supplement industry can expect a final rule. With each prediction, more and more companies grow fearful that they will not be able to meet the new standards, particularly when it comes to cost. One company not shaking in its boots is Nutritional Laboratories International (NLI), Missoula, MT.
Since 1997, NLI's staff has grown from less than 10 employees to 120, and it has expanded its manufacturing space from 17,000 square feet to over 100,000 square feet. According to Dun & Bradstreet and Entrepreneur magazine, these factors alone earn NLI the right to be recognized as one of the fastest growing, privately held corporations in the U.S.
NLI was founded by a group of people who had previously worked for a company called Montana Naturals. From the very beginning, says Ned Becker, vice president, Sales, Marketing & Business Development, the company's business plan called for a change in the market. "We anticipated that tighter regulations would eventually hit the market, so we started formulating our business around that," he said. "We felt there was huge opportunity in premium manufacturing, so we set out to create more of a drug-like manufacturing process and system to cater to larger marketers who really understood what it took to produce a quality product. That really became our foundation and overall strategy as we moved forward."
It became clear that NLI's differentiation in the market would hinge on its premium manufacturing offerings. The only problem, according to Mr. Becker, was that the market was not necessarily ready for a higher standard of manufacturing. This small obstacle made it difficult to compete in the beginning. "In an industry that didn't have that level of manufacturing as a standard protocol, it became difficult to sell that to potential customers and make it cost-competitive," he said.
NLI took most of the limited capital it had and poured it into a 17,000 square foot facility in western Montana. With high quality manufacturing in place, it was time to find some clients. To generate early cash flow the company brought in business from some small companies. But its first big break came when it landed some business from Celestial Seasonings, prior to the Hain acquisition.
At the time, Celestial was using seven manufacturers. However, as Celestial grew more impressed with NLI's capabilities and attention to quality, it eventually awarded all of its business to the company. Mr. Becker says this experience really helped NLI become more aggressive. "We started vigorously promoting our services to some of the larger marketers," he said, adding, "But when we would bring them into our 17,000 square foot facility, while they loved the processes, and the quality systems and laboratory testing capabilities, they were concerned we would not be able to handle the volume."
Faced with this predicament, NLI realized it needed to expand, so it acquired an additional 50,000 square foot facility in Missoula, MT. This, according to Mr. Becker, is what really gained NLI significant traction in the market. "The new facility has been in operation now for three years," he offered. "When we moved in we were only utilizing about 35% of the facility, but now we are at about 60% capacity, which leaves us the opportunity to go out and market our services again." Last year it leased additional manufacturing space, bringing the total square footage for NLI past the 100,000 mark.
All of this expansion requires investment and finding the right investor is key. For NLI, its major investor changed hands early this year, so it is now working with a new partner. "Our original investment group, Northern Rockies Ventures, stepped out of the picture last year because the fund life was coming to an end and it needed to get a return on its investment," he said. "We then went hunting for another investment group, a larger, more mid-market fund." The search brought NLI to Red Diamond Capital, New York, NY.
NLI has weathered many challenges but it must continue to find ways to manage the ups and downs of the supplement market. "We grow and retract with our customers' product cycles and marketing strategies," he said. "Unfortunately, we are also operating in a market where price is everything."
When the GMPs are finally released, however, Mr. Becker feels NLI will be more than prepared. "Because we are in a good position to be in line with the new GMPs, we will not incur any incremental costs associated with meeting those requirements," he said. "This validates our position because we are one of the few companies offering high value services that essentially mimic a pharmaceutical process." In the end, Mr. Becker believes NLI will become the lower cost option at a higher level of quality. As NLI raises the bar among custom contract manufacturers, the rest of the industry will try to follow.
Since 1997, NLI's staff has grown from less than 10 employees to 120, and it has expanded its manufacturing space from 17,000 square feet to over 100,000 square feet. According to Dun & Bradstreet and Entrepreneur magazine, these factors alone earn NLI the right to be recognized as one of the fastest growing, privately held corporations in the U.S.
NLI was founded by a group of people who had previously worked for a company called Montana Naturals. From the very beginning, says Ned Becker, vice president, Sales, Marketing & Business Development, the company's business plan called for a change in the market. "We anticipated that tighter regulations would eventually hit the market, so we started formulating our business around that," he said. "We felt there was huge opportunity in premium manufacturing, so we set out to create more of a drug-like manufacturing process and system to cater to larger marketers who really understood what it took to produce a quality product. That really became our foundation and overall strategy as we moved forward."
It became clear that NLI's differentiation in the market would hinge on its premium manufacturing offerings. The only problem, according to Mr. Becker, was that the market was not necessarily ready for a higher standard of manufacturing. This small obstacle made it difficult to compete in the beginning. "In an industry that didn't have that level of manufacturing as a standard protocol, it became difficult to sell that to potential customers and make it cost-competitive," he said.
NLI took most of the limited capital it had and poured it into a 17,000 square foot facility in western Montana. With high quality manufacturing in place, it was time to find some clients. To generate early cash flow the company brought in business from some small companies. But its first big break came when it landed some business from Celestial Seasonings, prior to the Hain acquisition.
At the time, Celestial was using seven manufacturers. However, as Celestial grew more impressed with NLI's capabilities and attention to quality, it eventually awarded all of its business to the company. Mr. Becker says this experience really helped NLI become more aggressive. "We started vigorously promoting our services to some of the larger marketers," he said, adding, "But when we would bring them into our 17,000 square foot facility, while they loved the processes, and the quality systems and laboratory testing capabilities, they were concerned we would not be able to handle the volume."
Faced with this predicament, NLI realized it needed to expand, so it acquired an additional 50,000 square foot facility in Missoula, MT. This, according to Mr. Becker, is what really gained NLI significant traction in the market. "The new facility has been in operation now for three years," he offered. "When we moved in we were only utilizing about 35% of the facility, but now we are at about 60% capacity, which leaves us the opportunity to go out and market our services again." Last year it leased additional manufacturing space, bringing the total square footage for NLI past the 100,000 mark.
All of this expansion requires investment and finding the right investor is key. For NLI, its major investor changed hands early this year, so it is now working with a new partner. "Our original investment group, Northern Rockies Ventures, stepped out of the picture last year because the fund life was coming to an end and it needed to get a return on its investment," he said. "We then went hunting for another investment group, a larger, more mid-market fund." The search brought NLI to Red Diamond Capital, New York, NY.
NLI has weathered many challenges but it must continue to find ways to manage the ups and downs of the supplement market. "We grow and retract with our customers' product cycles and marketing strategies," he said. "Unfortunately, we are also operating in a market where price is everything."
When the GMPs are finally released, however, Mr. Becker feels NLI will be more than prepared. "Because we are in a good position to be in line with the new GMPs, we will not incur any incremental costs associated with meeting those requirements," he said. "This validates our position because we are one of the few companies offering high value services that essentially mimic a pharmaceutical process." In the end, Mr. Becker believes NLI will become the lower cost option at a higher level of quality. As NLI raises the bar among custom contract manufacturers, the rest of the industry will try to follow.
