Will The Vitamin Shoppe Continue with Going “All In” on Keto in 2019?
In late August of 2018, The Vitamin Shoppe announced that it was creating a special “shop within its stores and on its website” called Keto HQ. The goal of Keto HQ is to provide education and specialized product assortments dedicated to supporting consumers living the ketogenic (keto) lifestyle. Keto HQ got a nationwide roll-out in nearly all of The Vitamin Shoppe’s 800 store locations. If you have stopped into a store in the last six months, to check out the Keto HQ merchandising set-up, you likely saw a range of different supplements and snacks from a variety of brands that meet the specific needs of the keto diet including, Ancient Nutrition and Bulletproof.
Why is Keto Getting All this Attention Now?
I would guess that most consumers think the keto lifestyle is some new diet craze that was created in the last few years. Alternatively, it was actually created about 100 years ago by physicians looking to treat epilepsy in young children. In my opinion, where the trajectory of popularity began, should be pointed mostly in the direction of Dave Asprey, founder of Bulletproof, who brought keto into focus for today’s consumers in the early 2010s. He did this by promoting the health benefits it can provide for everyone and by producing keto products, such as the extremely popular Bulletproof Coffee.
While Bulletproof Coffee was the early catalyst for growth and awareness, the keto lifestyle has gotten to another level of mainstream appeal on the backs of athletes and celebrities, such as Lebron James, Gwyneth Paltrow, Tim Tebow, and various Khardashian family members, that have all declared their positive results. Add to the anecdotal feedback, you have a growing number of positive studies and the fact that the keto diet indeed aligns with some of the current health and wellness trends. Combine all of that and you have this tipping point that is attracting every commercialization angle.
First Mover in Retail
The Vitamin Shoppe is taking a big gamble on being the first major physical retailer to devote dedicated square footage to the keto lifestyle, along with publicly attaching itself to the trend by marketing and entering into strategic partnerships to compete the loop. In late 2018, if you looked at retailers like Walmart, Target, Kroger, or Costco, you would have only seen an item or two in the functional consumer packaged goods (CPG) category that was calling out being for keto dieters. Even if you look at the end of 2019Q1, you will be hard-pressed to see a major physical retailer that has anywhere close to the selection throughout the whole store as The Vitamin Shoppe, let alone a devoted section.
Retail Battle for Keto Supremacy
Even though The Vitamin Shoppe was a first mover in adding a dedicated merchandising section in a major physical retail setting, it doesn’t mean they will hold the championship belt on that point alone. They also cannot lean on a larger product selection for a competitive advantage, as Amazon currently has many more keto-focused items on their marketplace. Even their arch rival GNC has been adding keto product offerings both in-store and on their digital site since 2017. Similarly, every FDMC channel is adding keto-focused product offerings to their merchandising sets to catch up for the growth in the buying demand.
To better brand themselves as closely aligned with the keto lifestyle, The Vitamin Shoppe has even created a corporate holiday on January 5th called National Keto Day. Though I like the marketing department’s creativity, The Vitamin Shoppe can only win the keto retail battle if they embrace the education value-add that Dave Mock, Chief Merchandising and Marketing Officer, noted in the press release for Keto HQ.
“With KETO HQ, we aim to be a trusted advisor to our customers who have embraced the Keto lifestyle, which can be complex at times, by providing them with guidance from highly knowledgeable resources and the products to aid them on their journey.”
The Vitamin Shoppe is well positioned to execute on that vision as they have a longstanding history of successfully navigating the intent-driven functional CPG categories of nutritional supplements, vitamins, and minerals. During the 2018 earnings call, Sharon Leite, Chief Executive Officer, spoke a lot about making sure the employees (health enthusiasts) were highly trained and knowledgeable to provide immense value to the customer experience. I believe this could be where The Vitamin Shoppe can outshine the competition and gain a large share of the growing buying power towards CPG items focused on keto lifestyle.
Why I think Vitamin Shoppe Doubles Down on Keto in 2019
#1 — The Vitamin Shoppe is a Specialty Retailer
At the core, The Vitamin Shoppe is a specialty retailer, but in recent years there has been nothing special about them. The question of “why buy from us?” is likely a pillar of Sharon Leite’s turnaround plan for the nutritional supplement retailer. So, how do they differentiate? They create unique merchandising experiences that are surrounding trends that consumers are extremely interested in.
#2 — Margin Expansion
Keto products are hot and because they are in high demand, they are usually priced at a more premium level. That is perfectly aligned with The Vitamin Shoppe’s need to expand their operating margins in 2019.
#3 — Keto Lifestyle is Still Growing in Popularity
Though the Google search report of “interest over time” is a bit lower than the highs during 2017, the keto community is still growing. I believe some of the reason for less general search activity for “keto diet” is because the keto movement is naturally maturing a bit and that allows for some fragmentation. The maturity is still not fully there though as the activity of commercialized products in Big CPG portfolios is still very low. For a trend to hit the tipping point of critical mass, major CPG needs to be involved and that has yet to fully happen. That should change soon as you are seeing major venture funding toward BulletProof (just closed Series C round of $40M led by CAVU Venture Partners) and Ancient Nutrition ($103M led by VMG Partners). It is important to note that Ancient Nutrition is also very closely aligned with The Vitamin Shoppe as Dr. Josh Axe, Founder of Ancient Nutrition, is a member of The Vitamin Shoppe Wellness Council and will also serve as the ambassador of Keto HQ.
Final Thoughts
In today’s fast-paced dynamic environment, red hot trends can grow, splinter, or die in a matter of an instance. For any retailer (or brand) to be successful in riding one, they need to be very in-tune with the market activity at the ground level. They must be a student of the market and understand all the bleeding edges and fragments that are catching fire that could cause exposure to their inventory levels and long-term merchandising strategy.
