GNC 2009 Annual Report Download - page 16

Table of Contents
Wholesale
Store-Within-a-Store Locations
To increase brand awareness and promote access to customers who may not frequent specialty nutrition stores, we entered into a strategic
alliance with Rite Aid to open GNC store-within-a-store locations. As of December 31, 2008, we had 1,712 store-within-a-store locations.
Through this strategic alliance, we generate revenues from sales to Rite Aid of our products at wholesale prices, the manufacture of Rite Aid
private label products, retail sales of certain consigned inventory and license fees. We are Rite Aid's sole supplier for the PharmAssure®
vitamin brand and a number of Rite Aid private label supplements. In 2007, we extended our alliance with Rite Aid through 2014 with a five year
option. At December 31, 2008, Rite Aid had opened 521 stores of 1,125 additional stores that Rite Aid has committed to open by December 31,
2014.
Distribution Agreement with drugstore.com
We have an internet distribution agreement with www.drugstore.com, inc. with an initial term through June 2009. This agreement
automatically renewed for a one year period at the end of 2008, with one year automatic renewal periods if notice is not given six months prior
to the termination date of the agreement. Through this strategic alliance, www.drugstore.com was the exclusive internet retailer of our
proprietary products, the PharmAssure vitamin brand, and certain other nutritional supplements until June 2005, when this exclusive
relationship terminated. This alliance allows us to access a larger base of customers, who may not otherwise live close to, or have the time to
visit, a GNC store and provides an internet distribution channel in addition to www.gnc.com. We generate revenues from the distribution
agreement with www.drugstore.com through sales of our proprietary and third-party products on a wholesale basis and through retail sales of
certain other products on a consignment basis.
Employees
As of December 31, 2008, we had a total of 5,181 full-time and 7,681 part-time employees, of whom approximately 10,307 were employed
in our Retail segment; 35 were employed in our Franchise segment; 1,336 were employed in our Manufacturing/Wholesale segment; 495 were
employed in corporate support functions; and 689 were employed in Canada. None of our employees belongs to a union or is a party to any
collective bargaining or similar agreement. We consider our relationships with our employees to be good.
Competition
The U.S. nutritional supplements retail industry is a large, highly fragmented, and growing industry, with no single industry participant
accounting for a majority of total industry retail sales. Competition is based primarily on price, quality, and assortment of products, customer
service, marketing support, and availability of new products. In addition, the market is highly sensitive to the introduction of new products.
We compete with publicly owned and privately owned companies, which are highly fragmented in terms of geographical market coverage
and product categories. We compete with other specialty retailers, supermarkets, drugstores, mass merchants, multi-level marketing
organizations, mail-order companies, other internet sites, and a variety of other smaller participants. We believe that the market is highly
sensitive to the introduction of new products, including various prescription drugs, which may rapidly capture a significant share of the market.
In the United States, many of our competitors have heavily advertised national brands manufactured by large pharmaceutical and food
companies and other retailers. Most supermarkets, drugstores, and mass merchants have narrow product offerings limited primarily to simple
vitamins and herbs and popular third-party diet products. Our international competitors also include large international pharmacy chains and
major international supermarket chains as well as other large U.S.-based companies with international operations. Our wholesale and
manufacturing operations also compete with other wholesalers and manufacturers of third-party nutritional supplements.
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