GNC 2010 Annual Report Download - page 16

Table of Contents
Wholesale
Franchised 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 franchised store-within-a-store locations. As of December 31, 2009, we had 1,869 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, 2009, Rite Aid had opened 698 of an additional 1,125 stores that Rite Aid has committed to open
by December 31, 2014.
Distribution Agreement with drugstore.com
We are in the process of negotiating a three-year extension to our current internet distribution agreement with drugstore.com, inc. which
was renewed through June 2010. 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 continued 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 drugstore.com, inc. through sales of third-party products on a wholesale basis and through retail sales of our proprietary
products on a consignment basis.
Employees
As of December 31, 2009, we had a total of 5,271 full-time and 7,522 part-time employees, of whom approximately 10,166 were
employed in the domestic portion of our Retail segment; 40 were employed in our Franchise segment; 1,371 were employed in our
Manufacturing/Wholesale segment; 507 were employed in corporate support functions; and 709 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.
11