USANA, Inc.

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USANA, Inc.

3838 West Parkway Boulevard
Salt Lake City, Utah 84120
U.S.A.
(801) 954-7100
Fax: (801) 954-7300
Web site: http://www.usana.com

Public Company
Incorporated: 1992
Employees: 455
Sales: $121.6 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: USNA
NAIC: 325411 Medicinal & Botanical Manufacturing; 325412 Pharmaceutical Preparation Manufacturing; 32562 Toilet Preparation Manufacturing

Although still a young company, USANA, Inc. contributes significantly to the rapidly growing natural products industry. USANA primarily produces nutritional supplements but also sells lines of skin care, personal care, and weight management items. Like many companies in its industry, USANA uses network or multilevel marketing (MLM), whereby self-employed representatives sell the products to customers or buy the products for their own use. USANA is part of a booming herbalism and natural products industry in Utah, among the key areas in this relatively new field. The company’s success relies on expanding consumer demand, advanced nutritional science, modern marketing, and one-on-one direct sales, an old method that in the late 20th century was proving surprisingly effective, both in the United States and overseas.

1970s Origins as Gull Laboratories

US ANA’s founder, Dr. Myron Wentz, received his Ph.D. in microbiology with an emphasis in immunology from the University of Utah. He served as the microbiology director of three hospitals in Peoría, Illinois, from 1969 to 1973. In 1973 he started Gull Laboratories in Salt Lake City to use advanced cell culture techniques to make commercial tests to diagnose viral diseases. In company literature Wentz later recalled the origins of Gull and USANA: “My objective in virology at Gull Laboratories was to produce complete, not-defective viral antigens.... After spending all of those years in the laboratory, maybe I smelled too many vapors, fumes or touched too many chemicals; I was continually sick. I pulled my nose out of virology just long enough to get a taste of nutrition.... I started eating right, but what I learned in the laboratory made me realize... that supplementation was necessary.”

Wentz began taking a multivitamin, what he believed was the best multivitamin on the market. Then one day he read the label and was decidedly unimpressed with the supplement’s ingredients. “If we were to nutrient our cells in culture like this, Gull Laboratories wouldn’t be here today,” said Wentz, adding “We wouldn’t have gotten off the ground. I believe it was that day that I made the commitment that I was going to nutrient myself and my family with the kind of nutrition that I use to grow cells in culture.”

Wentz credited Dr. Michael Colgan as “the individual who convinced me of the importance of producing [USANA’s first] products.” After giving a talk at the National Nutritional Foods Association, Colgan spoke with Wentz privately and a few days later visited the Gull headquarters in Salt Lake City. Once he saw Wentz’s approach to nutrition at the cellular level, Colgan reportedly remarked, “The potential for this is far greater than personal health for you and your family. I know everything that is going on in the nutritional industry, I have been in this field for 20 years. This will be a major boon to human nutrition. You must market these products.”

Thus in 1990 USANA was born as the Gull Health Products Division, to test and manufacture herbal and other natural products. In 1992 Wentz incorporated USANA, Inc., as a wholly-owned subsidiary of his Gull Laboratories. In 1993 he spun off USANA as an independent firm.

Early Developments in the 1990s

By the summer of 1994 the company had begun its own publication for its distributors, USANA Magazine, in which Wentz announced that he had sold his controlling interest in Gull Laboratories to Fresenius, a German health care firm with annual sales of over $1 billion. After six months of working on the sale, Wentz said he was looking forward to focusing on USANA’s research programs, particularly those concerning products to help reverse the effects of coronary heart disease and stroke, the number one and three main causes of death in the United States, respectively. With $22.7 million from selling Gull, USANA’s finances were considerably strengthened, and new research could begin.

To reach his goals, Wentz planned to enlarge USANA’s cell culture research at Moscow’s Cardiology Research Center. In 1994 he also announced an agreement to contract with the Linus Pauling Institute, where independent tests would show, Wentz was certain, that USANA products were superior to others on the market, particularly as regarded their antioxidant capabilities.

USANA grew rapidly in its first few years, as its nutritional supplements gained popularity in the United States and Canada. From 1993 sales in the United States of $3.9 million, the company reported an increase to $7.3 million in 1994. In 1995 U.S. sales reached $21.5 million, and Canadian sales accounted for an additional $3 million. Based in Ontario, the subsidiary USANA Canada, Inc., had been incorporated in February 1995.

By early 1996 USANA had joined the Direct Selling Association (DSA), a trade group for firms in network marketing and other kinds of direct sales. The DSA governing board took a year to look at USANA to make sure it complied with the DSA’s ethical standards. At the same time, USANA produced new sales tools for its distributors. Actor and USANA distributor Gordon Jump hosted a new video called Real Health, Real Wealth. Moreover, Dr. Denis Waitley, a well-known motivational speaker, also became a USANA distributor and narrated an audiotape, How to Survive and Thrive.

Product Lines and Leadership in the 1990s

In 1998 USANA offered a wide variety of nutritional and personal care products. Its two “Essentials” to supplement adult diets were Mega Antioxidant tablets and Chelated Mineral tablets, which, taken together, promised to “work interactively, in conjunction with a healthy diet, to provide your body with the proper combination of nutrients needed for optimum performance from all of the body’s cells.” In addition to these Essentials, the company offered several Optimizers, including Proflavanol, a grape seed extract that reportedly mimicked the antioxidant advantages of French wines; Poly C concentrated tablets of Vitamin C; CalMag Plus, with Vitamin D3, calcium, and magnesium; Melatonin KL, with the hormone melatonin and extracts from the Polynesian kava plant, for better sleep patterns; Nutrimeal, a drink mix powder with carbohydrates and proteins; and several others. Children’s nutrition was addressed through a child-strength blend of vitamins, minerals, and antioxidants called Kid’s Choo-Abies.

USANA also sold a LEAN Team line of weight management products, including Nutrimeal LEAN drink mix, available in chocolate and vanilla; LEAN Team energy bars; and Lean Team Entrees, food mix made with soy protein, available in vegetarian chili and vegetarian pasta varieties.

USANA’s Personal Care Products featured cleansers, moisturizers, shampoo, hair conditioner, and a sunscreen. Its Dental Care System included a specially designed toothbrush, floss, tongue scraper, mouthwash, toothpaste, and a fluoride gel to prevent cavities. Finally, the company also marketed a water distiller that used steam distillation and carbon filtration to provide purer drinking water.

According to the firm’s 1997 annual report, USANA received about 82 percent of its sales from nutritional products. The company’s best selling items were its two “Essentials,” which accounted for 41 percent of total sales, and Proflavanol, which held 22 percent.

In the late 1990s, USANA founder Wentz remained as president, CEO, and chairman of the board. As the sole owner of Gull Holdings, Ltd., an Isle of Man company, he owned 60.7 percent of USANA’s common stock. Other USANA officers included Dallin Larsen, who served as vice-president of sales, and Jeb McCandless, vice-president and chief operating officer, who, having a B.A. in zoology, an M.S. in pathology, and an MBA degree, was responsible for all scientific activities, customer relations, and legal/regulatory issues. The founder’s son, David A. Wentz, joined the business in 1992 and served as director and vice-president of strategic development.

Financial Growth and International Expansion

In 1995 Wentz announced that USANA would build a new facility at 2700 South Bangerter Highway in Salt Lake City. Located on a 16-acre site, the new building with about 95,000 square feet tripled the size of the firm’s laboratory space, which allowed it to consolidate its cell culture research at one location instead of at other locations as far away as Moscow.

The year 1997 was pivotal in extending USANA’s global reach, with the formation of three new wholly-owned subsidiaries. USANA New Zealand Limited was incorporated on March 18 of that year, followed by USANA Australia Pty. Ltd., incorporated on March 25, and the USANA Trading Co., Inc., a foreign sales corporation, in September.

The following year USANA began operations in the United Kingdom, making 17 of its products available through distributors in England, Northern Ireland, Scotland, and Wales. Moreover, the company purchased a 23,800-square-foot building in Milton Keynes, about one hour’s drive north of London, for administration, distributor relations, and shipping/warehousing.

Company Perspectives:

USANA’s mission is to create opportunity, independence, and personal growth for our distributors and their customers by providing the most effective wellness and weight management program available anywhere.

“We plan to address the UK market with the same successful approach we used to enter the Australia-New Zealand market,” said Myron Wentz in a September 1998 press release. He observed, “International expansion is an integral part of our growth strategy. The United Kingdom is intrinsically an important market and... a base from which to build a presence in Europe.”

For its independent distributors worldwide, USANA started new programs and incentives, including the option to purchase company stock through sales commission deductions. Also available for sale to distributors were proprietary telephone and credit card services. Thus, like several other multilevel marketing firms including Amway Corporation, USANA began selling services beyond their original core products.

In 1997 USANA also started its Preferred Customer Program for those who wanted to purchase USANA products at wholesale prices but not become distributors. They were required to purchase at least $20 worth of USANA products every four weeks. By the end of 1997 some 9,000 persons had become Preferred Customers.

Improved health and financial well-being drew an increasing number of distributors to USANA. By September 26, 1998, the end of US ANA’s third quarter, about 110,000 persons were listed as current distributors, up from 82,000 one year earlier. USANA defined a current distributor as one who had made at least one purchase in the last 12 months. The company paid 46 percent of its 1997 revenues to its distributors in various commissions and bonuses.

In its 1997 annual report, USANA maintained that it was particularly well-positioned to compete in the network marketing industry not only due to its popular products but because of its compensation plan, which made available to USANA distributors weekly commissions and bonuses, unlike many other network marketing firms that paid monthly.

Not surprisingly, many of US ANA’s main competitors also used the multilevel marketing approach: the Amway Corporation (Nutrilite supplements and personal care products), Avon Products (personal care products), NuSkin (personal care products), Herbalife International (nutritional supplements), Nature’s Sunshine (herbal supplements), and Rexall Showcase International (nutritional products). Other competitors included Murdock Madaus Schwabe, Sunrider Corporation, and Weider Nutrition.

The Future of Holistic Health

US ANA’s success in the 1990s reflected a growing trend worldwide of people choosing to emphasize disease prevention, as well as self-care rather than dependence on health professionals. By exercising, eating healthy foods, using nutritional supplements, and avoiding dangerous substances such as tobacco and alcohol, more tried to gain optimum physical and emotional health in a holistic, integrated approach.

The growing use of supplements had prompted the federal government in 1994 to pass the Dietary Supplement Health and Education Act, which prohibited the Food and Drug Administration from regulating vitamins, minerals, and nutritional and herbal products, unless such supplements proved dangerous, were mislabeled, or made specific claims that they prevented or treated particular diseases. In 1998 the Federal Trade Commission issued guidelines to help companies know the limits of what they could and could not say about their products.

Due to the rapidly rising costs of orthodox medical care, a growing number of health insurance companies in the 1990s began covering alternative health methods, including chiropractic, homeopathy, massage therapy, acupuncture, and the use of herbs and supplements. For example, the American Western Life Insurance Company of Foster City, California, introduced The Wellness Plan, a holistic approach to bodily health.

In addition, more doctors were apparently recognizing the benefits of supplements and had started examining or even embracing the growing alternative health movement. By 1998, over half of the nation’s medical schools taught a course on alternative healing or at least included basic principles of non-Western methods in required classes.

Through scientific research in the formulation of its products, USANA sought to bridge the gap between the medical establishment and the alternative health field. Its distributors presented their ideas at holistic health fairs, which included all kinds of practitioners, from herbalists to spiritual healers. USANA also published clinical studies of nutritional ingredients to educate its distributors and customers.

USANA continued to prosper under the leadership of its founder Wentz. The April 13, 1998 Investor’s Business Daily listed USANA as the nation’s fifth-ranked cosmetics/personal care products firm, based on earnings per share. In June of that year, COO Jeb McCandless stated in a press release that “USANA sales have surpassed the $100 million annual run rate with only 27 core products.” Soon thereafter, the company was able to announce a two-for-one stock split of its common stock. More good news was on the horizon, as the following year the company extended its reach to the Asian market, with operations in Hong Kong. With no long-term debt, USANA seemed poised for even more growth in the new century.