They Sold Their Startup to P&G. It Struggled. They Quit.
July 19 2018 - 8:29AM
Dow Jones News
By Sharon Terlep
Vermonters Paul and Barbi Schulick sold their vitamin business
to Procter & Gamble Co. in 2012, hoping P&G's deep pockets
would fund research needed to grow the small-but-profitable
company.
Instead of growing, New Chapter, founded in 1982 by the
Schulicks, spiraled. The market leader in U.S. sales of vitamins
and supplements fell out of the top 10, according to data-tracking
firm SPINS LLC. And the company went from making roughly $7 million
a year to attaining "bleeder-and-weeper" status within P&G, the
nickname given for failing units, the couple said.
The Schulicks, who kept roles at the company training managers
and running research and development, quit this month. They said
excessive bureaucracy hurt New Chapter and that P&G -- coming
off a fight with activist investor Nelson Peltz -- ramped up
pressure on profitability and nixed plans to develop breakthrough
products.
"The patience factor has really worn out" at P&G, Mr.
Schulick said in an interview. "There is a lot of pressure to meet
targets, and we weren't responding fast enough."
A P&G spokesman said the company remains invested in New
Chapter. "We had different views on the future of the business," he
said.
The clash embodies the tension big consumer companies face as
they scoop up the trendy brands increasingly wooing shoppers. Many
of these brands have loyal and growing followings but fail to make
money or lack the resources to grow beyond niche status.
New Chapter is tiny, given the scope of P&G, which sells
more than $65 billion a year in household goods from Crest
toothpaste to Pampers diapers. But its decline and P&G's clash
with the Schulicks come as the company tries to show investors and
consumers it can compete with small brands that are stealing share
from its billion-dollar names.
After a lengthy period of little M&A activity, P&G in
the past year has acquired a trio of startups: Native natural
deodorant and two skin-care brands, Snowberry and FAB. In April,
P&G also agreed to pay Germany's Merck KGaA $4.2 billion for
its consumer-health business.
P&G took a different tack with its latest acquisitions than
it did with New Chapter, the spokesman said. Instead of integrating
the startups into the larger P&G, the newcomers remain separate
and will be run by their founders.
When the Schulicks sold their business to P&G, under terms
neither side will disclose, the deal was poorly received within the
vitamins industry, the couple said. They recall a meeting with
Whole Foods, since acquired by Amazon.com Inc., during which
skeptical managers questioned whether the brand would lose
integrity as part of a big corporation.
Buyers and retailers in the industry "just inherently feel that
small is better and that a big conglomerate will automatically lead
to lower product integrity," said Robin Rogosin, vice president at
LifeSeasons, a small supplements company, who previously was a
regional buyer for Whole Foods.
At the beginning, falling sales didn't trouble the Schulicks
because the decline was due to P&G pulling some of New
Chapter's products from the market until claims could be backed up
by research. False claims and unverified products are a major
problem in the industry, so the backing of reputable P&G
researchers was valuable, they said.
But that process dragged on for years and the brand lost space
on store shelves and market share on Amazon.com, the Schulicks
said.
Meantime, the founders said, excessive reporting requirements
and bureaucracy weighed on morale, causing New Chapter veterans to
leave. "It's hard to be competitive because you keep reporting to
more and more people," Mr. Schulick said.
In February, the Schulicks received word from P&G that the
company was going to focus spending not on inventing new products,
but rather on studying trends and investing in products already
growing in popularity, which led to their decision to step down.
Mr. Schulick said they plan to start a new venture.
P&G's spokesman said the brand has been growing sales and
gaining market share, and disputed that morale is low, saying
surveys of New Chapter staff show high satisfaction. P&G, he
said, remains committed to breakthroughs and innovation. "We do
care about profit. We need to deliver a return for the
shareholder," he said.
Write to Sharon Terlep at sharon.terlep@wsj.com
(END) Dow Jones Newswires
July 19, 2018 09:14 ET (13:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Procter and Gamble (NYSE:PG)
Historical Stock Chart
From Apr 2024 to May 2024
Procter and Gamble (NYSE:PG)
Historical Stock Chart
From May 2023 to May 2024