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Nature’s own

Some 25 years ago when Gene Hughes was suffering from an ulcer, he heard that cayenne pepper would help his condition. Even though it was difficult to wash it down with a glass of water, he believed the pepper was helping.

Kristine Hughes suggested to Gene it might be easier if he put the pepper in some gelatin capsules. It was, and soon Kristine and Gene began encapsulating herbs around Kristine's kitchen table. From that humble beginning the Hugheses have raised their company, Provo-based Nature's Sunshine Products, to sales of $281 million in 1997, with operations in 17 countries.Like Nature's Sunshine, a once small-time dietary supplement industry in Utah has grown up to become a hub, along with Boulder, Colo., for the manufacture and distribution of hundreds of products. They range from best-selling St. John's Wort, packaged in Springville by Nature's Herbs, to "thermogenics" products marketed by St. George-based E'ola, that promise to naturally increase body temperature to help burn away fat. There are energy bars, herbs, vitamins, exotic juices, concentrates, extracts and even minerals extracted from the Great Salt Lake.

From all of the outward signs, Utah's nutritional producers and marketers are riding high.

Just off Bangerter Highway and 2700 West, Usana's shiny blue-and-white building matches the sparkle on the company's bottom line as it posted a 48 percent increase in profit in the first quarter of 1998.

Dr. Myron W. Wentz decided to spin off the firm in 1992 from Gull Laboratories. After 20 years of studying cell nutrition, he developed vitamins and dietary supplements to nourish cells. Cell damage was linked to "free radicals," which robbed cells of oxygen.

"I wanted to counteract degenerative disease such as cancer and heart disease," said Wentz, who divides his time between speaking engagements around the globe and time on a 75-foot yacht in the Caribbean.

Usana now markets its line of Megavitamin, Chelated Mineral, Antioxidant, Nutrimeal and Fibergy through a network of distributors in the United States, Australia, New Zealand and the Caribbean.

In Provo, Nu Skin manages a global personal care and nutritional products selling machine from a downtown office tower. Combined sales for the company are about $1.5 billion. The public part of the firm, Nu Skin Enterprises Inc., had about $953 million in revenues in Asia, Pacific and Europe. About one-third of the sales (and the fastest-growing portion) came from sales of nutritional products, according to Nu Skin's Joseph Ogden.

According to Loren Israelsen, executive director of the Utah Natural Food Products Alliance, the state's natural products industry, which includes dietary supplements and other natural food and cosmetic products, accounts for about $2.3 billion in annual sales.

Although unsubstantiated, claims by Israelsen's group state that the industry is the third largest in Utah, and it takes credit for helping conceptualize and to get Congress to pass the Dietary Supplement Health and Education Act, which was championed by Sen. Orrin Hatch, R-Utah. While they tout their success, the corporate backers of the Utah Natural Food Products Alliance remain anonymous.

Some 40 dietary supplement companies have operations in Utah, ranging from manufacturers to suppliers to multilevel marketers, who often buy products from local firms and repackage them with their own labels.

Why Utah?

Israelsen explains there is a "cultural heritage" for using herbal and natural products in Utah. Combine that with a "long history of people appreciating independent entrepreneurship." That history lends itself to the so-called network method or multilevel marketing method of distributing nutritional and personal care products.

"There is a certain prestige associated with the Utah industry," Israelsen said.

Utah is home to some of the largest U.S. producers of herbs, dietary, nutrition and sports supplements including competitors Nature's Way, based in Springville, Nature's Herbs, based in American Fork, and Weider Nutrition, in Salt Lake City.

Most of the companies have very personal beginnings. Nature's Way, which is currently doubling its production plant, resulted from the search by founder Tom Murdock for a way to relieve the suffering of his gravely ill wife. He discovered the benefits of the desert herb, chaparral. His wife recovered by using the herb, and in 1969 the company was formed in Arizona. In 1973, the company built a production facility in Utah and today produces 300 herbal, natural pharmaceutical and sports nutrition products.

Joe Weider, whom USA Today called the "godfather of the health-and-fitness" industry, has created an empire that had sales of more than $218 million last year and produces and packages products in its Salt Lake plant.

Weider, which markets a number of Utah-made products through the traditional wholesale-retail distribution channels, predicts the growth of the dietary supplement business to continue. The annual rate of growth for the industry has been at more the 10 percent during recent years.

That hasn't gone unnoticed among large pharmaceutical companies, which are preparing products for the market, as well as those looking for solid investments. For example, investment capitalist Mitt Romney, the Latter-day Saint Republican candidate that gave Sen. Edward Kennedy, D-Mass., a scare, has set his eyes and money on this growth industry.

Romney's Bain Capital has pumped money into Park City-based Nutraceutical International Corp. to help acquire small nutritional supplement and health-food businesses and now sells 800 nutritional supplements under the Solaray, KAL, NaturalMax, VegLife, Premier One and Solar Green brand names. The company went public in February.

A favorable regulatory environment created by the Dietary Supplement Health and Education Act, increases in mass-market distribution, an aging population and a trend toward preventative care all portend good times for Utah's nutritional supplement industry. Also, the addition of scientific testing and research for some of the firms has helped move the perception of the business from the realm of quackery to one of legitimacy.

In the retail arena alone, U.S. natural products sales topped $14 billion in 1997, according to Natural Foods Merchandiser magazine. About 45 percent of that was the sale of vitamins, minerals, herbs and dietary supplements by natural products retailers. Another 18 percent of that were sales by the growing number of mass market retailers, such as WalMart, which stock dietary supplements.

That doesn't even begin to track the amount of dietary supplements, vitamins and related products sold through network marketing, which is the preferred method of many Utah-based companies including Enrich International, E'ola, Morinda, Nature's Sunshine, Neways, Nu Skin and Usana.

Many of these firms, particularly those using network marketing, have an increasing international reach. For example, Nu Skin recently began business in Poland, the company's 19th market worldwide. In addition to Asia and Eastern Europe, Nu Skin intends to expand in South America and is on track to enter Brazil later this year. Neways, based in Salem, Utah County, has made aggressive marketing strides in Eastern Europe.

Provo-based Morinda, which markets juice extracted from the Tahitian Noni fruit, has expanded its network marketing into Taiwan, Tahiti, Jamaica, Costa Rica, the Netherlands, Sweden and Finland.

"This is going mainstream," said Harvey Hartman, president of Hartman & New Hope, a marketing firm that does research in the natural foods area. "It's not who is a leading company now, but which companies will be the leaders in this emerging market."

One of the greatest challenges in becoming an industry is brand recognition. Most consumers still shop for a particular herb or supplement rather than a brand name.

Hartman said a survey of 43,000 U.S. households by his firm shows that 68 percent had used one or more natural products and of the 68 percent, 38 percent had used seven or more. He sees a huge developing market as Americans focus on disease prevention.

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ADDITIONAL INFORMATION

Nutritional supplements

Major Utah companies involved in manufacture or distribution of dietary supplements.

... CORP. 1997 DISTRIBUTION

COMPANY STATUS HEADQUARTERS FOUNDED SALES METHOD

Enrich International Private Orem 1985 Not released Network* E'ola Private St. George 1991 Not released Network*

Morinda Private Provo 1996 Not released Network*

Nature's Herbs Public American Fork 1969 $37 million Retail

(Division of Twin Labs) (TWLB)

Nature's Sunshine Public Provo 1976 $281 million Network*

. (NATR)

Nature's Way Private Springville 1971 Not released Retail

Neways Private Salem 1992 Not released Network*

Nu Skin/IDN** Public Provo 1984 $953 million Network*

. (NUS)

Nutraceutical Public Park City NA NA Retail

. (NUTR)

Usana Public Salt Lake City 1992 $85.2 million Network*

. (USNA)

Weider Public Salt Lake City 1939 $218 million Retail

. (WNI)

*Multilevel marketing

**Does not include North American and Central American sales