How Joseph Fortunato pumped up an out-of-shape General Nutrition Centers Featured

7:00pm EDT January 26, 2009

When Joseph M. Fortunato took over as CEO of General Nutrition Centers Inc. in 2005, conditions at the nutritional supplement company were not ideal. During rapid growth in the 1990s, Fortunato says everyone got a little fat and happy watching the money roll in.

Then the company took a hit in the early 2000s because of a downturn in the diet supplement and low-carb markets. Revenue starting falling, and then in early 2003, GNC instructed its stores to stop selling products containing ephedra, which resulted in $225 million in lost revenue.

“That’s really when we had to go back and just re-evaluate GNC in general — what our goals would be in the short term and the long term and then how would we accomplish those things,” Fortunato says.

On top of those troubles, the company saw five CEOs in 50 months come and go before Fortunato took over. That meant Fortunato, who was chief operating officer before becoming CEO, was essentially doing two jobs.

“We had quite a few changes at the CEO level,” he says. “A lot of what I was doing at that time was partially CEO work at times, because as CEOs came in and out, it was very hard for them to come in right away and assess the business and try to move the business forward because, once again, we are a fairly complex business for a retailer.

“So, I really had to take a point of view that there were things I was going to do to drive the business forward. As CEOs came in, obviously, I was trying to get buy-in from them, but I couldn’t wait until CEOs got up to speed with everything and decided what strategy they wanted to move forward with. Usually, they never got to the point where they were able to implement any of the strategies.”

Eventually, Fortunato became CEO and made his lone mission getting the business back on track by focusing on the core of the business and making the company’s foundation solid.

“Every business has a core component to it,” he says. “When you look and go through all the muddle of everything else that is going on around the business, there are a couple things — the core components of the business — that really, fundamentally drive the business no matter what.”

Grow your core business

When Fortunato took over, he put his sights on the present and ignored anything that wasn’t in the immediate future.

“At that point and time, I put off looking at strategies three, four, five years out,” he says. “What I said was, for the next two years, our focus was going to be on getting our core businesses shored up, playing to our strengths of brand, market penetration, vendor relations, product innovation, and revitalizing and taking advantage of those core category strengths we had, which were vitamin and sports.”

To get everyone focused on accentuating the core positives of thecompany, Fortunato had to simplify things across the board.

“When I started talking to everybody and getting people together, we basically had meetings every morning with the senior management team, and we talked about each area of the business and what needed to be focused on in each area of the business,” he says.

The company also had to simplify things for stores across thecountry by going to a one-pricing scheme.

“At that time, we were zone pricing, so we had about 25 or 30 different pricing schemes throughout the country,” he says. “One of the key things we did back then was we went to one pricing plan. Then, we were able to take advantage of our scale and market penetration and store base by advertising nationally, which we hadn’t been doing much of because the pricing strategy was different all over the country. That was a significant change in strategy that I think really was getting the business on the upswing again.”

You then have to drive that message of simplification from the top all the way down, which Fortunato did through business reviews once a month with every business unit in the company.

“So, people were not getting caught up in ... what I call the details and complexities of the business, but really digging down deep and understanding what was driving their businesses and what they needed to focus their attention on,” he says. “That has to come from the top.”

Fortunato also used the business reviews to monitor if the message was getting through.

“We would have very clear, concise direction as to where we wanted to take those businesses,” he says. “Every month, the leaders of those businesses had to come back with the progress they were making on the focus, on those core components of their business, and then we would do another review and try to keep that momentum moving along. The momentum is what is important. You’ll run into problem situations that you have to resolve as you move through those processes. But, staying very hands on at that point and time, although it’s not what you want to do as a CEO for the long term, is very important to coming through those more difficult times.”

When you are trying to focus back on fundamentals, it can be a challenge because employees naturally want to look at bigger and better things for their department. While that type of thought process is needed when growing a company, the opposite is required when focusing on the core strategies. You have to keep an eye out for employees looking at other opportunities within their department and get them focused back on the core drivers of the organization.

“People have a tendency to get scattered in their thoughts and scattered in their approaches to their business and trying to take too many things on at one time and nothing gets done right,” he says. “So, when you focus back on the core business and you set that thought process from the top that says, ‘Here is what I want you to focus on in your business for the next year. This is all you should bethinking about.’ That’s how you do it. You just take everything else off the table.”

While it may be easy to recognize this, oftentimes it’s hard to implement because you get into meetings and thoughts just start scattering before you know what’s happening.

“You have to keep reining it back in, because people’s normal mentality is, ‘Well, here’s an opportunity we should be looking at,’ and that’s great at the right time. ‘Here’s something we should be doing, and let’s try to do this and let’s try to take on this additional component for the business,’” he says.

To be successful, you have to continually reinforce that you want employees to focus on the core.

“You have to keep reining them back in and say, ‘No, here’s what you need to be focused on for the next 24 months, and that takes you away from a strategic approach at that time,’” he says. “The strategy becomes the core business, and you get more away from a visionary approach as, ‘OK, how do we grow the business three, four, five years out? The focus has to be, ‘If we’re going to get this business healthy and really get a foundation we can build upon, this is all we need to be focusing on for the next 24 months.’”

When facing a situation like Fortunato was, it’s important to start from scratch and communicate that everyone needs to focus on the core.

“We had to get a turnaround in the business, and we had to get back to fundamentals, which we did,” he says. “We had to change our marketing approach. We had to get product development kind of kicked in the behind, and that’s from our

vendors and internally. We had to grow that core business to replace that diet business that had fallen off dramatically. That, to me, was the turning point with the company.”

Make your move

By getting back to basics, GNC eventually started heading in the right direction. Halfway through 2005, the company started to show a turnaround, and 2006 ended up being a good year with the company posting revenue of $1.49 billion.

Yet, Fortunato still had to wrestle with the dilemma of when it’s time to start thinking more strategically and growing for the future. Even during the first six months of 2007, he was reluctant to divert people’s attention away from the core business.

“Now, it’s not that you’re not paying attention and thinking about what you could do to enhance the business during that time frame,” he says. “You’re getting your ducks in a row, but you don’t start executing against those strategies and take the risk of driving focus away from the core business again and then going back to a situation where you’re thrown back two years again.”

Fortunato also decided to keep the focus on the core because he didn’t feel he had the talent pool to take the company to the next level.

“That’s nothing against the people that were here,” he says.

“They’re fantastic people. They’re still here. They fill their roles very effectively at what they’re very good at. But the talent level you need, it really comes down to a decision — are you satisfied the core business is stable and a foundation is strong enough to move on and that we can grow upon this base?

“Sometimes you tend to be a little cautionary about that. Eighteen months sounds great, and looking back, (we) probably could have pulled the trigger at 18 months, but in conjunction with that, you’ve got to make sure you have the right talent.”

The talent that was responsible for the growth in the 1990s was not the same type of people GNC needed today. Back then, GNC needed people who would be able to come in and drive a fast-paced environment and who had passion and knowledge of the industry and the business.

“You’re just looking for people who take direction very well, who can think within the constraints of their area and execute,” he says. “It’s really a different mindset than somebody who comes in and you are looking for a strength in a merchandising area or a strength in marketing and a more of a creative culture and a mindset that is more visionary and strategic. That’s a different approach.”

Now, Fortunato wants people who think outside the box to complement the people who were able to drive the core.

“The talent from the outside cannot come in and replace that talent, because that talent is very specialized to this business and this industry,” he says. “But, the talent from the outside can bring new thoughts and processes into the business that that core individual does not have in regards to what else exists in the world and what else can we go after.

“We basically just beefed up our infrastructure to keep the core business momentum there and the core business talent pool there, and then bring in a new level of talent to really develop a world-class organization that would be able to deliver our objectives for the nex three or four or five years.”

GNC’s revenue has continued to grow. Its 2007 numbers were $1.55billion — a 4.4 percent increase over consolidated revenue for the same period the year before. Revenue increased in each of the company’s business segments, and Fortunato credits having that mixture of old and new leadership as a key to successful growth.

“My advice would be, look to your organization, make sure that the talent pool you’ll need to drive that organization forward is there and the senior management leadership is there as you have to back away from the core business,” he says. “Because, you can’t focus your energies on the strategic needs of the business and growing the core, adding onto those core assets the business has and still be involved as much as you were before on the core business. You need people that are going to be able to take that over, and you have a confidence level that they are going to be able to continue to drive that business because, once again, without that, you can’t do the strategic part.”

HOW TO REACH: General Nutrition Centers Inc., (412) 288-4600 or www.gnc.com