Case Study: Elan Nutrition
Business Description: Elan Nutrition (Elan) is a privately held food bar developer and manufacturer located in Grand Rapids, MI.
Theme: Elan demonstrates a delicate balance of being more than just a manufacturer and bringing unique solutions to a targeted set of customers.
Background: The company was founded in 1984 as Five Star Brands by two brothers, whose goal it was to produce a snack bar with nutritional value. Their initial focus was protein bars, but eventually their focus expanded to include (1) nutrition for meals and snacks, (2) diet and weight management, including low-carb, low-fat and specialty diets, and (3) sports nutrition, including energy and high protein bars. The current owners, led by private equity firm Sun Capital Partners, purchased the company in 2003 and invested $10 million in capital improvements to increase annual output capacity to three hundred million bars, creating a foundation for market growth and expansion. The company recognizes that large food bar marketers want more than a supplier and that they typically want a partner to help grow their businesses. Elan addresses these needs by helping in the areas of product development, including nutritional functionality, product texture and taste. Elan is able to drive the product development process from concept to formulation to commercialization in relatively short timeframes, as well as quickly adapting current formulations to meet new customer requirements.
Situation Assessment: The total U.S. food bar market in 2004 was worth over $2 billion. After years of excellent growth, it seems the overall market has stalled. But, as expected, some areas are performing better than others, such as granola/cereal bars. The market is crowded with over 200 brands, but the clear majority of players outsource most of their manufacturing. The contract manufacturing market for bars is worth about $700 million, and the majority of the market is handled by about a dozen manufacturers. On a sales basis, Elan is one of the top three manufacturers and due to some recent successes in the market, is one of the fastest growing of the top-tier players. As can be expected in a flat market, Elan is growing by grabbing market share, leveraging a strategic plan for acquiring new customers and simultaneously finding ways to get more work from existing customers. A key challenge in the market is dealing with the volatility of some key brands and segments, such as some low-carb brands. The market is seeing some distinct trends. Historically, the market was predominantly a single serve business that focused on packing as much nutrition into the bar as possible. Now, there exist a much larger proportion of sales in smaller bars, as well as family packs.
Opportunities: The market was built upon innovation and it continues to evolve through the creation of new segments—bars that focus on the specific needs of a target consumer group, either around health, convenience or taste. New growth will require raised levels of innovation. Combining nutrition, taste and convenience is not an easy task, but this is an area where Elan believes it excels. This market continues to be driven by a few strong brands, all of which use contract manufacturers. Elan is acting as much more than a manufacturer and they play a key role in the product development cycle of their customers. Competition among the brand leaders is intense and they are looking to grow their businesses by stretching the brand, seeking new markets and new formulations.
Lessons Learned: (1) Looking at the overall market situation, Elan’s capabilities, and how opportunities will play out going forward, a key issue is ensuring that it has the “right mix” of customers. It’s critical to get a balance of customers around markets, product form, manufacturing process, and where Elan can make a difference. (2) Customers are looking for much more than a manufacturer, and much of Elan’s competencies must focus on its ability to manage relationships of larger players. This requires anticipating their needs and proactively helping them with products that connect with consumers. (3) Creating efficiencies in shorter production runs is at the heart of its business. Most marketers utilize a co-manufacturer like Elan to produce their bar products. A few larger players produce products in-house in addition to outsourcing products where they’re less efficient. This puts pressure on Elan to not only help design innovative products, but also to produce them in a highly cost effective manner.