Dietary nutritional supplements are big business, with a number of multi-billion dollar transactions in the industry over recent years.

And health company Activated Nutrients reckons it has the right model for disruption.

The company is rapidly scaling up its local distribution strategy through a network of partner pharmacies, with a long-term plan to gain traction in the Chinese market.

Having just closed a $3m private funding round with sophisticated investors, it’s now taking expressions of interest on the Birchal crowd-sourced funding platform.

Some key recent deals have seen monthly revenue growth rise to 40 per cent. And CEO Blair Norfolk has plans to rapidly scale the business ahead of a potential IPO in 2020.

Plant-focused

Founded in October 2013, Activated Nutrients spent two years focused on product development with chief science officer Dr Jaroslav Boublik, a California-based scientist specialising in nutrition.

The company rolled out its first products in 2015 and gained significant momentum last November when it launched a range of nine new organic multivitamin and weight management powers.

All of its products are made at a manufacturing facility in NSW, which has significant excess capacity to expand production in line with the company’s sales growth, Norfolk said.

The domestic market for supplements is competitive, with large players such as Swisse and Blackmores taking up large swathes of market share.

But speaking with Stockhead, Norfolk said Activated Nutrients has enough differentiation in its product and distribution strategy to build its own competitive advantage.

“Activated Nutrients is the only product of its kind in Australia that’s 100 per cent plant based,” Norfolk said.

Another key point of difference is the company’s carefully-managed distribution strategy, which is focused on direct engagement with local pharmacies rather than supermarket chains.

“Pharmacies understand the difference between a high quality product compared to a marketing gimmick. And we enjoy working with the right pharmacy partners because they can explain that difference to consumers.”

Scaling up

Based on its recent growth trajectory, Activated Nutrients is executing effectively on its pharmacy-focused distribution strategy.

The company has grown its network from 25 to 1,100 stores, including deals with chains such as Priceline and Terry White.

That increased footprint has been one of the primary catalysts for a surge in sales growth, from around $12,000 to $128,000 in May 2019.

It followed a private capital raise in Q1 this year, which netted $3m at 3c per share.

Demand for the raise was met by family offices and some high net-worth “strategic investors who can open doors with other pharmacy groups and their own networks”, Norfolk said.

Some of the funds raised will go towards expanding the company’s network of pharmacy stockists to 2,500 — around half the total in Australia — by the middle of next year.

Turning to the crowd, Norfolk said any funds raised would be a useful addition to the company’s marketing budget.

“It’s not like we need capital, but this provides a platform for our users to get access to a pre-IPO investment,” he said.

“We want them to have the opportunity to be part of the growth.”

The Birchal raise will be priced at 4c a share with the company initially looking at raising somewhere in the mid six-figure range, depending on demand.

China calling

While Activated Nutrients is focused locally for now, the lure of the huge Chinese market is still a key part of the commercial strategy for any Australian supplements producer.

Norfolk pointed to the 2016 sale of market leader Swisse, which was purchased by a Chinese company at a multiple of 27 times core earnings.

He said that post-IPO, the company will work on establishing its own Chinese distribution networks, rather than rely on the Australia-based daigou sellers.

Daigou is a term used to describe people who buy goods in Australia on behalf of someone in China.

Norfolk knows that is likely to be a long process, but the early signs look good.

“We’ve already been contacted by 10 to 15 different Chinese companies to buy our company or to be a partner, so there’s no shortage of suitors coming after us,” he said.

“It’s really about taking our time to do our due diligence and partner with someone we can trust.”