Vitacost.com credits value for its success

By Phil Galewitz, Palm Beach Post Staff Writer Thursday, October 17, 2002

BOYNTON BEACH -- Vitacost.com, which sells vitamins and nutritional supplements out of a warehouse near Gateway Boulevard, hit the national spotlight this summer when it bought drkoop.com, the Web site named for former Surgeon General C. Everett Koop.

Drkoop.com, whose stock was once worth more than $1 billion on Wall Street, was sold for $186,000. The sale symbolized to many how the Internet craze had gone bust.

At the height of dot-com mania in the late 1990s, vitacost.com officials couldn't even get drkoop.com executives to return their phone calls.

Today, vitacost.com has survived the implosion of the Internet industry and even the general downturn in the vitamins and nutritional supplements business.

Inc. magazine this week named vitacost.com one of the fastest growing private companies in the United States, ranking it 217th, up from 345th a year ago.

Vitacost.com moved to Boynton Beach in 2000 from Springfield, Ill., where it was founded in 1995. It earned $500,000 in 2001 but expects a small loss in 2002 because of expenses involved in starting a mail-order catalog.

Since moving into an 11,000-square-foot warehouse here, the company's work force has grown to 32 employees from 12. It expects revenue to nearly double to $12 million this year.

The company credits its success to selling products at wholesale cost and filling orders the same day it receives them. It receives an average of about 700 orders a day.

Vitacost.com has a strong connection to mainstream medicine. Dr. Allen Josephs, a co-founder and president of vitacost.com, is a neurologist. He still practices full-time in northern New Jersey, though he hopes to quit practicing when the company eventually goes public. That would come in 2004 at the earliest, he said.

"The sky is the limit for us," Josephs said on a recent trip to his company's headquarters.

Industry analysts say the vitamin and supplements business is starting to perk up after several down years due in part to rising health concerns about herbal supplements and the lack of a hot selling new product like echinacea or ginkgo biloba.

"The category is growing again," said Scott Van Winkle, an analyst with Adams Harkness & Hill in Boston. Low prices help vitamin companies but consumers in this market have little brand loyalty.

To help its customers, vitacost.com has 10 doctors on a scientific advisory board, which reviews various supplements and rates them for their overall effectiveness and value. Vitacost.com also periodically conducts lab tests on is manufactures's products to make sure their potency comes as advertised.

The company chose Boynton Beach because of its affordability and growing technology community. Another reason is that Florida does not tax vitamin sales.

About 40 percent of the company's sales come from vitacost.com's exclusive line of supplements sold under the brand name Neutraceutical Sciences Institute. Its top-selling NSI product is Ocupower, a supplement designed to improve vision.

Vitacost.com is still running drkoop.com as a separate Web site that's supported largely by drug company ads.

"The Koop deal gave us a load of free publicity," Josephs said. It also gave vitacost.com the e-mail addresses of 16,000 drkoop.com customers.

This summer, vitacost.com took its first step out of the health care arena when it started selling flowers at flowermall.com.