They Sold Their Startup to P&G. It Struggled. They Quit.

By Sharon Terlep 

Vermonters Paul and Barbi Schulick sold their vitamin business to Procter & Gamble Co. in 2012, hoping P&G's deep pockets would fund research needed to grow the small-but-profitable company.

Instead of growing, New Chapter, founded in 1982 by the Schulicks, spiraled. The market leader in U.S. sales of vitamins and supplements fell out of the top 10, according to data-tracking firm SPINS LLC. And the company went from making roughly $7 million a year to attaining "bleeder-and-weeper" status within P&G, the nickname given for failing units, the couple said.

The Schulicks, who kept roles at the company training managers and running research and development, quit this month. They said excessive bureaucracy hurt New Chapter and that P&G -- coming off a fight with activist investor Nelson Peltz -- ramped up pressure on profitability and nixed plans to develop breakthrough products.

"The patience factor has really worn out" at P&G, Mr. Schulick said in an interview. "There is a lot of pressure to meet targets, and we weren't responding fast enough."

A P&G spokesman said the company remains invested in New Chapter. "We had different views on the future of the business," he said.

The clash embodies the tension big consumer companies face as they scoop up the trendy brands increasingly wooing shoppers. Many of these brands have loyal and growing followings but fail to make money or lack the resources to grow beyond niche status.

New Chapter is tiny, given the scope of P&G, which sells more than $65 billion a year in household goods from Crest toothpaste to Pampers diapers. But its decline and P&G's clash with the Schulicks come as the company tries to show investors and consumers it can compete with small brands that are stealing share from its billion-dollar names.

After a lengthy period of little M&A activity, P&G in the past year has acquired a trio of startups: Native natural deodorant and two skin-care brands, Snowberry and FAB. In April, P&G also agreed to pay Germany's Merck KGaA $4.2 billion for its consumer-health business.

P&G took a different tack with its latest acquisitions than it did with New Chapter, the spokesman said. Instead of integrating the startups into the larger P&G, the newcomers remain separate and will be run by their founders.

When the Schulicks sold their business to P&G, under terms neither side will disclose, the deal was poorly received within the vitamins industry, the couple said. They recall a meeting with Whole Foods, since acquired by Amazon.com Inc., during which skeptical managers questioned whether the brand would lose integrity as part of a big corporation.

Buyers and retailers in the industry "just inherently feel that small is better and that a big conglomerate will automatically lead to lower product integrity," said Robin Rogosin, vice president at LifeSeasons, a small supplements company, who previously was a regional buyer for Whole Foods.

At the beginning, falling sales didn't trouble the Schulicks because the decline was due to P&G pulling some of New Chapter's products from the market until claims could be backed up by research. False claims and unverified products are a major problem in the industry, so the backing of reputable P&G researchers was valuable, they said.

But that process dragged on for years and the brand lost space on store shelves and market share on Amazon.com, the Schulicks said.

Meantime, the founders said, excessive reporting requirements and bureaucracy weighed on morale, causing New Chapter veterans to leave. "It's hard to be competitive because you keep reporting to more and more people," Mr. Schulick said.

In February, the Schulicks received word from P&G that the company was going to focus spending not on inventing new products, but rather on studying trends and investing in products already growing in popularity, which led to their decision to step down. Mr. Schulick said they plan to start a new venture.

P&G's spokesman said the brand has been growing sales and gaining market share, and disputed that morale is low, saying surveys of New Chapter staff show high satisfaction. P&G, he said, remains committed to breakthroughs and innovation. "We do care about profit. We need to deliver a return for the shareholder," he said.

Write to Sharon Terlep at [e-mail]

(END) Dow Jones Newswires

July 19, 2018 09:14 ET (13:14 GMT)

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