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Monday, March 21, 2011
Groundwork for Growth
By Richard Metcalf
Copyright © 2011 Albuquerque Journal Journal Staff Writer
Vitality Works is hardly a household name in Albuquerque, but the fast-growing maker of herbal supplements is poised to add its name to the storied list of users of a nearly 110,000-square-foot manufacturing plant on the West Side.
Currently employing 58 workers at a 21,000-square-foot building near Jefferson and Paseo del Norte NE, Vitality Works recently purchased the former Honeywell and later the Sparton Technology plant at 8500 Bluewater NW for $4.5 million.
The expansion, which is expected to lead to 15 new hires in 2011, seems light-years away from the company's humble beginning in October 1982 when founder and president Mitch Coven opened Vitality Works Center for Natural Therapeutics on Quincy NE, across Central Avenue from the Hiland Theater.
"It started out as a little health center. I brought in six people who did acupuncture, nutritional work and massage therapy," he said. "I was creating herbal preparations based on the needs of customers, referring to old pharmaceutical texts."
Twenty-nine years later, Coven is running a multimillion-dollar business as a third-party manufacturer of herbal supplements. He explained that "99 percent of what we do has someone else's name on the label."
Vitality Works has applied to the Bernalillo County Commission for $7 million in industrial revenue bonds to finance the acquisition of the 109,835-square-foot former Sparton plant, then renovate it and buy larger equipment to increase production capacity.
Final approval of the company's IRB request is scheduled to come up at Tuesday's commission meeting, said commissioner Art De La Cruz.
"It's kind of nice when you're looking at a really solid track record like this local company has," he said. "The odds of their continued success are self-evident."
Just hitchhiking through
A graduate of the University of Wisconsin with a science degree, Coven was hitchhiking to Arizona in 1981 when he stopped in Albuquerque to visit his brother. He was contemplating graduate school but ended up studying under the late Michael R. S. Moore at the Southwest School of Botanical Medicine.
"My holistic bubble went off," he joked.
A voluminous researcher and writer on herbs, the ponytailed and bearded Moore has been described as the "godfather of herbs in America," said Daniel Gagnon, a French-Canadian transplant who also studied under Moore and is now owner of Herbs Etc. in Santa Fe.
"Michael Moore was extremely scientific, although not to look at him — he looked like a biker," Gagnon said. "The science is what appealed to Mitch and I."
Herbal formulas were common medicines available in drug stores 100 years ago, but gradually fell out of favor with the mainstream medical community as the pharmaceutical industry began churning out drugs for a modern world.
The current revival of herbal health care products traces back to the counterculture movement of the 1960s and 1970s. A cottage industry of practitioners evolved, tending their herb gardens and developing formulas in their kitchens.
"We used to be outlaws, subject to the wrath of the FDA," Gagnon said.
Coven followed the path of a cottage practitioner, working out of his kitchen and using his Nob Hill-area clinic as a retail outlet. He got his first break in 1993 when La Montanita Co-op agreed to offer his Vitality Works products on its shelves.
Four years later while working in his kitchen, Coven recalled, "I destroyed a coffee grinder, blender and food processor in one day."
He decided to get out of the house and lease commercial space next to the Vitality Works Center on Quincy for production of herbal supplements and vitamins, first occupying 1,300 square feet then, within a year, adding another 3,400 square feet.
The big break
The big breakthrough for Vitality Works came in 1998 when Boulder, Colo.-based Wild Oats Market, which disappeared in 2007 with its merger into Whole Foods Market, gave the go-ahead for Coven to make Wild Oats-labeled herbal supplements.
"They identified 100 products that they wanted to take nationwide," said Coven, who had lobbied Wild Oats for close to a year to launch its own label. "The products were based on formulas that were successful in the clinic."
The company had grown to 13 employees by 2000, when it moved to about 7,000 square feet of office and warehouse space on Midway Park NE, just west of the Century Rio 24 theater. Five years later, the company bought the two-story building at 8409 Washington NE where it is today.
The sellers of the Washington property carried the note for Vitality Works to buy it, giving rise to a sort of folklore that Coven built Vitality Works into what it is today without ever getting a bank loan.
"We just basically grew slowly and surely through reputation without venture capital money," Coven said.
"He's way ahead of everybody — a very sharp business person," said Monica Rude, owner of Desert Woman Botanicals in Gila, N.M. "He managed to get out of the kitchen and become a serious manufacturer when other people were selling salves at a farmer's market for $1.50."
Coven's reputation as a herbal guru, however, remains at the core of Vitality Works' success. Many of his customers proudly proclaim that he is the maker of their store-branded herbal products.
"He has in-depth, intimate knowledge of this vast world of herbs — their nuances, their signatures and how they dance on brain neurons," said Barb Jarmoska, founder and president of Freshlife, the largest independently owned natural products store in Pennsylvania and a Vitality Works customer.
A manufacturer himself of the Herbs Etc. product line, Gagnon said, "The larger picture here is that Mitch is bringing herbal medicine to mainstream America."
Considered leaving N.M.
The latest need for expansion put Vitality Works at a crossroads of whether to stay in Albuquerque or relocate to where commercial real estate prices and business costs are lower, said Juno Raby of New Urban Investments, who was Coven's site selection consultant.
After a regional search, the decision was made to stay in large part because of the prospect of getting IRB financing, he said. As an economic development incentive, an IRB offers tax exemptions on equipment, personal and real property as well as exemptions to the gross receipts tax on some types of purchases.
The company's initial plan was to buy land and build a 40,000-square-foot plant in the area north of Alameda along Interstate 25, said Raby, adding that "$6 million was what we were staring at for a brand-new building."
Then they learned that the former Sparton plant, which sits on 22 acres, was available for $4.2 million, a 42 percent discount from the original asking price of $7.2 million in the third quarter of 2008.
"The economics were very compelling," Raby said. "We thought something was wrong, like something was buried there. We tried to punch holes in it but couldn't."
Owned by the Schaumburg, Ill.-based company, the building was being marketed for sale both locally and nationally by Jim Smith of CB Richard Ellis. The expectation was that an out-of-state company would buy it, Smith said.
"We were surprised it was a local buyer," he said. "A key to the deal was Vitality Works was going to use the building."
Unexpectedly, given the scarcity of sales activity in commercial real estate, a competing bid was submitted for the property. Vitality Works increased its offer to $4.5 million and closed on the building about a month ago.
A little plant history
Minneapolis-based Honeywell Inc. built the plant in 1980 at a total cost of $10 million, including equipment. It was part of a wave of manufacturers locating in the metro that included Ethicon Inc., Signetics Inc., Sperry Flight Systems and Intel Corp.
Sparton, an electronics manufacturer that opened here in 1961, relocated its local operation from Rio Rancho to the Bluewater plant in 2004, a year after that particular Honeywell plant shut down. A hundred employees lost their jobs when Sparton closed the plant in September 2008, essentially a victim of the recession.
Vitality Works plans to spend $2.2 million renovating the building and another $500,000 on equipment purchases. Crammed into its current building, it will spread out into about 70,000 square feet in the Bluewater plant, Coven said.
Vitality Works expects to grow from the current 58 employees to 97 by 2014. In coming months, several administrative and management positions — manufacturing operations manager, quality control manager, accountant and information technology manager — are to be filled.
Average compensation at the company is currently $38,594 a year including benefits.
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