GNC (GNC) and Vitamin Shoppe (VSI) have led the highly fragmented retail vitamins, minerals, and supplements industry for years. The industry is expected to double to $60 billion by 2021 according to the Nutrition Business Journal.

One of the popular reasons cited for GNC's dominance over Vitamin Shoppe has been GNC's worldwide store count, which is currently 8,678 versus just 667 stores for Vitamin Shoppe. A big reason for GNC's store total is its store-within-a-store partnership with Rite Aid (RAD -75.00%).

Even though GNC has over thirteen times as many stores as its peer, a worldwide footprint in over 50 countries, and has been around for much longer, has GNC's dominance over Vitamin Shoppe been grossly overestimated?

Does GNC really have an edge over Vitamin Shoppe?  Credit: GNC and Vitamin Shoppe

Earnings comparisons between GNC and Vitamin Shoppe
Both GNC and Vitamin Shoppe have recently released their first-quarter fiscal 2014 earnings reports.

GNC's revenue was up 1.9% to $677.3 million for the quarter. However, GNC's net income fell 3.8% to $69.9 million for numerous reasons, which included weather, negative media, and expansion costs for opening over 60 locations overall. Same-store sales were also down 0.7% for the quarter.

Vitamin Shoppe's quarter was better as its revenue surged 10.3% to $307.8 million. Vitamin Shoppe's net income fell 1.4% to $20.5 million. While Vitamin Shoppe and GNC had similar problems with weather and negative press, Vitamin Shoppe's same-store sales were up for the 34th consecutive quarter with 3.6% growth.

Is GNC really dominating the supplement retail industry though?
For the first time in nearly a decade, GNC recently launched a new large-scale national ad campaign called Beat Average . Several variations of the videos are up online and they debuted on prime-time television on May 3. However, the one-minute commercial below, the first of several in the Beat Average marketing campaign, has an unclear message.

Credit: GNC

The first thing apparent is that the viewer doesn't know what the commercial is selling or what company it represents until the 59th second of the one-minute commercial. Additionally, the commercial doesn't address why customers should choose GNC over its competitors and in some ways seems to suggest that exercise is how you can beat average. Lastly, some might argue that the commercial insults the viewer by saying that average is a bad thing.

Maybe it shows that GNC believes it is dominating the industry and it doesn't need to address or acknowledge the competition. However, reading between the lines on GNC's recent earnings report suggests otherwise.

GNC has been trying to modify its Gold Card membership program for the past year. In 2013, GNC gave away nearly all of its 3 million new Gold Card memberships to build momentum for its new pricing structure. However, during its conference call, management admitted that one-third of these new members have not shopped much if at all, while the other two-thirds have only shopped 2-4 times since then.

GNC's size dominance over Vitamin Shoppe and other supplement retailers doesn't make it immune to industry issues like the reports that came out a few months ago about the ineffectiveness of vitamins, fish oil, and other supplements on long-term health. Size also doesn't matter when same-store sales are rising for Vitamin Shoppe and falling for GNC.

Even though GNC saw an increase of 21.6% in its GNC.com online business segment last quarter, Vitamin Shoppe has kept up the pace with a 17% increase in its own e-commerce segment.

Lastly, while GNC is focused on rapid expansion moves like its April acquisition of The Health Store in Dublin, Ireland, Vitamin Shoppe has focused on new products. Vitamin Shoppe just introduced a new Fitness Tech line of health monitoring/tracking products to move into the growing tech space of fitness products.

By Sandstein, via Wikimedia Commons

Is Rite Aid working for GNC or with GNC?
The April sales release from Rite Aid showed that its same-store sales rose 5% when compared to April 2013. However, the store count change from 4,619 a year ago to 4,583 today may be an issue for GNC.

Rite Aid currently operates over 2,200 GNC store-within-a-stores--that is nearly half of Rite Aid's total store count. Both companies also renewed their partnership through 2019 this past December. During its last earnings conference call, Rite Aid management stated that it plans to open at least 50 more GNC locations within its stores this year.

There are a couple of problems that may arise with this in the future.

First, Rite Aid operates in a changing retail drugstore environment where much bigger chains are making it hard for Rite Aid as a company to grow. Rite Aid's full-year revenue was up just 0.5% to $25.5 billion .

Second, anything can happen between now and 2019. Vitamin Shoppe is already testing smaller store footprints and making big investments in its e-commerce system. If customers increasingly shop for supplements online, where greater selection typically exists, then GNC may need to make changes to its Rite Aid partnership.

Credit: Nutrition Business Journal and GNC

Bottom line
U.S. dietary supplement sales continue to increase annually while showing consistent positive growth. The idea that a company like GNC dominates the industry due to its size isn't quite true.

With trends pointing toward increased online sales for supplements, as well as newer products like fitness trackers that are growing in popularity and may significantly impact margins and same-store sales down the line, the retail supplement industry may be in the middle of a shift where store count will mean a lot less in the future.