Weight Watchers International, Inc.

founded: 1963

Contact Information:

headquarters: 175 crossways park west
woodbury, ny 11797-2055 phone: (516)390-1400 fax: ((516)390-1334 toll free: (800)651-6000 url: http://www.weightwatchers.com

OVERVIEW

Weight Watchers International, Inc. is one of the premier weight loss service organizations in the world. Despite several changes in ownership, the company has maintained the same basic approach to weight loss for nearly 40 years. Artal Luxembourg S.A., a private European investment firm, purchased 80 percent of the company from H.J. Heinz Inc. in June 1999. The current corporate structure of the company includes several divisions: weight management, products, publishing, and the packaged food. Artal Luxembourg controls the first three, while Heinz retained licensing rights to the latter. The weight management division, which owns about 65 percent of the franchises, remains the strongest performer for the company.

The Weight Watchers weight management plan is comprised of four central elements: group meetings, behavior modification, exercise, and diet. The fee-based group meetings account for the majority of the company's income and generated in excess of $400 million in 2001. The meetings are considered critical to the success of the outfit and the statistics are impressive. In 2001 there were nearly 40,000 meetings held in more than 30 countries boasting attendance of more than 1 million members. The behavior modification component teaches members to evaluate and improve their eating habits. The company produces dietary aides such as leaflets, manuals and videotapes to track progress. Exercise is another element of the program, though Weight Watchers does not operate fitness centers. Physical activity is encouraged and members are given guidelines for exercise that are endorsed by the American College of Sports Medicine. Diet is the fourth and perhaps most critical aspect of the program. Over the years various systems have been used to fashion sensible and easy-to-follow meal plans. Members can prepare fresh food meals or select Weight Watchers brand packaged frozen entrees and snacks. The most recent incarnation of the Weight Watchers plan is based on a points system, which assigns numeric values to various foods. Points are calculated for each item consumed, frozen or fresh. The numbers are tallied at the end of the day with the objective of achieving a daily point goal.

Weight Watchers also operates two smaller units: a publishing division and licensed products ranging from snacks to CDs and videotapes. This unit produces a wide variety of Weight Watchers cookbooks and food guides, as well as a monthly magazine: Weight Watchers.

COMPANY FINANCES

Revenues for 2001 were record setting. Weight Watchers posted a net income of $147.2 million on $623.9 million in revenues for a profit margin of 23.6 percent. This was a dramatic increase over the year 2000, which saw a profit margin of only 5 percent.

ANALYSTS' OPINIONS

Weight Watchers became a publicly traded company in November 2001. It has not established a history in the financial markets. In early 2002, only five analysts were covering the stock, and all had ties to the initial public offering. Lauren Rich Fine, an analyst at Merrill Lynch, praised the company saying: "This company generates and gushes free cash flow." Others point to the poor track record of weight loss companies that have entered the public markets. Jenny Craig and Nutri-System have both performed poorly, but they suffered in the aftermath of the fen-phen controversy. (Fen-phen is a diet drug that was pulled from the market by the FDA in 1997.) Both companies had recommended this drug as part of their programs. Weight Watchers managed to steer clear of this problem.

HISTORY

Weight Watchers International, Inc. is perhaps the most well-known name in the world of weight management programs. Its origins can be traced back to the early 1960s when a homemaker from Queens, New York, told her friends about her battle to lose unwanted pounds. Jean Nidetch had struggled with her weight for years and had experimented with all available diet plans, but none of them produced the desired results. At 5-feet 7-inches and 214 pounds, she knew that she was at risk for developing a variety of medical conditions if she did not change her lifestyle.

Nidetch did not create a new or revolutionary diet plan. She picked up a copy of the program recommended by the New York City Department of Health's Obesity Clinic and began to use it as her guide. It was very similar to any sensible diet regimen that might be prescribed by a doctor or health care practitioner. What made the difference this time? Discussing her failures with other women proved to be the secret to her success—personally and professionally. Jean discovered that many women were frustrated with their pattern of lifelong dieting. The women shared stories and encouraged each other to persevere. These informal support sessions formed the basis for what would one day become an international corporation created to encourage healthy weight loss.

By 1962 Jean Nidetch was holding weekly meetings in her living room for overweight men and women. She even managed to recruit her husband, Marty, an over-weight bus driver, to participate in the program. The size of the group grew while the size of the individual members began to shrink. Soon the meetings had to be moved to a larger location and finally settled in a space above a movie theater in Little Neck, Long Island. Jean brought her own bathroom scale to the meetings and charged each member two dollars a week to cover the cost of the rental space. In two years Jean and her husband Marty each managed to lose 70 pounds. Motivated by the success of the group, and with her slimmed down body as her most persuasive advertising, Nidetch secured a business partner in 1963. Albert Lippert, a former business executive, joined Nidetch to launch Weight Watchers Inc. The group meeting format was well-received and the partners decided to expand the company by offering franchise opportunities.

A decade after introducing the Weight Watchers plan to the world, Nidetch and Lippert sold the company to H.J. Heinz in 1978. Weight Watchers became a wholly owned subsidiary of the Heinz Corporation, but Nidetch and Lippert retained majority ownership, and the basic tenets of the program remained intact. The weekly group meetings continued to be synonymous with the Weight Watcher's name.

Weight Watchers entered the 1980s posting small, but consistent, growth numbers. While the company remained the same, the public mentality had begun to change. "Skinny" was in and baby boomers were willing to pay big money for anything that would help melt the excess pounds and slow down the aging process. The diet industry as a whole was pulling in an estimated $3 billion dollars a year, and demand for services continued to grow. Market research conducted at the time showed that about 60 percent of all women considered themselves heavy or overweight. This was not even the best news for the diet programs. Detailed research revealed that 40 percent of the women who wanted to lose weight did not believe they could achieve their goals without professional assistance. In prior studies only 25 percent of the respondents had indicated a need for outside counseling. All in all there were more overweight people and fewer and fewer of them believed that they could make a change in their lives without paying for a service.

Weight Watchers was no longer the only option when it came to weight reduction. Others had entered the field and shifted the emphasis away from strict weight loss and calorie counting programs. Healthy and fit lifestyle choices were now the buzzwords of the industry. Overweight housewives were not the core audience for marketers who were anxious to attract affluent, upscale, professional women with money to spend on food and fitness programs.

By 1986 it was evident that Weight Watchers needed a face lift. Heinz mounted a campaign to revive the aging franchise. The weekly meetings remained central to the program, and there was little that needed changing in that area. The same could not be said of the other components of the program. Perhaps the most important element in any successful weight loss regime is the food. Weight Watchers had its work cut out for it in this discipline. The Weight Watchers plan required members to perform lengthy calculations to determine appropriate calories and food portions for each meal or snack. Compared to the fad diets of the time, which were often liquid diets, Weight Watchers was labor intensive. Members had the ability to go to the supermarket and purchase prepared foods that could popped into the microwave, but this was not a popular option. More specifically, Weight Watchers frozen foods were no longer a popular option.

Though the company was a pioneer in the field of low calorie frozen meals, competitors were quick to cash in on the demand for no fuss, no fat food. Stouffers introduced a line of meals under the Lean Cuisine banner. Sales of the line skyrocketed. Weight Watchers had generated interest in this type of offering, but Lean Cuisine executed the idea brilliantly. The package design and marketing were geared to an upscale, fitness conscious audience. The recipes and entree selections reflected current tastes in food and were generally more attractive to consumers. Weight Watchers foods were handicapped by their very own brand identity. The name suggested no fat, no taste foods intended for overweight dieters.

FAST FACTS: About Weight Watchers International, Inc.

Ownership: Weight Watchers is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: WTW

Officers: Raymond Debbane, Chmn., 46; Linda Huett, Pres., CEO, and Dir., 56, salary $236,565, bonus $283,351; Thomas S. Kiritsis, VP and CFO, 57, salary $130,798, bonus $160,035

Employees 34,400

Prinicpal Subsidiary Companies European Investment firm Artal Luxembourg purchased 80 percent of the company from H.J. Heinz in 1999. Heinz retains a stake in the food products division.

Chief Competitors Weight Watchers International, Inc. is primarily a weight loss and weight management company. Its competitors include Jenny Craig, Diet Centers, and Nutri-System. The company also produces low calorie frozen entrees and desserts. In this market the company's rivals include Stouffers Lean Cuisine and Healthy Choice frozen entrees.

Heinz dedicated itself to improving the taste of the food and changing the overall image of the line. The bright pink packages were toned down and new script lettering was added to lend a touch of elegance. Television advertising was also modified to reflect a more contemporary attitude toward health and fitness. Gone were the spots that chided viewers for poor eating habits replaced by more encouraging and inspirational messages. The ads were strategically placed during some of the most popular television shows of the decade, including The Cosby Show and Magnum P.I. The overall goal of the marketing plan was to associate the Weight Watchers program with a healthy, active lifestyle versus strict weight loss and calorie counting.

Packaging and ad campaigns alone were not enough. The executives at Weight Watchers was finally forced to realize that consumers could be enticed to try a product by a slick promotional campaign, but they would not come back for seconds if the food was not appetizing. The research staff worked to reformulate the recipes for many of the products. The public wanted low calorie foods that tasted good and were made from natural ingredients. Products were pulled from store shelves and altered to satisfy the public's demand for flavor-filled foods.

The early 1990s saw the United States enter the Gulf War and the economy face a recession. Revenues for the weight loss industry dropped, but dieting remained a lucrative industry. The preference for healthy eating versus weight loss dieting continued to grow. Consumers once again demanded more of the diet foods available at the supermarkets. New competitors entered the arena. ConAgra, Inc. launched a line of Healthy Choice frozen foods and watched it become an industry giant. In only two years, the company achieved $500 million in sales. Slim-Fast and Kraft Foods also realized huge gains in market share. Slim-Fast expanded its offerings, which had been limited to liquid shakes, to include energy bars and snacks. Kraft was offering a wide variety of fat free products such as mayonnaise and salad dressings. Weight Watchers' investment in the food business was too large to allow the venture to be outsold so handily. The marketing team again found itself playing catch up. Dieticians worked to decrease the fat and sodium in the food items, but the marketers decided this would not be enough to stem the tide. A separate brand with an identity that was not so openly fused with the Weight Watchers name was needed. The result was an entirely new line of entrees called Smart Ones.

In addition to new products, Weight Watchers also experimented with distributing their food products through an unlikely venue: Burger King. In 1991 Burger King agreed to offer hot Weight Watchers entrees in its restaurants and sell frozen entrees as take out items. The idea never gained popularity with the customers and the trial was suspended.

Weight Watchers also turned its attention to more sophisticated advertising in the 1990s. Actress Lynn Red-grave had served as a celebrity spokesperson for more than a decade, but the company decided to replace her with a more contemporary personality. In 1997 Sarah Ferguson the Duchess of York signed on as the new face of Weight Watchers. In exchange for a 1 million dollar salary, Ferguson agreed to lose 5 pounds. In 1999 Heinz had finally had enough of Weight Watchers and sold the brand to Artal Luxembourg. Two years later, the company enjoyed a successful public offering.

CHRONOLOGY: Key Dates for Weight Watchers

1963:

Weight Watchers founded by Jean Nidetch

1978:

Weight Watchers is sold to H.J. Heinz Co.

1986:

Campaign to overhaul frozen food line is launched

1991:

Burger King offers Weight Watchers foods

1997:

1-2-3 Success Points system debuts; Sarah Ferguson, the Duchess of York, signs on as spokesperson

1999:

Artal Luxembourg SA buys Weight Watchers

2001:

Weight Watchers goes public

TCBY

Talk show host, Rosie O'Donnell is not a paid Weight Watcher's spokesperson, but she could fill the bill. Every day the company benefits from free publicity as O'Donnell recounts her food struggles from the day before and tallies her points. By her own admission, she has not shed a significant amount of weight, but her efforts were not for nothing. After daily lobbying from the set of her television show, Weight Watchers finally added TCBY ice cream treats to its list of acceptable goodies. How many brownie points is that worth?

STRATEGY

Weight Watchers found the formula for success in 1997—literally. It introduced a new plan called "1-2-3 Success," which used the points system to monitor food intake. This plan simplified the process enormously for members. The point system continues to be the foundation for the company's diet plan. The program was modified and the name changed to Winning Points in the year 2000. Non U.S. operations were also re-named. In the United Kingdom, the plan is known as Pure Points, and in Europe it is simply the Points Plan.

INFLUENCES

Many diet plans were rocked by complications associated with prescribing diet pills in the mid-1990s. Weight Watcher's weight loss programs have never relied upon drugs of any type. In light of recent information collected and new concerns about dietary supplements, Weight Watchers advocates a drug free weight loss plan. Instead the company advocates healthy eating, exercise, and support meetings. Recognizing that not everyone can attend a meeting at any time of the day, Weight Watchers developed a comprehensive Web site. Members are able to log on to the site and chat with others and receive encouragement. The site also includes many useful tools to assist in the weight management programs.

CURRENT TRENDS

Weight Watchers has developed several new methods of delivering its programs to members. The At Work program offers classes in the workplace for employees; this option has increased in popularity as more employers realize the benefits of a healthy staff. The At Work classes are particularly popular in the United States. The company has also developed CD-ROMs for those who cannot attend normal classes. The CDs contain copies of the diet plan and weight loss guidance.

PRODUCTS

The Weight Watchers name is attached to a number of products. The weight management programs generate the majority of revenues. Sixty-five percent of weight loss revenues are derived from company-owned operations. The remaining thirty-five percent of weight loss revenue is generated by franchises. Products such as calculators, books, CD-ROMs, and snack bars accounted for 27 percent of total revenues in 2001. The Weight Watchers name is also licensed for cookbooks, a magazine, and other published items. The Heinz company continues to hold the rights to manufacture Weight Watchers frozen food products.

GLOBAL PRESENCE

Weight Watchers is a global brand name and maintains operations world wide. By December 2001, the company had established 8,900 international meeting locations in more than 15 countries. International attendance in 2001 was 23.5 million and revenues were $153 million. Programs are customized from country to country in keeping with local cuisine.

CORPORATE CITIZENSHIP

Weight Watchers is committed to corporate citizenship and supports the communities in its areas of operations.

A LESS TAXING WEIGHT LOSS PLAN

In 2002 the Internal Revenue Service ruled that weight loss programs are now tax-deductible. The decision is based on the fact that obesity is considered a disease and treatment is a legitimate medical expense. In order to qualify for the benefit, individuals must be diagnosed by a doctor as obese. Analysts who follow Weight Watchers stock did not herald this ruling as a reason to celebrate. The impact on enrollment will likely be minimal, and the tax break is only good in the United States. Members in the United Kingdom will continue to fork over pounds to lose the pounds.

EMPLOYMENT

In 2001 the company had 34,400 employees in locations around the world. The geographic breakdown of employees reports 13,300 are in the United States, 13,200 in the United Kingdom, 3,500 in Europe and 4,400 in Australia and New Zealand. There are about 9,300 program leaders moderating classes on a part time basis.

SOURCES OF INFORMATION

Bibliography

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leder, michelle. "investing: real belt tightening as part of portfolio." the new york times, 20 january 2002.

pender, kathleen. "weight watchers stays flat." the san francisco chronicle, 7 april 2002.

tascarella, patty. "heinz tips scales on low cal fare." pittsburgh business times, 26 december 1997.

thompson, stephanie. "two ad pitches for weight loss gain more heft." advertising age, 4 december 2000.

thresher, alison. "girth of a nation." nation's business, december 1986.

"wall street in busiest week for ipos since mid-may." los angeles times,14 november 2001.

warner, fara. "weight watchers focuses on eating." adweek's marketing week, 19 august 1991.

"weight watchers profile." hoovers company profiles, 2002. available at http://www.hoovers.com

wilson, steve. "fashionable plan brings weight watchers back." advertising age, 8 march 1999.

For an annual report:

on the internet at: http://www.weightwatchers.com

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. weight watchers international, inc.'s primary sic is:

7299 miscellaneous personal services, not elsewhere classified

also investigate companies by their north american industry classification system codes, also known as naics codes. weight watchers international, inc.'s primary naics code is:

812990 all other personal services