Weight Watchers International (WTW)

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The website initiative has helped WTW tap into the “self-help” market, and the US paid Internet content market almost quadrupled between 2001 and 2005. The result was a revenue increase from $700 million to over $2 billion by 2005, with almost 80% of US Internet content revenue coming from subscriptions versus individual sales. By the end of the last fiscal year, WeightWatchers.com had almost 584,000 subscribers. ^[1]

The production of a complementary range of products from frozen dinners to lines of calorie-conscious bars and snacks has allowed WTW into a new market of prepared food. At present, this market is dominated by companies like NutriSystem (NTRI) , Nestle (who owns Jenny Craig and Lean Cuisine) and Kraft Foods (KFT) (makes South Beach). WTW is making a name for itself by allowing for relatively low-priced daily solutions for meals and snacking around the normal diet instead of replacing it entirely.

The Obesity trend in the US has also expanded the weight management industry as a whole, which accounts for about $55 billion, just in the US. WTW is a leader in the diet industry because of its pervasive presence in so many different aspects of weight management. However, overall, there is an industry-wide volatility due to a finicky and fickle consumer compounded by unpredictable responsiveness to U.S. Economic Cycles . Furthermore, medical alternatives and fad diets readily take business away from WTW.

[edit] Business Financials

In the 40 years since the Weight Watchers' founding, it has established itself as the foremost provider of weight management services in the world, present in over 25 countries. In 2007, its revenue exceeded $4 billion over its meeting fees, product sales, internet revenues, and franchising royalties. ^[2]

The trend of growing Obesity , accompanied by greater health concerns and wealth consciousness, has enriched and expanded the weight management industry as a whole, which pulls in about $55 billion in the US alone. ^[3] And although the industry is sensitive to macroeconomic shift, WTW's high brand awareness, credibility and versatility keep it safer than many of its counterparts from economy-wide changes. On the other hand, its prices are more likely to dip in response to fad diets. One such example was the low carb diet popularity beginning in late 2003, which actually caused greater declines for WTW than Hurricane Katrina would in 2005. ^[4]

The principal revenues are broken down between meeting fees, product sales, internet revenues, and licensing/franchise royalties. In 2007, these accounted for (respectively) 63%, 23%, 10.3%, and 6.6% of Weight Watchers' total revenues, as pictured:

Image:Wtw revenues.jpg

WTW has shown steady growth in each sector over the last five years:

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[edit] Products and Services

WTW has managed on many occasions to stay ahead of the curve. Since 2003, WTW's revenues have increased at a compound annual growth rate of 11.7%, as a result of an increase in meeting fees, of product sales, and of licensing revenues, as well as the consolidation of the company website. ^[6] It manages to reinforce the brand reputation by targeting consumers with a mix of market-tailored weight management solutions, and by aligning with relevant companies.

In addition to meeting fees and online subscriptions, WTW sells complementary products in the form of bars, snacks, cookbooks, POINTS value guides, Weight Watchers' magazine, and POINTS calculators.

Some examples of WTC partners in the US alone include:

[edit] Trends and Forces

[edit] Medical Products and Procedures Create Alternatives to Weight Watchers’ Products, and Hurt its Sales Growth

The release of medically endorsed weight management alternatives, such as this year’s Alli , universally causes a dip in the weight management industry. Another over the counter diet pill that is on the horizon is Acomplia. In addition, there is evermore greater emphasis on surgical options. A market in which various diet and/or exercise strategies has done little to stem the growing dangers of Obesity is open to new, more extreme solutions.

[edit] Consumer Demographics in Weight Watchers’ Core Market (the U.S.A.) Work in the Company’s Favor

Although WTW has some susceptibility to the volatility inherent to its industry, the company is better grounded than some of its counterparts. Its responses to specific niches of demand (such as weight management for men) are ever-developing. Some examples of WTW’s reactions include creating a website specialized for male members, establishing different and flexible payment plans, and purchasing franchise operations as older industry entities get out.

[edit] Fluctuations in Demand Affect Weight Watchers’ Balance Sheet

Throughout the weight control industry, there are fluctuations in quarterly results that impact the relative profitability and revenue between fiscal quarters. For example, the dates of particular holidays (especially Easter, before the spring campaign) can have an affect. ^[7]

[edit] U.S. Economy-wide Shifts Exert An Influence on Consumers' Discretionary Spending on Weight Management

As prices go up, the weight management industry by and large goes down. WTW, however, has found ways to weather the storm.

[edit] Competition

Weight Watchers is one of the best-known firms in the weight loss industry. It receives both direct and indirect competition. The former is comprised of similar weight management systems based on portion control. Indirect competitors include medical alternatives, dietary supplements and (to a severe degree) trend diets.

[edit] Portion Control Systems

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• Nestle - Nestle owns the Jenny Craig Lean Cuisine brands, which compete with WTW's in the weight loss center and prepared food categories.

• NutriSystem (NTRI) - NTRI's weight loss system consists primarily of no-/low-cook pre-packaged meals that are mailed in bulk to the consumer.

[edit] Trend Diets

• Low-Carb Diet - in late 2003 into the following year, these various trendy diets that focused on cutting carbohydrates from the diet adversely impacted WTW's new member numbers. The most-marketed, best-known among them is the Atkin's Diet. However, as low-carb diets usually generate only short-term weight loss, the trend's legacy was a marked return of members to WTW for maintenance of a healthy weight.

• South Beach Diet - in 2004 and 2005, attendance rates were adversely affected by the introduction of the South Beach Diet's book and the resultant snacks, meal replacement bars and frozen foods. Developed by a cardiologist, the diet consists of three phases, which emphasize the consumption of "good carbohydrates" and "good fats".

• Special K Diet - at since late 2006, the most-marketed trend diet has been presented by the Kellogg Company (K) in conjunction with a range of low-calorie meal replacement bars, snacks, cereals, and beverages. The diet promises that that replacement of two principal meals with members of the Special K product line will result in a 6 pound weight loss over a two-week period.

[edit] Prescription Drugs

• alli - Released this year by GlaxoSmithKline (GSK) , alli is the first FDA approved OTC weight loss medication. It is a newer, lower-dose formulation of the diet drug Xenical. Although medically endorsed to cause weight loss (with diet and exercise), the restrictive fat intake might carve alli a niche in event-driven dieting versus the long-term solution WTW creates. Glaxo's estimated annual sales of alli exceeds $1 billion. ^[9]

• Acomplia - The Sanofi-Aventis SA (SNY) counterpart to alli still awaits FDA approval in the US, although it is available in Europe and is, like alli, expected to generate more than $1 billion annually. ^[10] The earliest release might be at some point this year.

[edit] Weight Loss Supplements

There are an endless number of pill form weight loss supplements that include CortiSlim, Dexatrim, Hydroxycut, Relacore, Stacker 2, TrimSpa, Xenadrine, Zantrex 3, and a host of others. These supplements are consumed by self-paced dieters who avoid the major pulls of the WTW system by taking their weight management into their own hands.

[edit] Market Share

WTW is the premier weight management firm in the world. It's main market is the United States, which generates over 60% of its revenue. In turn, WTW makes up 1.2% of the US weight loss market, which is worth over $50 billion.

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[edit] Notes

1. ↑ Source: WTW 10k, page 4
2. ↑ Source: WTW 10k, page 27, item 7
3. ↑ Source: WTW 10k, page 1
4. ↑ Source: WTW 10k, page 29
5. ↑ Source: WTW 10k, pages 27-28
6. ↑ Source: WTW 10k, page 28
7. ↑ Source: WTW 10k, page 14
8. ↑ Source: CIBC World Markets, NTRI, March 21, 2007, p.29
9. ↑ Source: CIBC World Markets, WTW, March 21, 2007, p. 24
10. ↑ Source: CIBC World Markets, WTW, March 21, 2007, p. 24
11. ↑ Source: CIBC World Markets, WTW, March 21, 2007, p.9

Nutrition information

Kellogg Company (K)