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WIKI ANALYSIS
NutriSystem Inc. (NASDAQ:NTRI) is a company that has capitalized on America’s mounting weight problem by offering customers a home-delivery meal program that includes balanced, pre-prepared, portion-controlled (smaller) meals. The company provides monthly food packages containing a 28-day supply of breakfasts, lunches, dinners, and desserts.[1] Over the past three decades, Americans have become increasingly overweight, with over 2/3 of adults classified as overweight in 2003. As public awareness of the obesity epidemic has grown, demand for products from companies like Nutrisystem has increased dramatically. The company generated $528 million in revenue and $29 million in net income in 2009.[2]
Fortunately for NTRI, the U.S. is not the only country where the people are concerned about their expanding waist lines. Nutrisytem, which is primarily based in the United States, also has operations in Europe, Australia and Canada. While entering any new market comes with significant risks, in this case, the company's target markets represent significant revenue opportunities, particularly in the case of a depreciating U.S. dollar.
The large size and continued growth of the weight loss market has attracted a number of new players. For example, GlaxoSmithKline (GSK) released Alli, the first over-the-counter weight loss drug. Other pharmaceutical companies have released weight loss drugs, but the ability of these drugs to gain market share has been limited by doctors' reluctance to prescribe them in any but the most extreme cases. Alli's over the counter status, however, makes it a much more viable competitor to NTRI. Traditional food companies are also responding to the revenue opportunity represented by the pre-packaged meal segment of the weight loss market and have begun marketing their products as weight loss solutions.
Company Overview
Nutrisystem offers over 100 food items that are designed to have a combination of “good” carbohydrates, proteins and fats. NutriSystem markets its program as a reasonable alternative to fad diets and other unhealthy or unrealistic dieting methods. The company provides monthly food packages containing a 28-day supply of breakfasts, lunches, dinners, and desserts. The delivery program is priced between $300 and $330 per shipment or about $11 to $12 per day. Nutrisystem does not charge membership fees.[1] On average, clients use the meal program for 10 to 11 weeks and lose an average of 1.5 to 2.0 pounds per week during that time.[3] Almost all of the company's revenue in generated in the US.
Business Growth
FY 2009 (ended December 31, 2009)[2]
- Net revenue decreased 23% to $528 million due to lower volumes of food orders.
- Net income decreased 38% to $29 million.
Trends and Forces
U.S. economic fluctuations exert an influence on consumers' discretionary spending on weight management
A sluggish US economy tends to have an adverse effect on the weight loss industry. As consumers lose discretionary funds, luxuries like weight loss programs and dieting products lose their priority. As Weight Watchers CEO David Kirchoff noted, "when consumers are facing a sudden crisis over their savings, livelihood, and standard of living, the natural inclination is to comfort eat, not to lose weight."[4]
The obesity trend in the United States and abroad boosts demand for Nutrisystem's products
The obesity trend in the United States and the world at large has greatly expanded the weight loss industry as a whole. Worldwide, it is estimated that the number of overweight and obese people is around 1.6 billion. According to the Marketdata Enterprises, 68% of Americans over the age of 19 are considered overweight of which half are considered obese. As a result, the weight management industry generates $59 billion in revenue annually in the US alone.[5]
New competition from drug and food manufactures
The large size and continued growth of the weight loss market has attracted a number of new players.
- Losing weight can be as easy as popping a pill: GlaxoSmithKline (GSK) released Alli, the first over the counter weight loss drug.[6] While other pharmaceutical companies have released weight loss drugs, the ability of past drugs to gain market share has been limited by doctors' reluctance to prescribe them in any but the most extreme cases. Alli's over the counter status, however, makes it a much more viable competitor to NTRI.
- Traditional food manufactures target weight loss market: Traditional food companies have are also responding to the revenue opportunity represented by the pre-packaged meal segment of the weight loss market. Nestle (Lean Cuisine brand and Jenny Craig), ConAgra (Healthy Choice) and Kraft (South Beach brand dinners) are all marketing their products as weight loss solutions.
NutriSystem is susceptible to rising food prices
NutriSystem markets itself as a weight-management program that is affordable as well as convenient. The program costs between $10 and $11 per day. In the future, however, changes in wheat prices, dairy prices, corn prices and the prices of other commodities will make it more difficult to offer affordable prices to consumers. Increasing competition from food manufacturers and Alli will make it more difficult for the company to pass along increased cost to customers in the future.
Competition
The weight loss industry includes a multitude of companies that try to employ different techniques in order to help consumers lose weight. NutriSystem's main competition comes from well-established traditional competitors that offer weight loss advice and programs in person rather than over the internet or telephone. These competitors include companies such as Weight Watchers International (WTW), Jenny Craig and LA Weight Loss.
There are also companies that take a similar approach to NutriSystem and offer home-delivery meal programs through the internet. These companies include eDiets, Medifast and Zone Chefs Jenny Craig also offers their program through the internet in addition to the in-person approach the company has traditionally employed at local centers. Below is a list of several of NutriSystem's competitors and the prices they typically charge for their home delivery meal program. NutriSystem is the most popular and well-known of the group and is on the lower-end in terms of price.
Other competition in the weight loss industry comes from pharmaceutical products such as the new over-the-counter weight loss drug Alli from GlaxoSmithKline (GSK), appetite suppressants, meal replacement bars and shakes, and nutritional supplements.
The "Alli" pill has had 2 million customers sign up since it was introduced. However, the drug has unpleasant side effects. According to the Mayo Clinic, eating greater amounts of fat can cause unwanted effects, such as urgent bowel movements, diarrhea and gas with oily spotting.
The fitness sector of the weight loss industry also includes companies such as Town Sports International Holdings (CLUB), Bally Total Fitness and Life Time Fitness (LTM) that appeal to consumers who believe exercise, rather than dieting, is the key to weight loss.
Notes
- ↑ 1.0 1.1 NTRI 2009 10-K "Overview" pg. 4
- ↑ 2.0 2.1 NTRI 2009 10-K "Selected Consolidated Financial Data" pg. 25
- ↑ NTRI 2009 10-K "Product Efficacy" pg. 5
- ↑ | Seeking Alpha, "Weight Watchers International: Time for the Company to Go on a Debt Diet?" January 11, 2009
- ↑ 2009 WTW 2009 10-K "The Global Weight Management Market" pg. 1-2
- ↑ Forbes.com “NutriSystem to Battle New ‘Diet Pill’” Melanie Lindner
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