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 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, began expanding its operations into Europe, Australia and Canada in 2007. 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. During the second half of 2007, 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.
[edit] Business FinancialsNutrisystem 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. 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 [1]. Most of NutriSystem’s revenue comes from direct-to-consumer sales through the internet and telephone [2]. These two direct sales channels accounted for 94% of total revenue in 2007 with another 5% of revenue generated by sales through QVC, the home shopping network [3]. The company has gone from approximately 22.5 million dollars of total revenue in 2003 to 777 million dollars in 2007 [4]. During the same period, net income increased from less than a million dollars to over 100 million. From 2004 to 2007, NutriSystem's revenue has increased by 270%.
NutriSystem's revenue growth is dependent on its ability to continually attract new customers. In 2007, the company had 953,673 new customers, up from 347,337 in 2005. [7]. The company spends a large portion of its budget every year on marketing. In 2007, marketing constituted 24.6% of total revenue or $179 million [8] While the company is interested in attracting new clients, they also want clients to be satisfied with the program and use it for longer periods of time. The graph on the right, which measures the average total revenue generated by each new client, illustrates that new clients spent an average of 19% more in 2007 than they did in 2005. Although prices increased by roughly 3.5% during that time, the majority of the increase in new customer spending is a result of clients using the program for longer periods of time. This increase shows that new customers are using the program for longer and seems to indicate increased customer satisfaction. It is difficult to judge customer satisfaction by looking at customer retention rates since satisfied clients who lose weight often no longer need the program. [edit] Key Trends and Forces[edit] New competition from drug and food manufacturesThe large size and continued growth of the weight loss market has attracted a number of new players.
[edit] NutriSystem benefits from growing concern over obesityIn 2003-2004, the National Health and Nutrition Examination Study estimated that 66% of the adult population was overweight and 33% was obese. These numbers have increased significantly from 1976, when 47% of adults were overweight and only 15% were considered obese [10]. NutriSystem and other companies in the weight-loss industry are in a position to capitalize on Americans’ growing waistlines. Medical studies demonstrate conclusively that overweight individuals are at higher risk for diabetes, heart disease, certain types of cancer and other diseases. As more Americans become aware of the health risks associated with being overweight, NutriSystem will have more potential customers for its program. [edit] NutriSystem is susceptible to rising food pricesNutriSystem 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. Although wheat prices more than doubled in September 2007, NutriSystem actually saw its profit margins increase from 52.2% in 2006 to 53.2% in 2007 [11]. This increase, however, can be attributed to price increases. Also, since wheat prices increased at the end of 2007, we do not yet have the data to see their full effects on NutriSystem's operating costs and profit margins. 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. [edit] NTRI pursues the male marketUntil 2004, NTRI's average target customer was female. During the last few years, however, the company has begun to market its services to men as well. In 2005, just 13% of new customers were men; this number had grown to 31% by the end of 2007. [edit] Focus on the Social CommunityIf you listen in on the 3rd quarter conference call the their Chief Marketing Officer , Thomas Connerty made some brief mention about the company leveraging their online community to find out what their customers are talking about2. This allows the company to shape new products based on a treasure trove of information, as well as help educate their weight loss counselors on what customers need. If they continue to put investments into their online community and provide tools for their customers to communicate with each other, this social base will help folks stick to their goals, as well as increase sales of NutriSystem products and services. [edit] CompetitionThe 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.
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, they included "Gas with an oily anal discharge", "Loose stools or diarrhea", and "Hard-to-control bowel movements ." 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 [13].
[edit] Market ShareThe following chart lists the top online dieting websites by their market share of internet visits for the last week of 2007. Of the following companies, only NutriSystem and EDiets.com offer home-delivery meal services.
[edit] Notes
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