Weight Watchers International Inc. Business Information, Profile, and History

Company Perspectives:

Weight Watchers has always believed that dieting is just one part of long-term weight management. A healthy body results from a healthy lifestyle--which means mental, emotional and physical health. Weight Watchers does not tell you what you can or can't eat. We provide information, knowledge, tools and motivation to help you make the decisions that are right for you about nutrition and exercise. We help you to make healthy eating decisions, and we encourage you to enjoy yourself by becoming more active. To provide motivation, mutual support, encouragement and instruction from our leaders, Weight Watchers organizes group Meetings around the world. Meeting members often become Meeting leaders and receptionists, sharing the story of their personal success with others.

History of Weight Watchers International Inc.

Weight Watchers International Inc., the world's leading weight loss service provider, grew from the dream of one woman into a global franchise with annual sales exceeding $1 billion. Sarah Ferguson, the Duchess of York, has replaced the founder as the personality most associated with the enterprise. More than a million and a half people attend the company's weight loss classes in about 30 countries around the world. In 1999 parent firm H.J. Heinz sold the company's diet center enterprise to the European investment firm Artal Luxembourg SA. Weight Watchers, a public company since 2001, faced a downturn in enrollment during the early years of the 21st century as dieters turned to quick result weight loss solutions.

The Early Years

In 1961 Jean Nidetch was an overweight, 40-year-old homemaker living in Queens, New York. At 214 pounds and wearing a size 44 dress, Nidetch was always on a diet but never lost any weight. Thoroughly discouraged by dieting fads that did not help her, she attended a diet seminar offered by the City Board of Health in New York City. Although she lost 20 pounds following the advice provided, she soon discovered her motivation diminishing. Determined to stay on her diet and lose weight, she phoned a few overweight friends and asked them to come to her apartment. When her friends arrived, Nidetch confessed that she had an obsession with eating cookies. Her friends not only sympathized but also began to share their own obsessions about food. Soon Nidetch was arranging weekly meetings for her friends in her home. The women shared stories about food and offered each other support. Most important, they all began to lose weight.

Within a short time, Nidetch was arranging meetings for more than 40 people in her small apartment. Not long afterward, she began to arrange support group meetings at other people's homes. As more and more people attended the meetings, Nidetch realized that losing weight was not merely adhering to a diet, but encouraging people to support each other and change their eating habits. One couple, Felice and Al Lippert, invited Nidetch to speak to a group of overweight friends at their house in Baldwin Harbor. After meeting every week for four months, Al lost 40 pounds and Felice lost nearly 50. Al Lippert, a merchandise manager for a women's apparel chain, began to give Nidetch advice on how to organize and expand her activities, and soon a four-person partnership was formed among Nidetch and her husband, Marty, and Al and Felice Lippert. In May 1963, Weight Watchers was incorporated and opened for business in Queens, New York.

The company's first public meeting was held in a space located over a movie theater. Although the meeting was not advertised, more than 400 people waited in line to hear Nidetch speak. Nidetch divided the crowd into groups of 50 and spent the entire day addressing the overwhelming guilt and hopelessness that many people felt about being overweight, as well as providing advice about shedding pounds effectively. Nidetch began to hold meetings three times a day, seven days a week. When she started to show signs of fatigue, Al Lippert suggested that she pick key people who had lost weight themselves and had strong communication skills to help her expand the program. The first 100 people chosen to run meetings throughout New York City shared their personal stories and helped people gain control over their eating habits. Nidetch's extraordinary speaking skills and Al Lippert's genius for organization helped raise Weight Watchers to the level of an evangelical movement.

Dynamic Growth in the Middle to Late 1960s

From 1963 to 1967, Lippert organized training programs, expanded the number of company locations throughout the United States, and implemented a franchising system. By 1968, Weight Watchers had 102 franchises in the United States, Canada, Great Britain, Israel, and Puerto Rico. It was relatively easy for a person to get a franchise for Weight Watchers programs. Lippert sold the territory for a minimal fee, then charged the franchisee a royalty rate of 10 percent on the gross income. The most important requirement was that the franchisee had graduated from the company's programs and kept off the weight that he or she had lost. Most of the franchisees were women from New York City who were willing to travel to establish a Weight Watchers franchise. This group was emotionally involved in the program and had a great deal of faith in its principles; as a result, their commitment to the franchise sometimes bordered on religious fervor.

The middle and late 1960s saw a boom for the company. In 1965 Lippert contracted various food companies in the United States to produce Weight Watchers food lines for supermarkets and grocery stores, including low-calorie frozen entrees and dry and dairy low-calorie foods. Lippert was also creative in other ways. He designed a billfold that held small packets of sugar substitutes, skim milk, and bouillon that enabled adherents of the Weight Watchers program to more easily control their diet when away from home. Lippert began to sell items for use in the Weight Watchers classroom; established a joint venture with National Lampoon to publish Weight Watchers Magazine; and opened a summer camp for children with weight problems.

One of the company's most successful ideas, created under the direction of Felice Lippert, was the publication of a Weight Watchers cookbook. Since the inception of the company, Felice Lippert had been in charge of new recipe development, nutrition, and food research. Her first Weight Watchers cookbook catapulted to the top of the bestseller lists and sold more than 1.5 million copies. In 1968 the company made its first stock offering to the public. Although some financial analysts on Wall Street were skeptical of the offering, the general public was overwhelmingly enthusiastic. The first day of trading saw Weight Watchers stock shoot up from an initial price of $11 to $30.

Changes in the 1970s

In 1973 Weight Watchers held its tenth anniversary celebration in Madison Square Garden in New York City. Host of past Republican and Democratic party presidential conventions, legendary boxing matches, and other historic national events, the Garden was filled to the rafters with admirers of the Weight Watchers program. It was a far cry from the celebration just five years earlier, held in a high school auditorium. Although celebrities in attendance included Bob Hope and Pearl Bailey, people had really come to see and hear Jean Nidetch. She spoke until 1:30 a.m., with the crowd captivated by her inspiring stories.

With the company's rapid growth, in 1973 Nidetch decided to resign from her position as president of Weight Watchers to devote herself entirely to public relations. She traveled the world granting an endless number of radio, newspaper, and magazine interviews and speaking to huge audiences about the success of Weight Watchers programs. Al Lippert continued to organize the operation, hiring Dr. Richard Stuart, an expert in behavioral psychology, to help the company create a training department and design the first guides and manuals for the Weight Watchers program. Lippert also hired Carol Morton, a Weight Watchers graduate and German teacher, to begin operations in Europe. From 1974 to 1976, Lippert, along with a growing list of professional staff members in the areas of marketing, advertising, licensing, and nutrition, began to formalize a strategy for continued growth. Weight Watchers was not only an inspirational program that helped people lose weight, but a highly successful business venture. Lippert and his staff focused on the best way to attract people to Weight Watchers meetings and to sell them food, cookbooks, magazines, camps, spas, and various other weight loss products.

By the late 1970s, however, Al Lippert had experienced two heart attacks and recognized that the phenomenal growth of Weight Watchers was much too rapid for his small management group to handle. Annual revenues had grown to approximately $50 million, and it was at this point that Lippert started searching for a larger corporate partner to help Weight Watchers achieve the next level of organization and success. H.J. Heinz Company approached Lippert about purchasing Foodways National, one of Weight Watchers' frozen food licensees. Heinz initially sought to merge Foodways with Ore-Ida, its own frozen food and controlled-portion entree producer. Heinz management, however, soon realized that it was the Weight Watchers International brand name that was valuable, not its licensee. As a result, Heinz acquired Weight Watchers and Foodways National in 1978 for approximately $100 million. Lippert remained chief executive officer and chairman of the board at Weight Watchers.

Between 1978 and 1981, management at Heinz assimilated Weight Watchers into its corporate organization. Heinz divided the company into three parts: Foodways National's frozen food business was subsumed under Ore-Ida; Camargo Foods, a condiments, dry snacks, and dairy producer, and a licensee of Weight Watchers that was also purchased by Heinz, was merged with Heinz U.S.A.; and Weight Watchers' meeting service business remained Weight Watchers International. Heinz's strategy was to incorporate the food business of Weight Watchers into its own food operations, while allowing the meeting service business to continue functioning separately.

Expansion and Diversification in the 1980s

Chuck Berger, the new president of Weight Watchers International, initiated an aggressive strategy that included an innovative program for weight loss, an improved meeting service, and a plan to buy back the company's franchise territories. In 1983 Berger became CEO of Weight Watchers International and, along with Andrew Barrett and Dr. Les Parducci, laid the foundation for a brand new weight loss diet. Dubbed "Quick Start," the diet aimed to quicken the rate of weight loss during the first two weeks. Launched with a well-conceived media blitz, the new program helped to double the company's revenues within two years. Barrett, as executive vice-president, improved marketing, added new food product lines, and concentrated on the lifestyle needs of people with weight control problems. One of his most successful ideas was the "At Work Program," which organized meetings for professional women at their place of work.

Between 1982 and 1989, Weight Watchers International experienced unprecedented growth in product sales. In 1982 the Weight Watchers brand name food items switched from aluminum-tray to fiberboard packaging and introduced one of the world's first lines of microwaveable frozen food entrees. Foodways National also introduced low-calorie dessert products, and by 1988 the company's desserts had a larger market share than Sara Lee and Lean Cuisine. In 1982 Weight Watchers Magazine had a circulation of approximately 700,000 readers; by 1986, circulation had increased to more than one million. The magazine had changed its focus and was marketed to women committed to "self-improvement." Collaborating with Time-Life's books division, Weight Watchers International developed a series of highly successful fitness tapes for the video market and started additional projects for books, audiotapes, and videos in the areas of exercise, weight loss, and health awareness.

By 1988, each of the three separate business units of Weight Watchers was recording skyrocketing revenues. When combined, sales for the Weight Watchers businesses amounted to more than $1.2 billion. Even as these figures were released, however, the weight control business was changing dramatically. In 1989 and 1990, numerous competitors including Jenny Craig, Slim-Fast, Healthy Choice, and Nutri/System began to challenge Weight Watchers for a share of the market. During 1990 and 1991, after nearly seven years of increasing market share, the company suddenly stopped growing. Sales of Weight Watchers brand food products declined precipitously, and even the renowned support group meetings began to fall in attendance.

In 1991 Brian Ruder, a vice-president in marketing at Heinz, was hired as the president of a newly reconstituted Weight Watchers Food Company. Ruder immediately embarked on a comprehensive reorganization strategy, implementing new sales, marketing, finance, manufacturing, and research and development procedures. Within 15 months of the new company's formation, Ruder had redesigned almost half of its products. New product development time amounted to a mere 14 weeks, down from the 22-month cycle previously adhered to. One product line, low-fat, low-calorie entrees called "Smart Ones," was an immediate success. During the same time, Dr. Les Parducci was appointed by Heinz management as the head of Weight Watchers International. Parducci revamped the company's strategy for meeting services by simplifying the contents of programs, relocating meetings to more attractive surroundings, introducing more fun and interesting materials for members, and developing an entire new line of convenience food products.

Trouble in the Mid-1990s

Although these changes helped Weight Watchers stem defections to its rivals and revive its food sale business, the entire weight loss industry suffered a downturn in the mid-1990s. Many consumers had tired of feeling a perpetual need to count calories and of the perceived regimentation of diet classes. Spurred on by fitness gurus such as Susan Powter, whose rallying cry "Stop the Insanity" summed up many people's frustrations with the diet business, consumers began to look to health clubs and nutritional guides as a path to losing unwanted pounds. As an industry analyst explained to Business Week, "The whole industry has been under pressure. There has been a shift from dieting to general health concerns such as fat intake and general lifestyle." Moreover, a new generation of diet drugs was coming on the market, offering the hope that weight loss would become as simple as popping a pill. Weight Watchers also received some adverse publicity in 1993, when the Federal Trade Commission filed suit against it, alleging that it had engaged in misleading advertising. (The suit was eventually settled with no admission of wrongdoing in 1997.) As a result of these events, attendance at Weight Watchers classes dropped 20 percent in 1994 alone.

The company responded quickly to these events. In 1995 Weight Watchers International began to craft what Business Week described as a "health-first, vanity-second message." This approach stressed the health values of losing weight through Weight Watchers classes over the cosmetic effects of "looking better." To buttress this message, Weight Watchers negotiated agreements with insurance companies to give premium rebates on life insurance policies to Weight Watcher members. The company also made a more concerted effort to reach out to men, who had long been neglected by the diet industry (understandably so, however, as 95 percent of customers were female), holding male-only classes in some of its centers.

In an effort to streamline the company's operations further, Heinz sold Weight Watchers Magazine (whose circulation had dropped significantly from its mid-1980s peak of more than a million readers) to Southern Progress Corp., a subsidiary of Time Inc., in 1996. Although these changes were unable to return Weight Watchers to its former, robust growth levels, they did allow the company to remain profitable throughout the middle of the decade.

By 1997, the diet industry's fortunes were improving. The new class of diet drugs had not only failed to become the panacea for which many consumers had hoped, but were in fact linked to significant health problems. In addition, consumers had found that losing weight through exercise or fad diets had proved no simpler or more successful than the formula offered by Weight Watchers and its competitors. However, Weight Watchers had changed with the times as well. Recognizing that consumers still wanted to have more flexibility in the food they ate, the company unveiled its "1,2,3 Success" program. This innovative plan assigned point values to all foods, allowing dieters to eat whatever they chose, so long as they did not exceed the prescribed number of points. The company also hired the former Duchess of York, Sarah Ferguson, to be its spokesperson for the campaign. "1,2,3 Success" proved a tremendous boon to the company, driving up attendance at its classes worldwide by nearly 50 percent and boosting profits substantially.

Despite this revitalization, Heinz--in the course of a sweeping corporate reorganization--sold Weight Watchers International to the European investment firm Artal Luxembourg for $735 million in July 1999. Artal was a private investment group, which had as its sole investment advisor The Invus Group, Ltd. of New York. In an odd sort of synergy, Artal had also invested heavily in Keebler cookies and Sunshine biscuits. Discussing the sale in a press release, Heinz CEO William R. Johnson remarked, "Weight Watchers is the gold standard in the global weight control business, but its services orientation does not fit with Heinz's long-term food growth strategy, and this sale enables us to focus on Weight Watchers foods and our other global food businesses." Heinz retained the rights to the Weight Watchers name for use on its food and beverage products through 2004.

Dieting Trends Trimming Weight Watchers: 2000-05

In January 2001, Weight Watchers purchased its largest franchisee, Weighco. (Additional franchisee purchases continued into 2003.) The company went public in November 2001, at $24 per share. The stock added 23 percent in value on its first trading day and continued to post a strong performance through early 2002. Artal Luxembourg remained majority shareholder with almost 80 percent of the stock.

Weight Watchers' good fortune was dependent on dieters showing up for their meetings. Dues brought in about 70 percent of revenue. The sale of books, scales, and nutrition bars to meeting attendees brought in additional income. The U.S. operations generated 51 percent of the total and nearly 23 percent came from Britain, according to The New York Times. The rest was generated by company-owned operations elsewhere in Europe and in Australia and New Zealand. The company also received royalty fees from franchisees.

Weight Watchers moved to lure more to their meetings with a redesigned magazine, introduced with the January/February 2003 issue and coinciding with the onslaught of post-holiday weight loss resolutions. The company had reacquired the license to publish the magazine from Time Inc. in 2000. Since that time, circulation had nearly tripled to one million. Ad circulation, despite the tough economy, rose 42 percent in 2002. The magazine had performed poorly under Time.

"Weight Watchers has an amazing story," Dan Capell, publisher of Capell's Circulation Report, told Crain's New York Business in January 2003. "Newsstand sales have gone through the roof, and subscriptions are strong, too." But new diet trends had already begun to show signs of eating away at Weight Watchers' main source of revenue during 2002.

Competition generated by the Atkins and South Beach diets prompted Weight Watchers' first major change in its diet plan since 1997. The Core Plan, introduced in August 2004, eliminated point counting and portion size restrictions. The traditional plan continued to be an option for Weight Watchers members.

Weight Watchers stock lagged behind the overall U.S. market during 2004, even as other companies' stock rose with the economic recovery. But Standard & Poor's Equity Research Services' Hoard Choe, writing in Business Week Online, saw positive signs for the company's future, including the growing problem of obesity among Americans and increased disenchantment with low-carb diets.

To expand its line of branded food products, Weight Watchers entered into agreements with a number of food manufacturers in early 2005, including George Weston Bakeries, Organic Milling, Whitman's, and Well's Dairy. In mid-2005, the company acquired a 53 percent stake in WeightWatchers.com from Artal Luxembourg. WeightWatchers.com, founded in September 1999, offered a free site with information on weight loss, healthy lifestyle, and meeting locations. Subscription options targeted people unable to attend meetings and people interested in various tools as a supplement to the meeting.

Weight Watchers two-year North American enrollment erosion was brought to a halt. The new plan and a push for office place meetings--tapping into employer concerns about skyrocketing healthcare costs--had helped reinvigorate the brand. The Internet site was also gaining in popularity.

As of mid-August 2005, the company's stock had increased by 27 percent, and competitors were struggling. "The waning of the low-carb phenomenon was punctuated this month when privately held Atkins Nutritionals Inc., founded in 1989 by Dr. Robert C. Atkins, filed for Chapter 11 bankruptcy protection," Leon Lazaroff reported for the Chicago Tribune in August 2005.

Principal Subsidiaries: Weight Watchers Direct, Inc.; Weight Watchers (Accessories & Publications) Ltd.; Weight Watchers (Exercise) Ltd.; Weight Watchers (Food Products) Ltd.; Weight Watchers Funding Inc.; Weight Watchers Camps, Inc.

Principal Competitors: eDiets.com; Jenny Craig, Inc.; NutriSystem, Inc.

Chronology

• Key Dates:
• 1963: Weight Watchers is founded.
• 1965: Weight Watchers food line debuts.
• 1978: H.J. Heinz Company buys Weight Watchers and divides company into three divisions, including Weight Watchers International.
• 1997: "1,2,3 Success" program is introduced.
• 1999: Heinz sells Weight Watchers International to Artal Luxembourg.
• 2001: Weight Watchers goes public once again.
• 2004: The Core Plan is introduced in response to competition of popular carbohydrate-restrictive diets.
• 2005: Company acquires stake in WeightWatchers.com from Artal Luxembourg.