Piling on the Profit
There's no slimming down for companies selling diet products
Summer weather has always spurred on dieters trying to lessen the humiliation of appearing in a bathing suit. But with more Americans fatter than ever, weight loss has become a year-round preoccupation--and a source of profit for a $40 billion industry.
"When you look at the need, that 60 percent of us are overweight, the opportunities are enormous," says Anna Silberman, CEO of Lifestyle Advantage, a new for-profit joint venture of physician Dean Ornish, of heart-health fame, and Highmark, a Pittsburgh-based health insurer. The growing demand for weight-loss products and services has boosted the stock of leading player Weight Watchers International and has attracted new deep-pocketed investors. Multinational food giant Unilever purchased Slim-Fast in 2000, while private investors have taken stakes in Weight Watchers and Jenny Craig. "This is a big space," says financier Rob Sharp, whose MidOcean Partners invested last year in the troubled Jenny Craig chain. "I don't see the need going away."
The weight-loss industry encompasses a motley crew of companies with widely differing approaches, including group and individual support programs, diet pills, and meal replacements. "The industry is inhabited by thousands of companies, some credible, some outright frauds," notes John LaRosa, an analyst at Marketdata Enterprises, a research firm.
Out of the zone. Even with established companies, the business is rough and tumble. Just ask Barry Sears, who has sold 4 million books promoting the Zone, a diet that balances protein and carbohydrates at each meal. He founded ZonePerfect Nutrition Co. seven years ago but lost control to the outside investors and professional managers he brought in. This year the company is selling $100 million of food products under the ZonePerfect brand, but Sears says its nutrition bars don't adhere to all his Zone diet principles--and he isn't benefiting from the firm's recent torrid growth. "There's not a thing I can do about it," says Sears, who is a biochemist. ZonePerfect counters by saying that all its products are in compliance with the Zone. "All a consumer needs to do is read our contents label," says ZonePerfect's chief operating officer, Paul Pruett.
If one motto sums up the industry, it could be "different strokes for different folks." At No. 1, with revenues this year expected to reach $1 billion, is 40-year-old Weight Watchers, with its program of weekly meetings and group support. Next comes Slim-Fast, the maker of bar and shake replacement meals; it's blessed with a core of loyal fans who account for half of its annual $900 million in sales. The third-largest firm, but shrinking rapidly, is Metabolife, the formerly fast-growing seller of diet pills. Furor about ephedra, the chief ingredient in its blockbuster product Metabolife 356, reached a crescendo earlier this year, when the herb was implicated in the death of Baltimore Orioles pitcher Steve Belcher. The Food and Drug Administration is expected to issue new regulations soon on the marketing of ephedra, though an outright ban is considered unlikely.
The industry is riding a wave of scientific findings about the harmful effects of obesity, which add a new sense of purpose to the quest of looking good. According to market research firm NPD Group, 63 percent of U.S. adults would like to lose 20 pounds, the highest percentage in 20 years of counting. "Fifteen years ago no one ever said, `I want to lose 15 pounds because diabetes runs in the family,' " says Karen Miller-Kovach, chief scientific officer at Weight Watchers. "Back then you'd hear, `My husband says my butt is blocking the TV.' "
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