Piling on the Profit
There's no slimming down for companies selling diet products
On a roll. This shift gives Weight Watchers an advantage over competitors who make too-good-to-be-true claims, such as "Eat as much as you want and still lose weight" (box). After floundering in the mid-'90s under food giant H. J. Heinz, Weight Watchers was taken over in 1999 by a European buyout firm that installed as president Linda Huett, a former Yale drama major who had risen through the ranks to head the company's British operation.
Now, in this lackluster economy where growth companies are hard to find, Weight Watchers is on a roll. Attendance is way up, operating income has more than tripled over the past two years, and the company sports a fat 37 percent operating margin. The business oozes cash: Members pay their fees upfront, so there is no need to bill them, and most meetings take place in low-cost leased premises. Since the company's stock became available in a public offering in late 2001, its price has soared. American women lap up the firm's celebrity spokesperson, the duchess of York, Sarah Ferguson, and the "triumph over adversity" tale of how she regained dignity after a failed high-profile marriage. Most important, "she lost weight and has kept it off for seven years," says Eliot Glazer, Weight Watchers' vice president of marketing.
Low-carb pasta? But Weight Watchers faces a challenge from what is the hottest supernova in the weight-loss sky these days: Atkins Nutritionals. That's the company founded by controversial cardiologist Robert Atkins. By the time of his death in April from injuries suffered in a fall, Atkins was no longer a pariah in medical circles (recent positive studies have boosted the credibility of his high-fat, low-carb diet). Trying to quickly capitalize on the favorable press, the company has launched dozens of products in the past two years, including a low-carb bread and, soon, pasta. Last year, sales topped $100 million, and Matthew Wiant, senior vice president of marketing, says sales will double this year. Control of the company has passed to Atkins's widow, Veronica. The managers Atkins hired seem almost relieved to have the focus shift away from the unpredictable founder. "His presence is not necessary for us to get to where we need to go," says Wiant. "We want to become a major player in the food industry, on the order of Pillsbury, Quaker, and Nabisco." Already, Atkins Nutritionals has broken beyond its original natural-food distribution channel and into supermarkets and WalMart.
But success is no sure thing. The low-carb lifestyle is pricey: Atkins's pasta side dishes, such as fettuccine Alfredo, will cost $5.99 for a 12-ounce box. And while Atkins's soy-based, low-carb version of a KitKat bar, called Endulge, tastes yummy, fans of real ice cream are unlikely to agree with Wiant that Atkins's is "as good as Haagen-Dazs."
The latest arena of competition: the Web. Studies show that dieters benefit from personal support, so even companies such as Slim-Fast, which rely on selling products, are investing in Web sites with chat rooms and recipes to build brand loyalty. "The Web offers the chance to give more interactive tools than any brochure," says Michiel Kruyt, vice president of marketing.
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