Americans' new way of losing pounds is leaving Weight Watchers behind
This should be the perfect time for a company such as Weight Watchers to thrive. The United States is still one of the fattest nations on the planet, with a third of the country considered dangerously overweight. Global obesity has nearly doubled since 1980, growing into one of the world's most intractable public health crises - and opening a huge market for the weight-loss industry.
Yet Weight Watchers, the 50-year-old diet giant selling a slimmer, fitter America, has never looked so gaunt. The company said Wednesday that its third-quarter revenue had plunged to its lowest point since 2010, extending an unprecedented seven-quarter money-losing streak. Its market value has fallen to $1.1 billion, its lowest point in history.
So, what happened? Instead of paying for a subscription to one of Weight Watchers' support groups or learning how foods translate into "points," Americans seeking to shed a few pounds are looking instead to free fitness apps on their smartphones, a simple shift that has devastated one of the most iconic names in weight loss.
"We do not believe that free apps will solve the obesity epidemic," chief executive Jim Chambers said in a call with analysts late last year. But "I see now that the situation we are facing as a business and organization is more difficult than it originally appeared."
The rise of smartphones opened an entire ecosystem of new apps that could suggest diets, count calories and track progress, undercutting Weight Watchers' longtime business model. And because many are free, they're gobbling up the company's most important audience: trial-minded newbies looking for a change but hesitant to fully commit.
The popularity of free health apps has exploded alongside fitness monitors such as Fitbit that have a one-time fee and offer a simple, visual, social element to exercise in a way that Weight Watchers can't. And Weight Watchers has never been cheap. Duke University researchers said in July that the average Weight Watchers subscriber paid $377 a year and lost five pounds - in other words, paying about $75 per pound.
"It's a matter of free versus not free," said Efraim Levy, an analyst with Standard & Poor's. "There are so many free apps out there to help people lose weight that people are choosing to at least try ... It's really a cost initiative, and that will remain a challenge - and they have to restructure to hope to compete."
Founded in the early 1960s by an overweight New York homemaker, Weight Watchers found its claim to fame largely due to its social appeal: support groups of women meeting often to talk diets - and all the reasons they shouldn't cheat. Over the decades, it ballooned into a corporate powerhouse, fueled by a sale in the late '70s to the Heinz food conglomerate, which sold branded frozen meals to dues-paying attendees at the firm's bustling weight-loss classes.
About a million people attend more than 40,000 Weight Watchers meetings every week worldwide, according to an S&P report, and the program remains well-reviewed: U.S. News & World Report this year ranked it the country's best diet for losing weight.
But Weight Watchers is far from the only player in America's $60 billion weight-management industry. Its competition has expanded beyond longtime rivals such as Jenny Craig and Nutrisystem - both with their own sales woes - to larger, sophisticated players such as Nike, which has launched a line of fitness trackers to win over a growing health-minded clientele.
Half of the company's revenue comes from meeting dues, with the rest tied to online subscriptions and sales of things such as snack bars, books and points calculators. But even the packaged parts of Weight Watchers' business model are shrinking, losing out to health-conscious eaters opting for fresh foods. The market share for Weight Watchers' frozen-ready meals has fallen to its lowest level since 2005, beaten handily by Stouffer's, Lean Cuisine and Healthy Choice, data from market research firm Euromonitor show.
Weight Watchers has tried to change with the times. It launched a mobile app with a bar code scanner, food log and meeting finder, announced partnerships with fitness trackers and this month unveiled a few upgrades to better match the iPhone's new health and fitness suite. Earlier this year, the company spent an undisclosed sum to buy Wello, a Silicon Valley startup offering streaming video of fitness classes.
But other campaigns have done little to fatten business. The number of subscribers to WeightWatchers.com, an online plan, dropped about 7 percent last year, and a big push to appeal to both genders mostly has foundered; only 18 percent of online users are men.
Every quarter of this year is expected to see double-digit sales decreases over last year, a losing streak the company didn't see even during the Great Recession. Investors have lost confidence that the company can turn it around: Shares are selling 65 percent below their 2011 peak. And there is little optimism about future prospects; JPMorgan analysts wrote this summer that 2015 looks like "another difficult year."
As the crucial New Year's diet season nears, the company said it is trying hard to engineer a turnaround. The big strategy to compete with the app-store diet: the human touch.
"It is our fundamental belief that tools alone, technology alone, food programming alone will never reach the levels of success that are possible when they are combined with human engagement," said Chambers, the chief executive, during an analyst call in July. "The strength of the Weight Watchers brand is and always will be in the human connections that make a weight-loss journey more successful."