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GLGi: (NYC) The US Diet Market Outlook - 2008 and Beyond. Dirk Aschmoneit March 11, 2008 New York. Council Member Biography

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slide2
Council Member Biography
  • Dirk Aschmoneit is currently a Director of Marketing, Food & Retail at Jenny Craig - a division of Nestle Nutrition, where he has worked since 2004. He manages a $500 million group of food and non-food products. His duties include product development, assortment, merchandising for 500+ stores in the US & CAN, and maximizing revenue & profit growth. Mr. Aschmoneit directs overall strategy for food & non-food products to create a strategic competitive advantage and a calendar of supportive marketing efforts. Previously Mr. Aschmoneit was a Director of Marketing Operations at Metabolife International, from 1998 to 2004. He was instrumental in taking the company from a network marketing to a $355 million consumer packaged goods company. In addition to maintaining the company’s competitive position by evaluating new product concepts, Mr. Aschmoneit was frequently featured as an expert speaker at Sport, Weight Loss, and Condition Specific Supplement industry events.
slide3
Topics
  • Overview of market share, segmentation and positioning strategy
  • Barriers to entry and regulatory considerations in the diet category
  • Analysis of major players including NTRI, WTW, alli (GSK), HLF, MED, DIET
  • Market outlook for next 3 to 5 years based on emerging trends and key issues
slide4
About GLG Institute
  • GLG Institute (GLGiSM) is a professional organization focused on educating business and investment professionals through in-person meetings. It is designed to revolutionize the professional education market by putting the power of programming into the hands of the GLG community.
  • GLGi hosts hundreds of Seminars worldwide each year.
  • GLGi clients receive two seats to all Seminars in all Practice Areas.
  • GLGi’s website enables clients to:
    • Propose Seminar topics, agenda items and locations
    • View and RSVP to scheduled and proposed Seminars
    • Receive a daily briefing with new posts on your favorite tickers, subject areas and from trusted Council Members
    • Share Seminar details with colleagues or friends
slide5
IMPORTANT GLG INSTITUTE DISCLAIMER – By making contact with this/these Council Members and participating in this event, you specifically acknowledge, understand and agree that you must not seek out material non-public or confidential information from Council Members. You understand and agree that the information and material provided by Council Members is provided for your own insight and educational purposes and may not be redistributed or displayed in any form without the prior written consent of Gerson Lehrman Group. You agree to keep the material provided by Council Members for this event and the business information of Gerson Lehrman Group, including information about Council Members, confidential until such information becomes known to the public generally and except to the extent that disclosure may be required by law, regulation or legal process. You must respect any agreements they may have and understand the Council Members may be constrained by obligations or agreements in their ability to consult on certain topics and answer certain questions. Please note that Council Members do not provide investment advice, nor do they provide professional opinions. Council Members who are lawyers do not provide legal advice and no attorney-client relationship is established from their participation in this project.
  • You acknowledge and agree that Gerson Lehrman Group does not screen and is not responsible for the content of materials produced by Council Members. You understand and agree that you will not hold Council Members or Gerson Lehrman Group liable for the accuracy or completeness of the information provided to you by the Council Members. You acknowledge and agree that Gerson Lehrman Group shall have no liability whatsoever arising from your attendance at the event or the actions or omissions of Council Members including, but not limited to claims by third parties relating to the actions or omissions of Council Members, and you agree to release Gerson Lehrman Group from any and all claims for lost profits and liabilities that result from your participation in this event or the information provided by Council Members, regardless of whether or not such liability arises is based in tort, contract, strict liability or otherwise. You acknowledge and agree that Gerson Lehrman Group shall not be liable for any incidental, consequential, punitive or special damages, or any other indirect damages, even if advised of the possibility of such damages arising from your attendance at the event or use of the information provided at this event.
slide6
Gerson Lehrman Group Contacts
  • Randi Reiner Culang
  • Vice President, Consumer Goods & Services Global
  • Research Head
  • Gerson Lehrman Group
  • 850 Third Avenue, 9th Floor
  • New York, NY 10022
  • 212-750-1229
  • [email protected]
  • Aaron Liberman
  • Managing Director, Sales and Marketing
  • Gerson Lehrman Group
  • 850 Third Avenue, 9th Floor
  • New York, NY 10022
  • 212-984-3684
  • [email protected]
  • Carly Pisarri
  • Process Manager
  • Gerson Lehrman Group
  • 850 Third Avenue, 9th Floor
  • New York, NY 10022
  • 212-750-1435
  • [email protected]
the us diet market outlook 2008 beyond
The US Diet Market Outlook: 2008 & Beyond
  • Agenda:
  • Overview of Market Share, Segmentation, and Marketing Strategy
  • Barriers to entry and regulatory considerations
  • Analysis of major players: WTW, NTRI, alli
  • Market outlook 2008 to 2010
diet category size
Diet Category – Size
  • A growing category
    • 66% of US population is obese and/or overweight
    • Every 3rd person or 75 mil people in the US are on a diet at any given time
    • YOY growth is estimated at 3 to 4%
    • 1990s: Size of WL category flat around $30 billion
    • 2000s: Category grew to $49 billion by 2005
    • 2007 estimated sales around $55 billion
    • US owns an estimated 70% of the global diet $ spend
    • Rise in childhood obesity is an indicator of future category growth
    • Growing obesity trends will supply dieters for years to come
diet category share
Diet Category – Share
  • Highly fragmented and volatile category can shift rapidly
    • Typical dieter starts at the age of 20+ and continues until 60+
    • Dieting behavior is predominately driven by life events and social events
    • The typical dieter will try several diets a year
    • Fad diets condition dieter and cause erratic diet behavior
    • Average weight loss goal is 40 lbs and average time on diet is 10 wks
    • Failure rate is extremely high
    • Premium brands experience high repeat dieters
    • Estimated share of market 2007 – always a moving target
      • DIY sub category attracts 50 mil dieters
      • “Seeking Professional Help” sub category attracts 10 to 20 mil dieters
      • OTC diet pills, MRP’s and Weight Loss Centers at 12 – 18% each
      • Medical Programs, Diet Drugs and Bariatric Surgery at 2 – 6% each
      • Fads (e.g., Atkins with 12%+ at peak) don’t grow category but cannibalize others
diet category segmentation
Diet Category – Segmentation

Diet Food

MRPs

Exercise

Medical Programs

Bariatric Surgery

Diet Soda

Vs.

Soda

Slim Fast

Ensure

EAS

24 Hour Fitness

Bally

Crunch

Medifast

Optifast

Surgery

High Cost/

Commitment

Low cost/

Commitment

alli

Trim Spa

Xenadrine

Metabolife

Nutrisystem

eDiets

Weight Watchers

Jenny Craig

La Weight Loss

Xenical

Meridia

Accomplia

WL Centers

OTC Diet Pills

Diet Programs

Diet Drugs

50 M Do It Yourself

10 - 20 M Seeking Professional Help

Retention Rates: 8 to 12 weeks

Highly Female Demographic

diet category strategy
Diet Category – Strategy
  • Brand image is critical in an emotional category
    • Diet category is based on emotional vs. rational purchase behavior
    • “Before and After” and Celebrity campaigns drive leads
    • Male and Female overweight % are roughly at a 50/50 split
    • However, category is highly female
    • Average weight loss goal varies by entry point (e.g. college 20 lb, mother 40 lb)
    • Target group is 20 to 55 years of age for most diet companies
    • Weight-Loss follows emotional versus rational purchase patterns
    • Vanity is more important than health
    • Brand is only as good as last “collection”
    • Similar dynamics as in the fashion industry
    • PR and newness are critical in this category
    • “alli”: The only FDA approved OTC weight loss product
    • NTRI: Most affordable and convenient prepared food program
    • WTW: “Stop Dieting, Start Living” – Teaching good eating habits via “Points”
diet category barriers of entry
Diet Category – Barriers of Entry
  • Low barriers of entry and high rewards keep category dynamics high
    • “alli” is the classic example of how it can be, but shouldn’t be done
    • Frivolous claims cause high trial and abandonment rates
    • Serious dieter is getting distracted and is constantly in a spin
    • Old guard (e.g., WTW) is watched closely and has to follow rules
    • New kids on the block have aggressive entry strategy, get rich fast, get slapped on the wrist, start over…
    • CASE STUDY:
      • 1994, DSHEA law implemented. Created $20 B dietary supplement industry by 2005
      • Industry driven by weight loss and energy supplements
      • Low COG & high margins, lack of regulations & non substantiated claims allow for fast development of a profitable business
      • Many companies fly below the radar but achieve billions in sales
      • Only time we hear about their success is when FTC steps in
diet category ntri
Diet Category – NTRI
  • Roller Coaster Ride
    • Warned in March of ‘07 about Q3, Q4 ‘07 performance (reach maturity)
    • “alli” excuse for Q3 was a handy one, but only one part of the total picture
    • Missing YOY marketing campaign & WTW TRP’s plus new ad campaign caused 7% Q3 shortfall
    • CAC focus is short term metric and NTRI announced change of key metrics
    • Reactivation Rate is long term metric and could be 40% + of REV by 2010*
    • Attractive EBITDA margin for reactivation population
    • Q4 performance was expected to be bad due to investment spending for Q1
    • $252 CAC and lower guidance for 08 sent stock down +25%
    • New “Advanced” product line is not different enough to pull leads and/or reactivations
    • NTRI lost the opportunity for potentially one of the best celebrity campaigns, when Tori Spelling got pregnant shortly after reaching goal weight
    • True innovation is needed and frozen food launch could bring improvements

*Based on 2007 reactivation REV of $97 mil and estimated $500 spending per reactivation.

diet category ntri continued
Diet Category – NTRI continued
  • Key Metrics Review
    • CAC, LTV, Retention, and Reactivation are all critical
    • Metrics interact and can’t be viewed independently
    • CAC at around $184 for 2007 follows industry standards
    • Retention rate is a short term growth indicator
    • Retention at 10 weeks resides at the low end of industry standard especially considering artificial inflation via Auto Ship and aggressive discounting
    • True retention rates might be closer to 5 weeks w/o Auto Ship
    • Actual cost of food might cause early exit of clients (Forbes: $113.52)
    • 55% of diet program calories provided might be another factor for early exit
    • Taste of food might cause early abandonment
    • Reactivation is long term growth metric
    • At 17% annual reactivation annual contribution from reactivation is 26% in 2008 and 32% in 2009
    • At 20 to 25% annual reactivation annual contribution from reactivation is 41% in 2009
diet category wtw
Diet Category – WTW
  • WTW is trying to reinvent itself
    • Poor creative execution P 3 to 4 years opened door for competition
    • Lack in creative strategy will keep company from true growth
    • Q3 ’07 with new ad campaign and adjusted ad spending
    • Q1 ’08 another new campaign…educating the consumer!?
    • Monthly Pass is driving revenue and attendance rates up
    • WTW looks more like NTRI and their Auto ship and Free Weeks of Food offer than a truly fixed business…
    • Still offers attractive margins and is leading brand in the category
    • CE has 50% market share and is lacking in performance compared to NA
    • Other diet players will enter CE and go for a piece of the market
    • WTW remains an attractive brand since it creates customers for life
diet category otc drugs
Diet Category – OTC / Drugs
  • “alli” generated impressive trial results
    • Launched in 06/07, “alli” generated $300 mil+ in 2007
    • 2 mil consumers for “alli” in Q3 ’07 = NTRI new customers 2003 to 2007
    • Cannibalized other players in the diet space
    • The closer the competitors are to “alli” the bigger the impact
    • Q1 and Q2 ’08 will be good quarters for GSK, after that it will go flat & down
    • Side effects, minimal weight loss, and required life style changes will turn consumers off
    • Recent co-op marketing strategy with eDiets is meaningless
  • Sanofi Aventis most likely “in-market-scenario” is 2010
    • FDA rejected drug in 6/07 because of associated increase of depression
    • Results in Europe are not very promising
    • However, once client stays on product past initial loading phase, results seem ok
    • Loading phase requirements will be a challenge for US customers
    • Mexican pharmacies sell product to US customers – if requested
diet category outlook 2008 to 2010 12
Diet Category – Outlook 2008 to 2010/12
  • Category will stabilize
    • DSHEA implementation in 1995 caused significant disturbance in the category
    • Atkins followed in early 2000’s and crashed abruptly
    • Nutrisystem picked up the pieces once Atkins was down and grew fast & furious
    • “alli” caused lots of PR but significant disturbance is questionable
    • No new diet on the horizon but since barrier of entry is so extremely low there could be always a surprise around the corner
    • WTW is the trusted brand in the category but don’t expect miracles
    • New “brand shifting” ad campaign is not convincing…they have to try harder!
    • NTRI made some significant strategic mistakes in Q3 ’07
    • Increasing pressure from the competition, bad luck celebrities and poor execution of new product concepts will hurt the company in 2008
    • New frozen food line could bring new momentum in 2009 and 2010
    • International expansion is critical and Japan is 2nd largest diet market in the world*
    • “alli” is a fad and will fade after Q2 ’08

*Source: New NutritionBusiness Dec 07/Jan 08. $2 bil/Y in weight management products.

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