Weight Watchers, the world's oldest and most recognized diet program, has had a bad run lately. After rebounding from the recession, its stock and earnings have been declining since 2011. This past week, it announced particularly bad results, and its CEO of four years departed to "pursue other opportunities."
When a company gets nervous enough to ditch the guy on top, it's time to take a look at what's really going on. And Weight Watchers looks to be a similar story to any number of industries floundering in the internet age: There are a bunch of new ways to get free the stuff for which they used to charge.
Weight Watchers is actually an amazing survival story. In an industry that's inherently faddish, it's been around since 1963, expanding to dozens of countries around the world. It's moved through several different weight loss methodologies as the science around obesity evolves; just this year it adopted a more environmentally-focused "360 Degrees" program for dealing with food choices at any given point in time. There's some clinical evidence that joining up delivers results, at least if you stick with it. Just by virtue of being around for 50 years, Weight Watchers has extremely high brand recognition, and an IbisWorld study from last month pegged it at 43.2 percent share of a $2.4 billion U.S. market.
The company has also weathered challengers before. The late 1990s saw news stories about an American public that had just gotten tired of diets, and resigned itself to its flab. "What we're finding is that Americans aren't dieting and saying 'it's OK to be fat,'" one Weight Watchers franchisee told Crain's Detroit Business in 1997. The low-carb craze took a chunk out of profits in the early 2000s, with millions flocking to meat rather than Weight Watchers' balanced program. Finally, the company started recovering as awareness of the obesity epidemic ramped up, and diet pills lost their luster--Weight Watchers seemed like the most tried-and-true option.
Earnings took a tumble in 2008, since weight loss programs are the first thing to go when economic hardship sets in. But they bounced right back, because Weight Watchers offers something most other diet programs don't: Weekly meetings with a community of people who provide encouragement and support, like Alcoholics Anonymous for overeaters. You pay to attend and get weighed on a weekly basis, and once you attain your weight goal, you don't have to pay again unless you gain it back.
And that's where Weight Watchers is taking a hit. The next generation of diet programs, like the FitBit and MyFitnessPal.com, have a social aspect built into them--you can build a community around your weight loss project without ever having to go to a meeting.
"What we've seen is a deteriorating trend in recruitments, particularly on our online business and we feel that some of that is driven by the continued sudden explosion of interest in free apps and activity monitors," said chief financial officer Nicholas Hotchkin, on the company's earnings call last week.
Sure, Weight Watchers has an app, but meeting fees are still the bulk of its business. Even with a new science-based regimen that incorporates attention from one of Weight Watchers' trained staff, it's hard to compete with free (or even almost free).
"In retrospect, the program resonated more with current members versus potential new consumers unfamiliar with our offering," said the company's old CEO, David Kirchhoff, on its first-quarter earnings call. "Our Weight Watchers Online advertising campaign focused more on the features versus the value proposition, which will be important for us to continue increasingly incorporating going forward." (He also mentioned that spokeswoman Jessica Simpson's pregnancy had put a hitch in their marketing plans, but hey, they still had Jennifer Hudson.)
But can doing the weight loss thing with an online community work? Dietician Katherine Tallmadge isn't a huge fan, and thinks Weight Watchers' troubles may be stemming in part simply from faster propagation of weight loss fads online. "Apps really are not going to work for most people," she says. "They've become the equivalent of yesterday's fad diet books." But Tallmadge says she has seen research that shows online communities can help--as long as they're supported (naturally) by individualized visits to a dietician.
Food policy expert Tracy Fox points out that whether or not they're the best route, online and smartphone-based diet aids are probably where people are shifting--especially since the U.S. is becoming an easier place to make healthy choices. She's also a big fan of her FitBit, which incentivizes compulsive compliance, especially since you know your friends can track your numbers online.
"It's more the philosophy of embedding this into your every day," says Fox. "Young people are not going to go to a class, it's just not their persona."
Of course, it would be silly to leave Weight Watchers for dead at this point. It's still growing into the workplace wellness arena, and may benefit from the Affordable Care Act's obesity prevention provisions. It's also got a wide-open market with men, who've been relatively ignored by the weight loss industry, and are now heavier than women.
But one part of its competitive edge is gone, and won't be coming back.