September 27-28, 2011September 27-28, 2011Silver Spring, MDSilver Spring, MD

John LaRosa, President, Marketdata Enterprises John LaRosa, President, Marketdata Enterprises

Overview & Status of Overview & Status of

The U.S. Weight Loss MarketThe U.S. Weight Loss Market

Market Size, Segments,

Emerging Trends & Forecasts

Historical Value of the Diet Market

0

10

20

30

40

50

60

70$

Bill

ion

s

1993

1996

1998

2000

2002

2004

2010

Year

Value of the Major Market SegmentsValue of the Major Market Segments

20072007 20092009 20102010

Diet Soft DrinksDiet Soft Drinks $19.80$19.80 $21.06$21.06 $21.15$21.15

Artificial SweetenersArtificial Sweeteners 2.362.36 2.482.48 2.522.52

Diet Foods (dinners only)Diet Foods (dinners only) 2.762.76 2.272.27 2.322.32

Commercial Centers/ChainsCommercial Centers/Chains 3.893.89 3.233.23 3.293.29

Medical Programs*Medical Programs* 2.522.52 2.472.47 2.482.48

Bariatric SurgeryBariatric Surgery 5.125.12 5.775.77 5.775.77

Retail Meal Replacements, Appetite Retail Meal Replacements, Appetite SuppressantsSuppressants

2.582.58 2.752.75 2.692.69

Health ClubsHealth Clubs 18.5018.50 19.519.5 19.519.5

Diet Books, Exercise VideosDiet Books, Exercise Videos 1.011.01 1.211.21 1.211.21

Total:Total: 58.5458.54 60.7460.74 60.9360.93

* includes: prescription diet drugs, VLCD s, low and moderate-priced hospital-based plans, other RD and MD plans

Source: Marketdata estimates

Major Market Major Market DevelopmentsDevelopments

The “great recession” hampers consumer spending. The “great recession” hampers consumer spending.

Dieters shift to low cost and free DIY programs (80%).Dieters shift to low cost and free DIY programs (80%).

Diet food delivery services are hit hard (NutriSystem).Diet food delivery services are hit hard (NutriSystem).

FDA rejects 5 new Rx diet drugs: Acomplia, Taranabant, FDA rejects 5 new Rx diet drugs: Acomplia, Taranabant,

Lorcaserin, Qnexa, Contrave – no new blockbusters.Lorcaserin, Qnexa, Contrave – no new blockbusters.

OTC diet aids market hurt by Hydroxycut recall.OTC diet aids market hurt by Hydroxycut recall.

Small-mid-sized medical chains post good growth.Small-mid-sized medical chains post good growth.

Diet websites estimated to be $842 mill. market in 2009.Diet websites estimated to be $842 mill. market in 2009.

Major Market Developments (cont’d.)Major Market Developments (cont’d.)

Selling direct to consumer and MLM become more Selling direct to consumer and MLM become more popular (Medifast, Herbalife, others).popular (Medifast, Herbalife, others).

Weight Watchers has strongest 2011 diet season Weight Watchers has strongest 2011 diet season (WW(WW.com paid subscribers reach 1.7 million) paid subscribers reach 1.7 million)

Commercial weight loss centers used by less dieters, Commercial weight loss centers used by less dieters, long-term share falls from 15% to 9-10%.long-term share falls from 15% to 9-10%.

Recession forces competitors to cut prices, waive sign Recession forces competitors to cut prices, waive sign up fees, offer more discounts and special dealsup fees, offer more discounts and special deals

Weight Loss Industry TimelineKey Inflection Points

1970s-1980s: Bricks & mortar weight loss centers is the main model

1990s: Do-it-yourself products thrive

2000 to date: Medicalization of weight loss, increased role of the Internet

2008-2010: The “Great Recession” cuts consumer spending, shift to more DIY plans

Weight Loss Industry TimelineKey Inflection Points

Key DateKey Date Event and Its EffectEvent and Its Effect

Fall 1989Fall 1989 Oprah Winfrey popularizes liquid diets, Optifast, retail Oprah Winfrey popularizes liquid diets, Optifast, retail products like Slim-Fast get spin-off benefitproducts like Slim-Fast get spin-off benefit

1990-911990-91 Congressional hearings scrutinize industry marketingCongressional hearings scrutinize industry marketing

Jan. 1991Jan. 1991 Persian Gulf War hurts “diet season”, as does recessionPersian Gulf War hurts “diet season”, as does recession

19941994 Dietary Supplement Health & Education Act passed, FDA has Dietary Supplement Health & Education Act passed, FDA has no power to regulate flood of new OTC diet products, no power to regulate flood of new OTC diet products, appetite suppressants, herbal remedies, rise of Metabolifeappetite suppressants, herbal remedies, rise of Metabolife

19961996 Redux, phen/fen seen as new “magic pill”, dieters rush to Redux, phen/fen seen as new “magic pill”, dieters rush to their MDs, abandon other weight loss planstheir MDs, abandon other weight loss plans

Fall 1997Fall 1997 Phen/fen taken off market, dieters return to other programsPhen/fen taken off market, dieters return to other programs

Continued…

Weight Loss Industry TimelineKey Inflection Points

Key DateKey Date Event and Its EffectEvent and Its Effect

19991999 Sales of OTC diet pills surpass meal replacements for first Sales of OTC diet pills surpass meal replacements for first time evertime ever

20002000 Emergence of diet websites and “cyberdieting”Emergence of diet websites and “cyberdieting”

April 2002April 2002 New IRS rules allow for deductibility of diet programs, New IRS rules allow for deductibility of diet programs, obesity recognized as a diseaseobesity recognized as a disease

mid-2002mid-2002 Low-carb craze begins, all other segments sufferLow-carb craze begins, all other segments suffer

April 2004April 2004 FDA bans Ephedra, OTC diet pill manufacturers shift strategy FDA bans Ephedra, OTC diet pill manufacturers shift strategy & find alternative ingredients& find alternative ingredients

20082008 Low-carb movement stallsLow-carb movement stalls

2008-20102008-2010 Major recession cuts growth to less than 1%Major recession cuts growth to less than 1%

American Adults On a Diet

37%

26% 24% 27% 24%

33%

54%

0%

10%

20%

30%

40%

50%

60%

1986

1989

1996

1998

2000

2004

2010

Source: Calorie Control Council , National Consumer Surveys

Why Do Our Diets Fail ?Why Do Our Diets Fail ?• Don’t exercise enough – 69%Don’t exercise enough – 69%• Feel metabolism slowing down – 62%Feel metabolism slowing down – 62%• Splurge on favorite foods too often – 49%Splurge on favorite foods too often – 49%• Not enough self-discipline – 50%Not enough self-discipline – 50%• Snack too much – 52%Snack too much – 52%• Often overeat at mealtimes – 37%Often overeat at mealtimes – 37%• Often eat for emotional reasons – 41%Often eat for emotional reasons – 41%• Eat too many high fat foods – 30%Eat too many high fat foods – 30%• Don’t eat properly at restaurants – 33%Don’t eat properly at restaurants – 33%• Only watch fat, not calories – 19%Only watch fat, not calories – 19%• Only watch calories, not fat – 14%Only watch calories, not fat – 14%

Source: Calorie Control Council, 2010 surveySource: Calorie Control Council, 2010 survey

Weight Loss Methods UsedWeight Loss Methods Used

• Combine calorie reduction with exercise – 73%Combine calorie reduction with exercise – 73%• Count calories - 44%Count calories - 44%• Use online weight loss tools – 17%Use online weight loss tools – 17%• Skip meals – 17%Skip meals – 17%

• Use diet pills – 13%Use diet pills – 13%• Follow restrictive diet plan (i.e. Atkins, Zone) – 8%Follow restrictive diet plan (i.e. Atkins, Zone) – 8%• Join weight loss program – 8%Join weight loss program – 8%• Participate in online weight loss programs – 7%Participate in online weight loss programs – 7%

Source: Calorie Control Council, 2010 surveySource: Calorie Control Council, 2010 survey

Demographics of Dieters: 2011Demographics of Dieters: 2011

• 80% are now do-it-yourselfers. 75 million total dieters.80% are now do-it-yourselfers. 75 million total dieters.

• Dieters become more value-conscious, looking for discounts, specials, Dieters become more value-conscious, looking for discounts, specials, help with financing. help with financing.

• Dieters seeking more flexibility in programs.Dieters seeking more flexibility in programs.

• Direct-to-consumer sales more popular. Preference for anonymous Direct-to-consumer sales more popular. Preference for anonymous mail order & MLM, websites.mail order & MLM, websites.

• Social media & community features more important to dieters (chat, Social media & community features more important to dieters (chat, forums, peers). forums, peers).

• Greater weight gain during the “great recession” vs. past recessions. Greater weight gain during the “great recession” vs. past recessions. clients heavier, more diabetesclients heavier, more diabetes..

• More interest by: men, seniors, childrenMore interest by: men, seniors, children

Dieter Demographics & Preferences

BestDietForMe.com (Marketdata) has identified 3 areas where dieters may need extra help:

Stimulus ControlManaging eating triggers & high risk situations, controlling portion sizes

Emotional EatingHelp with stress management & binge eating

Social Eating SkillsStrategies for dining out in restaurants & handling saboteurs

Surveys claim:

46% of American women with children under 18 say they experience stress frequently in their daily lives. Diet programs that don’t address stress management or emotional eating are missing a key area.

Dieter Demographics & Preferences

3 Major Components of Successful Weight Loss:

Nutrition (portion control, proper foods)

Exercise

Psychological Support (counseling, behavior modification)

Most weight loss programs do NOT address all three areas.

BestDietForMe.com Visitor Statistics

• Of 16,366 people completing the BestDietForMe.com online survey in 2010, 50% were triggered as needing SOME psychological support.

• 74%, the greatest share, needs EMOTIONAL EATING support.

BestDietForMe.com Visitor StatisticsDieter Demographics

BMI 52% had a BMI (Body Mass Index) of 30 or higher, indicating that they are

obese.

28% of consumers had a BMI of 35 or more, meaning they may be candidates for bariatric surgery.

The remaining 29% were overweight, but not obese.

Dieters’ Budgets An overwhelming 84.5% of consumers want to spend less than $500 on a

weight loss program.

Another 12% will spend $500-1,500, and just 3.4% will spend $1,500 or more.

For Dieters Who Completed the BDFM Survey in 2010…

Continued…

BestDietForMe.com Visitor StatisticsDieter Demographics

Preferred Location of Weight Loss Programs79.4% of dieting consumers favor “do-it-yourself” weight loss diets accessed from home (online or by phone) or use of diet books or celebrity diet plans (fad diets) – a share consistent with estimates by consumer magazines & trade groups (70%).

Preferred Food Plan 58% of dieters prefer a healthy diet of supermarket food

9% want pre-packaged or diet company food

3.5% want a meal replacement product (shakes, bars)

1.1% favor liquid diets

27% have no food preference

For Dieters Who Completed the BDFM Survey in 2010…

Health Clubs Industry - Trends & Status Report

Historical sales growth rate of 6.8% per year (2000-2010)

2010 sales growth of zero

Market value of $19.5 billion in 2010 –2nd largest segment of U.S. weight loss market

29,750 health clubs in the U.S., and growing. 45 million paid members.

50% of customers drop out after 3-6 months

Clubs are growing source of sales for diet products mfrs. (supplements, nutrition bars).

Estimated 55% of clubs have some type of weight loss program.

Trend toward value- added wellness services, boot camp workouts, small group workouts, more focus on youths and seniors.

Most health clubs do not have a specific weight loss program, usually an afterthought. Usually not part of membership and extra cost charged

Commercial Weight Loss Centers – Trends & Status

Historical sales growth rate of 3.0% per year (1991-2011)

2011 sales growth of 3.5%

2014 forecast growth of 4.5% yearly.

Market value of $3.23 billion in 2009, $3.29 bill in 2010.

Large chains (Weight Watchers, Jenny Craig) buying back franchises, converting them to corporate centers.

Major revenue growth coming from Weight Watchers and Medifast.

Sole proprietors/small chains disappearing – out of business or being acquired

Obstacles to future growth include: new prescription drugs, DIY dieters, growth of medical chains and MDs adding diet programs.

Weight WatchersWeight WatchersThe Benchmark for SuccessThe Benchmark for Success

International brand name recognitionInternational brand name recognition Flexible & low-cost programs, safeFlexible & low-cost programs, safe Company diet food & costly supplements not Company diet food & costly supplements not

a mandatory purchasea mandatory purchase Top-quality management & group leaders (low Top-quality management & group leaders (low

turnover)turnover) Geographic diversification of markets ( U.S., Geographic diversification of markets ( U.S.,

Europe, Canada)Europe, Canada) Avoids fad diet trends, risky drugs that produce Avoids fad diet trends, risky drugs that produce

negative public relationsnegative public relations

continuedcontinued

Weight WatchersWeight WatchersThe Benchmark for Success, continuedThe Benchmark for Success, continued

Tight control over franchisees, centers – high Tight control over franchisees, centers – high

quality controlquality control Has both Online & off-line operationsHas both Online & off-line operations Strong cash flow, to support national ad Strong cash flow, to support national ad

campaignscampaigns Great leverage of larger customer base Great leverage of larger customer base

(10 million past/current clients)(10 million past/current clients) No-nonsense pricing & contracts – no hard sell –No-nonsense pricing & contracts – no hard sell –

transparencytransparency High-profit /low overhead service modelHigh-profit /low overhead service model

Performance of Major Weight Performance of Major Weight Loss CompaniesLoss Companies

2009 Sales2009 Sales

($ millions)($ millions)2010 Sales2010 Sales

($ millions)($ millions)2011 12011 1stst half half SalesSales ($ mill.) ($ mill.)

% chg. % chg. Over 2010Over 2010

Weight Weight WatchersWatchers

$1,399$1,399 $1,460$1,460 $989.4$989.4 26.2%26.2%

NutriSystemNutriSystem 527527 509509 248.8248.8 -17.2-17.2

Jenny CraigJenny Craig 480480 432432 N/AN/A N/AN/A

MedifastMedifast 169169 257257 152.5152.5 19.919.9

Herbalife*Herbalife* 322E322E 382E382E 231E231E 10.9E10.9E

Total:Total:

* U.S. sales of weight loss products E - estimated

OTC Diet Pills - Trends & Status

Segment is without direction, in wake of ephedra ban and Hydroxycut recall. Mfrs. use alternate ingredients to maintain sales (green tea, bitter orange, extracts).

Sales are flat in 2010 at $1.57 billion. No growth in 2011.

FDA recalls Hydroxycut in May 2009. Sales decline by double digits. Bad publicity hurts consumer confidence.

Mail order, multi-level and Internet channels make up 50% of the market.

Glaxo’s Alli OTC pill has strong sales in 2008, but on the decline since then.

FTC becomes more active, actions and finds against manufacturers increase.

75% of products use stimulants or thermogenic agents such as bitter orange, green tea, guarana, yerba mate, to boost metabolism.

The Top OTC Diet Pills & Meal Replacements The Top OTC Diet Pills & Meal Replacements Brands: 2010 ($ millions)Brands: 2010 ($ millions)

Slim-Fast (Unilever)Slim-Fast (Unilever) $180$180

HerbalifeHerbalife 382382

Zantrex, RelacoreZantrex, Relacore 160160

Hydroxycut (Iovate)Hydroxycut (Iovate) 220220

MetabolifeMetabolife 8080

Stacker (NVE Pharm.)Stacker (NVE Pharm.) 4040

Xenadrine Xenadrine (Cytodyne LLC)(Cytodyne LLC) 4040

Total:Total: $1,102$1,102

Total Meal Replacements & Appetite Suppressants MarketTotal Meal Replacements & Appetite Suppressants Market

Value - $ MillionsValue - $ Millions

Meal Meal ReplacementsReplacements

OTC Diet Pills Combined Total

2005 $1.16 $1.49$1.49 $2.65$2.65

2006 1.09 1.44 2.53

2007 1.04 1.54 2.58

2008 1.05 1.61 2.66

2009 1.09 1.66 2.75

2010 1.11 1.57 2.68

2011F 1.15 1.57 2.72

2014F 1.31 1.74 3.05

Source: Marketdata estimates, IRI data, company documents

Meal Replacements Market - $ MillionsMeal Replacements Market - $ Millions

Source: Marketdata estimates, IRI data, Nutrition Business Journal, companies

* Multi-level companies, infomercial sales, mail order•# Wal-mart, GNC, drugstores, other brands

Slim-Slim-FastFast

Private Private label label Brands Brands (retail) #(retail) #

AtkinsAtkinsMLM & MLM & others*others* TotalTotal % Chg.% Chg.

20062006 $330$330 $200$200 $180$180 $389$389 $1,099$1,099

20072007 223223 200200 170170 455455 1,0451,045 -5.0-5.0

20082008 207207 200200 170170 478478 1,0551,055 1.01.0

20102010 180180 180180 200200 552552 1,1121,112 5.45.4

Medical Weight Loss Programs – Trends & Status

Medical weight loss estimated at $8.25 billion in 2010, flat growth overall.

Slight growth in Rx diet drugs sales, $546 million.

VLCD programs flat at $480 million.

Caseloads of bariatricians falls as recession hits. Larger practices with marketing funds will do better.

Weight loss surgeries flat at 220,000, curtailed by high cost, recession, spotty insurance coverage.

Small to mid-sized medical chains post good growth (Medi-Weightloss, Medifast, Centers for Medical Wt. Loss

Untapped Market NichesUntapped Market Niches

Afro-American diet programsAfro-American diet programs Hispanic diet programsHispanic diet programs Adolescents marketAdolescents market ChinaChina Centers with on-site exerciseCenters with on-site exercise Partnerships with drugstore chain healthcare Partnerships with drugstore chain healthcare

“ “mini-clinics”mini-clinics” Upscale shopping mall locationsUpscale shopping mall locations OB/Gyn officesOB/Gyn offices

Marketdata’s 2011 ForecastsMarketdata’s 2011 Forecasts• Total market to grow only 2%, to $62 billion. Total market to grow only 2%, to $62 billion.

• No new blockbuster prescription diet drug.No new blockbuster prescription diet drug.

• Free & low cost diet websites will gain (Weight Watchers.com, Free & low cost diet websites will gain (Weight Watchers.com, Sparkpeople, etc.)Sparkpeople, etc.)

• MLM channels will do well (Herbalife, Tale Shape for Life, Amway, MLM channels will do well (Herbalife, Tale Shape for Life, Amway, Nu-Skin).Nu-Skin).

• Return to regular food-based plans, less company diet foods & Return to regular food-based plans, less company diet foods & supplements.supplements.

• 3.5% growth for commercial chains.3.5% growth for commercial chains.

• Meal replacements grow faster than OTC diet pills Meal replacements grow faster than OTC diet pills

Marketdata’s 2014 Marketdata’s 2014 ForecastsForecasts

• Emerging international markets grow faster than U.S. and Emerging international markets grow faster than U.S. and Europe (China, Europe (China,

Latin America)Latin America)

• Weight loss services will locate in non-traditional sites (drugstore Weight loss services will locate in non-traditional sites (drugstore chain chain

mini-clinics, shopping malls, OB/gyn offices – Go where the mini-clinics, shopping malls, OB/gyn offices – Go where the clients are)clients are)

• Drug company R & D will find several new obesity drugs, FDA Drug company R & D will find several new obesity drugs, FDA approvalapproval

• Industry growth will revert to historical norm of 5-6%/yearIndustry growth will revert to historical norm of 5-6%/year

• More cross promotion and joint marketing dealsMore cross promotion and joint marketing deals

• Brick & mortar diet center model profit margins too small to Brick & mortar diet center model profit margins too small to survive – survive –

model will only work with higher priced medical programsmodel will only work with higher priced medical programs

• Availability of online and DIY programs will force avg. program Availability of online and DIY programs will force avg. program fees to fees to

decline further.decline further.

• More entrepreneurs and unemployed workers will enter the More entrepreneurs and unemployed workers will enter the market via market via

start-ups and franchise buyers.start-ups and franchise buyers.

• Most successful competitors will have multiple distribution Most successful competitors will have multiple distribution channels.channels.

  

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John@MarketdataEnterprises.comJohn@MarketdataEnterprises.com

BestDietForMe.comBestDietForMe.com

DietBusinessWatch.comDietBusinessWatch.com

Thank You !Thank You !  John LaRosa, PresidentJohn LaRosa, President

Phone: 813-907-9090

Fax: 813-907-3606