Background

Weight Watchers International, Inc. (WWI) was founded in 1961 and developed domestically and internationally mostly through franchising until it was acquired by H.J. Heinz Company (Heinz) in 1978. Prior to its sale in 1999, the company generated a majority of its revenues through fees paid by its members when they attended weekly meetings run by trained leaders who had lost weight with Weight Watchers®. Meeting membership grew until the early 90’s but US attendance then declined through the mid-1990’s as Heinz used meetings to sell their frozen meals, and the US business lost all its profitability. In 1997, the US business began picking up again as the company introduced a new weight management system, the POINTS® plan.
In 1999, as Weight Watchers was approaching its previous peak penetration levels from the late 80’s, Heinz decided to sell WWI while retaining a license for the Weight Watchers Smart Ones® frozen entrée supermarket business. From the outside, it looked like a cyclical business at its peak. Nonetheless, in September 1999, we won the auction for WWI with a purchase price of approximately $750 million (well in excess of Wall Street’s $500 million to $600 million expectations).

Key Insights and Vision

• Weight Watchers meetings were a tremendous business model with the unique combination of low fixed costs in a very seasonal industry, high margins and strong barriers to entry (e.g. it took six months for members to reach reached their weight-loss goal with Weight Watchers and get trained as leaders).

• The dramatic downturn in US attendance during the early and mid-90s had been caused by the introduction of Jenny Craig-style pre-packaged meals into Weight Watchers meetings. This had run counter to WWI’s heritage of education and support leading members towards adopting a sensible and sustainable healthy lifestyle. It caused high turnover among leaders and turned the variable cost model into a fixed cost store model with freezers for the pre-packaged meals. That fixed cost model could not adapt to the seasonality of the business.

• Weight Watchers was cushioned from external shocks because of the loyalty of its customer base and focus on behavior modification: the scientific gold standard for healthy weight loss. Historical customer data analysis performed by the Invus team when WWI was acquired in 1999 showed that former members routinely and predictably returned to Weight Watchers when they needed its help and support.

• The introduction of the POINTS plan was a fundamental modernization of the Weight Watchers approach. Weight Watchers now had a flexible weight management system that could fit the busy lifestyles of its target customers. The growth from the POINTS plan was just beginning.

• Given Weight Watchers standing as a leading global brand in the weight loss arena, we saw an opportunity to transform the company from an orphan-subsidiary of a major food company to a stand-alone company that would aggressively pursue a series of transformational opportunities.

• Linda Huett, the Head of Weight Watchers UK where the POINTS plan had been developed, was an excellent candidate to lead all of WWI as a standalone company and eventually take the company public.

Company’s Strategic and Operational Achievements

• Instituted an ownership and incentive program which resulted in the company’s top 40 managers having a meaningful stake in the company
• Grew US organic attendances well above its prior peak and weathered the external shock of the low-carb craze
• Acquired almost all Weight Watchers franchise operations, increasing the company owned share of the US business from 40% to over 90%
• Significantly grew international membership revenues outside the traditional Anglo-markets of the US and UK
• Through a newly formed entity, WeightWatchers.com, developed the leader in weight management internet subscription products
• Leveraged experience gained through WeightWatchers.com to successfully launch Monthly Pass commitment plan, a subscription-based prepayment plan that gives members unlimited access to Weight Watchers meetings and free access to web based weight management tools. Monthly Pass, which is continuing to launch across other markets, has already demonstrated its ability to significantly increase attendance and revenue per member
• Partnered with Oprah Winfrey to launch a series of successful program innovations to make the WW program more livable and effective

Outcome

• At the time of our acquisition in 1999, WWI had revenue of $360 million and OI of $80 million. In 2018, WWI had grown revenue and OI to $1.5 billion and $390 million respectively.