Worldwide macro trends favor Herbalife, president says

08-Jul-2013 - Last updated on 09-Jul-2013 at 15:27 GMT

Related tags Obesity

Des Walsh

Three mega trends will drive Herbalife’s continued expansion, said president Des Walsh. The world is getting fatter, it’s getting older, and in the hangover from the 2008 financial crisis economic expansion still lags in much of the world leaving many people unemployed or underemployed.

“We think these three macro trends favor us,” Walsh said during a recent media event at the company’s headquarters in downtown Los Angeles. “But it’s not just about sales; what we see is a strong, stable business.”

Herbalife, which sells its products via a network marketing model, is really more of a food company these days, Walsh said. Three key products—high protein meal replacement shakes, herbal teas and aloe beverages—account for about 60% of sales. Replacing one meal a day with this trio of products is a key part of the company’s strategy, Walsh said.

Favorable trends

Herbalife is now in 89 countries and in many of the company’s key markets, obesity rates continue to rise. In the US, 36% of the population had a body mass index of 30 or greater in 2007; by 2015 that figure is expected to be 44%. In China, another key market, obesity rates are still low by world standards but are expected to rise by 50% in the 2007 to 2015 time frame. Walsh said that the World Health Organization is projecting that in 2015 2.3 billion adults will be overweight and another 700 million will be obese.

“This is obviously a sweet spot for us,” Walsh said. “For most people controlling their weight is a challenge. We believe that by swapping out one meal a day (with the company’s shakes) we can help.”

Another trend that will favor the company is the world’s aging population. Healthy aging and weight management dovetail nicely, Walsh said, and in the future the company will have no shortage of customers.

Citing United Nation’s statistics, Walsh said that in 1950 8% of the world’s population was over 60 years old; by 2000 that figure had risen to 10%. But by 2050, that’s expected to more than double to 21%, Walsh said.

Walsh said that presents a huge opportunity for Herbalife to “affect (these consumers’) biological clocks.”

In addition to weight and age, worldwide economic factors favor the company, Walsh said. In 12 of the company’s top 20 markets unemployment was higher in 2012 than it was in 2008. And in five of those markets, the US, Venezuela, India, Italy and Spain, it was still greater than 7%.

“We believe Herbalife presents a business opportunity in markets where there is a lack of opportunity,” Walsh said.

Iceland offered as proof

Herbalife has taken a beating in the financial blogosphere over continued allegations by activist investor Bill Ackman, who has taken a huge short position on the company's stock and who has called the company’s model a pyramid scheme among other things. In responding to these, Walsh cites the company’s experience in Iceland, the market in which the company has the greatest penetration and where it has operated for years. It’s an unusual market, Walsh said, in that the country’s total population is only about 315,000, of whom 120,000 live in the capital city, Reykjavik. With the dense thicket of family relationships that characterizes Icelandic society, secrets are hard to keep, he said.

“If we were not a legitimate company, everyone there would know about it,” Walsh said.

Herbalife has posted consistent growth, Walsh said, posting at a 13% CAGR over the last 10 years. But Walsh said the company has a strong commitment to the quality of the products, which is the basis for its success. (For the record, Ackman has never attacked teh company's products, only its business model.)

“How can you have 13% growth without a professional sales force? We believe the business is successful only because the products work.”