Herbalife highlights quality initiatives, long term trends at annual event

Herbalife, a network marketing company that sells a wide variety of meal replacements, foods and dietary supplements, is the world’s largest MLM focused solely on nutritional products. The company is set to report its fiscal year end earnings in late February, when full year net sales are expected to top $4.5 billion. 

Weathering the storm

The company seems to have now fully emerged from a long and damaging battle with activist investor Bill Ackman, who took a huge short position in the company’s stock and embarked on a high profile public campaign to discredit the company’s financial reporting and business model in an attempt to drive down the company’s share price.  

He succeeded to some degree, though whether he drove down the price enough to profit from his $1 billion gamble is unclear. The Federal Trade Commission subsequently launched an investigation of the company’s business practices (the two events are not necessarily related) . In order to put to rest pyramid scheme allegations, Herbalife agreed to pay a $200 million fine and to restructure how it accounts for sales by independent distributors and how those distributors are compensated.

The company’s share price swooned in the wake of these challenges, but has since roared back.  From a recent low of slightly more than $15 in 2015, the stock trades at more than $59 a share today (the company’s shares split 2 for 1 in 2018).

Herbalife also endured a recent hiccup with the abrupt departure of CEO Rich Goudis, who resigned in early January because of unspecified statements he made before he became CEO.  Goudis is gone but apparently not forgotten;  his name and activities that were begun under his fairly brief leadership (Goudis became CEO only in June of 2017 after serving for more than a decade as Herbalife’s COO and CFO) were referenced more than once by speakers at the recent event.

Favorable long term trends 

The company was founded on a mission of promoting weight loss, which is still one of its a core tenets.  Its best selling product by far is its line of meal replacement shakes. And long term global trends augur well for the company, according to Dr John Agwunobi, MD, Herbalife’s co-president and chief nutrition officer.

Agwunobi was among a host of speakers at the company’s 6th Annual Global Quality Summit, held last week in Los Angeles.  Herbalife’s message and suite of products hit squarely at global trends, he argued.

“This problem of obesity and overweight is on the rise.  There are more obese people in all of our top markets, in China, India, the US and Mexico,” ​Agwunobi told the attendees.

“Global obesity rates have doubled since 1980.  Type 2 diabetes is up to 10.8% of the population in the US.  We are now in 94 countries. So if you lump all the rest together, there are a billion people who are overweight or obese in the markets we serve and are in need of our help,” ​he said.

But another current runs counter to the rising tide of obesity, Agwunobi said.  Even though people are getting fatter, they’re living longer.  That means they will have either a longer time to suffer through the lifestyle diseases associated with obesity, or, if they take control earlier on, they can lead a life with a greater healthspan, he said.

“To live longer and healthier requires that you begin on that journey when you are young,”​ he said. “Aging starts in your youth and people are starting to realize this.”​

Reaffirming quality using DNA

On the quality front, Steven Newmaster, PhD, of the University of Guelph told the audience of how Herbalife is using genetic techniques to verify its supply chain.

Newmaster’s interest in DNA testing technology grew from his early work in the field identifying medicinal plants.  (He is trained as an ethnobotanist).  He said he always wanted to know what tools indigenous healers used to identify the plants they used.

Identifying plants using their DNA is, as it turns out, more difficult task than it is to use a bit of sampled DNA to positively identify an animal.  There were some  early missteps. Newmaster’s early results were used by then New York Attorney General Eric Schneiderman in a now discredited attack on the dietary supplement industry’s supply chain integrity.  But DNA barcoding technology has advanced and become more reliable, if applied in the right way and at the right points in the supply chain.

“Herbalife is leading on what is probably going to result in new regulatory tools,”​ Newmaster said. “The supply chain has been tested from the beginning, from the producer all the way through to the manufacturer, and we have validated that the ingredients are authentic.  Then we know we have what is going to heal us and give us good nutrition.”​

Newmaster said DNA testing results can go a long way toward reaffirming the company’s reputation for quality with its consumers.

“Consumers want transparency. One of the beauties of this technology is you can hook it to the internet, and the results can be distilled down and transmitted to consumers,”​ he said.

Building community

Communicating that sort of message is another place that Herbalife shines, Agwunobi told the attendees.  Herbalife, like other MLMs and dietary supplement retailers in general, has to contend with rise of ecommerce sales.  Why go through the hassle of having to sit through what might amount to a recruitment pitch to get your supply of meal replacement shakes, when you can have them delivered to your door with a couple of stabs of your thumb? Because, he said, the sense of community that Herbalife provides is what works.

“We find that 95% of participants who started a weight loss program with friends completed the program. Of those who started alone, only 76% completed the program,” ​he said.

“And 66% of those who started with friends maintained their results 10 months later.  Only 24% of those started alone did.  Our model is about selling results,” ​he said.