Is it a weight-loss supplement or a way of life? Only Herbalife Ltd. knows for sure. Formerly known as WH Holdings (Cayman Islands), this holding company operates through Herbalife International, which manufactures and distributes weight control products that include meal replacements, snacks, and "enhancers." It also offers nutritional supplements, energy drinks, and skin care products. Herbalife has subsidiaries in about 80 countries. Its multilevel marketing program involves almost 3 million independent distributors throughout the world. A third of those distributors, however, are actually individual customers who registered as distributors in order to buy the products at a discounted rate.
Sales and Marketing
Distributors in emerging markets in Central America, Asia, and Eastern Europe have been attracted to Herbalife by the low startup costs. After buying promotional materials (average cost: $60), distributors can buy products from Herbalife at a discount of up to 50% and resell them at retail prices. The company's fastest-growing markets include Brazil, China, Mexico, and Russia. A good chunk of Herbalife's operations are geared towards attracting and retaining distributors through promotions and technology support.
Due to local legislation, China is the only market where the company also sells its products through more than 65 retail stores. This arrangement loosened in 2007 when Herbalife was granted a direct-selling license by China's Ministry of Commerce. The company is now allowed to make direct sales outside its stores in more than 15 provinces that represent more than 840 million people.
The company's flexible distribution model is helping Herbalife expand into new markets. In 2010 it struck a distribution piggy-back agreement with a large retailer in Mexico, which gives Herbalife increased access to individual distributors who pick up their orders at the retailer's local outlets. The company also authorized distributors to sell their meal replacement shakes in individual servings (as opposed to an entire month's supply); the sales model proved so successful that it jumped from Mexico to other countries in Latin America, as well as into the US.
While many of its products are made by third-party manufacturers, Herbalife is increasing its direct manufacturing operations for top selling products. It operates three manufacturing facilities -- one in China, one in California, and a third in North Carolina that was purchased in 2012. The China and California plants have also been expanded to increase capacity. The facility in China manufactures all of the products the company sells in that country. In addition, in 2010 the company struck a joint venture to build a facility to extract some of the botanical raw materials used in its products.
New product development is a constant for the company. To supplement its in-house development scientists, Herbalife also sponsors research at UCLA and the University of Mississippi's School of Pharmacy. – less