Nutrisystem helps its customers trim their waistline morning, noon, and night. The company promotes weight loss by selling prepared meals and grocery items that are delivered directly to consumers throughout the US. Nutrisystem customers order monthly food packages consisting 28 days of portion-controlled items that comprise breakfast, lunch, dinner, and dessert, supplemented with fruits and vegetables. It also offers individualized calorie plans, one-on-one diet counseling, behavior modification, and exercise education and maintenance plans. Nutrisystem also sells its weight-management products through a partnership with TV marketer QVC (4% of revenue) and club retailers such as Costco.
Looking to boost its bottom line in a timely fashion, Nutrisystem in early 2012 announced plans to enter the retail market headfirst by rolling out products later in the year. As part of the push, the company appointed a former Nestle and Kraft executive to lead the charge. The move to get its products on store shelves appears to be Nutrisystem's effort to quickly turn its business around by adding another sales channel.
More of a reason for Nutrisystem to join the ranks of retailing food companies is its 2011 results. Across all sales channels, Nutrisystem logged revenue declines, from more than $509 million in 2010 to about $401 million in 2011. The company points to lower than average sales prices and fewer customer starts for the miss. Gross margin as a percent of revenue also dropped to about 51% in 2011 from an already low of 56% in 2010. The weight loss services company attributes the slide to promotional pricing and an increase in sales of its fresh-frozen food programs. The company's margins are negatively impacted by increased sales of these programs, which carry a higher cost per sales dollar.
The sales-boosting fresh-frozen food program in question is the SUCCESS program, a low-glycemic-index plan launched in late 2011. The program features frequent, portion-controlled fresh-frozen foods marketed under the Chef's Table brand.
Nutrisystem is banking on its food retailing efforts to return to pre-recession revenue. The company is faced with troubles that began years ago (in 2008) with the onset of the economic downturn and a decline in its potential customers' discretionary spending. The company has been limping along due to fewer new customer starts -- its primary source of revenue -- as it has yet to see its business return to its happier days. For instance, in January 2011, in a month that marked the launch of the year's "diet season," Nutrisystem logged stale sales. Anxiously, the next month, the weight loss company turned to a "rollback" strategy and, thankfully, successfully enlisted more customers but took a noteworthy hit on gross margins. The first quarter of the year is one of the most important for Nutrisystem, which typically logs about a third of its revenue when customers enter a new year with weight loss plans and looking to shed pounds they've put on during the holidays.
The decline in new customer starts during the past few years has caused a snowball effect for Nutrisystem. With fewer new customers, the company has seen a negative effect on its reactivation revenue, those customer who aren't new customers and are not customers within their first nine months on the program.
To boost revenues as it waits for customers to increase discretionary spending, the company has overhauled its e-commerce platform, enhanced its fresh-frozen foods, introduced a Nutrisystem D program through its retail channel, and created a Culinary Council that is working to update its food choices and improve taste.
The company markets weight loss programs through brick-and-mortar stores and their online counterparts. Happily for Nutrisystem, warehouse retailer Costco has lived up to Nutrisystem's sales expectations. The diet company severs relationships with underperforming retailers.
Also, Nutrisystem is keenly aware of its target customer: a female, approximately 50-years-old, and weighs about 187 pounds. Customers on average want to lose 43 pounds. Its typical customers stay on a Nutrisystem program for up to 12 weeks, losing up to 2 pounds per week.
Royce & Associates owns 10% of NutriSystem. – less