Disruptions are happening in all areas of the world, even in weight loss. Weight Watchers (“WW”) has been an old stalwart: attend meetings, keep food diaries, exercise and you will lose weight. It’s been a wonderful franchise opportunity, with multiple product line extensions—scales, bowls, cook books, magazines, frozen food and snack sales.
True confessions: I am a Weight Watchers Lifetime Member. After graduate school at Stanford, I joined Weight Watchers for the first time to lose the Freshman 15, and became a Lifetime Member. Since then, I have subscribed to the WW’s magazine and the online service, and have been back to WW many times. But at this point in my life, I could no longer identify with the leaders or the other members, so it just didn’t work for me.
Being in M&A and finance, the first thing I did upon rejoining was look up Weight Watcher’s stock, and read their 10-K, 10-Q’s and Proxy Statements. Not a pretty picture. The stock currently trades around $28 per share, having topped off at $80 per share in 2011. The market capitalization is $1.67b, with an enterprise value of $3.75b. The Company’s major source of revenues is meetings, which have declined over two years from $990m to $851m, while online revenues have increased from $399m to $522m, but have now leveled off.
In 1999 WW got spun off from H.J. Heinz to an LBO group, the Artal Group, which is owned by Invus. The price was $735m: $244m in equity with the rest debt. Since then, Invus has realized $3.8b by selling stock, and now maintains a 52 percent stake.
When discussing fitness and diet with one of my partners, who is incredibly trim, he suggested the app: MyFitnessPal (“MFP”). To my astonishment MFP is now much better than Weight Watchers Online (“WWO”). And it’s free, in contrast to WWO, which charges $18 per month. I had tried MFP years ago, and discarded it as too clunky. Revisit it several years later, and it’s amazing. After trying it a month ago, I’m impressed and in awe.
Put together MyFitnessPal and Meetup and you have a free Weight Watchers. Whoops. It’s time for the WW CEO, Jim Chambers, to invite Clay Christensen in and confront The Innovator’s Dilemma. Is it time to take the Company private again, but I’m getting ahead of myself.
Of course, I had to look up MFP’s story: MyFitnessPal is based in San Francisco, started by Michael Lee, later joined by his brother, seven years ago. Take one look at these guys, and you would think that they have never ever had a weight issue. But wait. The Company did start in the classic way. Mike Lee, the original founder tells LifeHacker:
The idea for the app actually stemmed from a personal need. My wife and I were preparing for our beach wedding [in 2005] and we both wanted to lose a little weight. We went to see a fitness trainer and he gave us a book listing the nutritional values of around 3,000 foods and a small pad of paper to use for tracking our calories. I’ve been programming since I was 10 years old, so I just knew there had to be a better way to keep track of my meals and snacks, but I couldn’t find anything online that was good enough. Every digital product on the market at that time was just as painful and time-consuming to use as food-logging in that notebook. So, I built my own solution, and it eventually became MyFitnessPal
Mike’s brother, Al, joined him in 2009 to develop the iOS app, and MFP grew to one million users. The first institutional money came in 2013 from Accel Partners and Kleiner Perkins. This February the company acquired Sessions, which pairs people with coaches—demonstrating that the personal touch is still needed.
When I started back at Weight Watchers this year, the beleaguered leader indicated that she was being pressured to improve attendance, and recruit younger members. Sort of reminds me of an old boss who expected us to land IPO’s that were awarded to Morgan Stanley and Goldman Sachs. The Company can’t expect her to be the answer; she’s the messenger. At the same meeting, a WW member in her 20’s said that the younger generation is using MyFitnessPal instead of Weight Watchers. Touché. I’m here to tell you that MyFitnessPal is making inroads and will eat WW’s lunch. WW has met their match.
WW is still the 8,000 pound gorilla, but is incredibly vulnerable in today’s world. You can be sure that the valuation of MFP’s 2013 $18m private placement valuation was nowhere close to WW’s $3.75b enterprise value, but just wait. These types of businesses initially grow slowly, but they never go away. Much like how online dating started. I remember an old business school friend sold Match.com for pennies. It was regarded as too small, and not growing quickly enough. The venture capital timetable does not lend itself to subscription businesses.
Weight Watcher’s CEO, Jim Chambers, is a civil engineer out of Princeton, with an MBA from Wharton and a career in the consumer goods business. I’m sure he’s studying MyFitnessPal, but it may be too late. His demographic is women over 50 years old who are no longer attending WW meetings.
I have no answers for Weight Watchers, only alternatives to experiment with. At this point, it’s time to think about how to work in the Freemium model. Should WW try to buy MFP [though the Lee’s probably wouldn’t sell]? Unfortunately, WW’s legacy businesses may block many of the necessary moves. No pun intended, but Weight Watchers Light? Again, the Innovator’s Dilemma.
Is it time to spin off the food or meeting businesses? And how valuable is one without the other? Should WW’s go private so it can experiment off-line? I guarantee you there is no right answer. How does one decline gracefully?