Dieting Is Out, Posing a Problem for a Company Named Weight Watchers as it Rebrands Itself WW - NBC10 Boston

Dieting Is Out, Posing a Problem for a Company Named Weight Watchers as it Rebrands Itself WW

One of Weight Watchers' struggles has been that while people lose weight on the program, they tend to gain it back

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    NEWSLETTERS

    What to Know

    • Weight Watchers faced a new challenge when people wanted to eat healthier but didn't want to diet

    • A key component of the company's new strategy is to become a lifetime health partner rather than a diet

    • Even meetings, the bedrock of WW, will change and be called workshops, with coaches and guides available for customers

    Traces of the name "Weight Watchers" have been scrubbed from the company's headquarters on Manhattan's Avenue of the Americas.

    Purple letters — WW — now hang from the lobby announcing the $4.6 billion diet giant's new name that it unveiled in September along with its purpose: "We inspire healthy habits for real life. For people, families, communities, the world — for everyone."

    The cosmetic changes are the final touches on the 55-year-old company's new plan: Sell wellness instead of weight loss to its 4.5 million subscribers.

    CEO Mindy Grossman, who took the helm last summer, is tasked with maintaining a balance between WW's status as a weight-loss leader while trying to attract new subscribers who don't want to lose weight. She also has to persuade existing members to stay after reaching their goal.

    Weight Watchers had weathered threats over the decades from the likes of Jenny Craig, Nutrisystem and fad diets like Atkins. But its biggest competition in recent years hasn't been from any of its rivals, and it was coming from all directions.

    Free apps like MyFitnessPal allowed consumers to track their calories without committing to a diet. People started to give up processed foods and grains in favor of cleaner, gluten-free options. Members stopped coming to meetings. Its revenue, which climbed almost every year since its 2001 IPO, peaked in 2012 at $1.83 billion, according to data compiled by FactSet. Its sales hit decade-lows of about $1.16 billion in 2015 and 2016 before starting to rebound under Grossman's watch last year.

    Investors lost confidence in 2015 after its membership, which accounts for about 80 percent of its annual revenue, slid almost 20 percent during the post-Thanksgiving period, its biggest diet season of the year. Its first-quarter numbers in 2015 showed that it lost about 700,000 members over the year, from 3.6 million in the beginning of 2014 to 2.9 million. Its stock hit $3.67 a share, an all-time intraday low, on July 7, 2015.

    People wanted to eat healthier but didn't want to diet. For a company named Weight Watchers, that posed a problem.

    Weight Watchers tapped Oprah Winfrey in 2015 as an advisor. It added flexible meal plans and overhauled its digital app, among other changes. Last spring, it hired Grossman. A "friend of Oprah," she had proven she could modernize a legacy brand at the Home Shopping Network. She also had successful runs as a top executive at Ralph Lauren and Nike.

    Wellness cruises

    The company already had been inching closer toward becoming a lifestyle brand over the previous few years.

    But the 61-year-old Grossman is extending its new wellness mantra into everything the company does: wellness-themed Caribbean cruises, cookware and removing artificial sweeteners from its line of snacks. It's adding a rewards system with WW swag and prizes from trendy names like Rent the Runway and ClassPass to keep people engaged.

    So far, these changes are paying off. More people are subscribing to WW now than ever before and they're staying with the program longer. Wall Street has rewarded the company, sending its stock price to a record intraday high of $105.73 on June 20. Its shares have tumbled to $68 a share since then, but the stock is still up by more than 50 percent this year, and the company has a market value of $4.5 billion.

    "Everything we try and do, I try to look through the lens of we need to be surprising yet familiar," Grossman told CNBC in an interview this month at WW's headquarters. "We will never not celebrate and believe that our heritage and everything we do is important. So we're not going to take a sharp left, but we have to be relevant. We have to understand that people need different things."

    Executives are targeting $2 billion in annual revenue by the end of 2020. Last year, revenue reached $1.31 billion, up 12.2 percent from $1.16 billion in 2016. They want to add new members and improve retention to fuel the growth.

    WW needs to keep the momentum alive to convince shareholders it can achieve these goals.

    Investors quickly soured in August when the company said the number of subscribers slipped to 4.5 million at the end of June from 4.6 million three months before. The company's shares fell nearly 15 percent. Some members want Weight Watchers to stick to weight-loss programs.

    Keeping it off

    Few companies have changed so many lives in such profound ways as Weight Watchers.

    It's hard to pinpoint how many members the company has served since Jean Nidetch founded it in 1963 because millions of people have cycled in and out of the program.

    The points system has made it easy for people to evaluate how nutritious foods are since being formally introduced in 1997 as the "1-2-3 Success Plan." The company has tweaked the system over the years as science has evolved and consumers have demanded more flexibility, but it's still the cornerstone of the program.

    So is the sense of community that Nidetch built Weight Watchers on. Members can attend in-person meetings where they weigh themselves and discuss problem issues, such as strategies for handling the food-temptation-filled holidays like Thanksgiving. Members can also opt for the online-only program where they can track foods on the app and connect with other members there, too.

    One of Weight Watchers' struggles has been that while people lose weight on the program, they tend to gain it back.

    "This is a universal challenge that people generally speaking are much more successful in achieving initial weight loss than maintaining weight loss," said Dr. Kevin Volpp, a professor of medicine at the University of Pennsylvania and director of the Center for Health Incentives and Behavioral Economics. "I think a lot of people get frustrated and move on to something else."

    Michael Schildt, 48, has tried Weight Watchers five or six times over the past 20 years. He said he would lose weight, the most being 125 pounds in 1998, then get bored.

    First he would become less vigilant in monitoring what foods he was eating. Then the portion sizes. Then he would stop losing weight. Then he would gain a pound or 2, a dreaded experience that would cause him and countless other members to skip in-person meetings so they would not have to step on the scale.

    Earlier this year, Schildt rejoined WW. Now about eight weeks in, he said he's lost 57 pounds, down to 434.5 pounds from 491.5 pounds. This time, he's determined to stick with the program.

    "People take it for granted to just go to the supermarket," he said. "I need two knee replacements, and seven weeks ago, I couldn't walk into the grocery store. I would walk 20 feet, and I was in so much pain I had to turn around. I went into Whole Foods just now to buy some fruit, and I can actually go into stores and walk around."

    WW wants Schildt and its millions of other members to stay around this time. A key component of the company's new strategy is to become a lifetime health partner rather than a diet.

    WellnessWins

    Turnover can be costly to the business. WW has improved its member retention to "well over nine months," a 15 percent increase from three years ago, Chief Financial Officer Nicholas Hotchkin told analysts on a call discussing its second-quarter earnings results. Grossman wants that to one day be measured in years, not months.

    WW recently introduced WellnessWins, a program that rewards members for engaging with the app, whether that's tracking the food they eat or the activity they've completed.

    "To be able to do that, we have to keep providing more and more value, more and more tools, more and more community and support so people feel that we are a really key component in having what they consider their success to be. We don't dictate that. They do," Grossman said.

    Since joining the WW board in 2015, Winfrey has appeared in ads promoting WW as a lifestyle, not a diet. It's a striking shift for the company and Winfrey, who has publicly struggled with her weight for years.

    "Healthy is the new skinny," Winfrey, spokeswoman and investor, proclaimed on stage at a WW event unveiling its new vision in February.

    With WW's new tagline, "wellness that works" the company is pinning weight loss to overall health, not dress size. Grossman says WW will never abdicate its status as the leader in weight loss, but it wants to be more than that.

    WW is adding meditation content from Headspace to its own app. Members can access free fitness activities like entry to rock 'n' roll marathons and fitness classes from ClassPass as part of the new WellnessWins program.

    Artificial sweeteners, flavors, colors and preservatives will be removed from WW's meal replacements and snacks.

    Workshops over meetings

    Even meetings, the bedrock of WW, are changing. They'll now be called workshops. Leaders are coaches. Receptionists are guides. The actual content will change, too. Executives declined to describe what those changes will look like, but they hinted at making them more interactive and to focus on other aspects of health in addition to weight.

    One Saturday morning in October, Schildt attended a workshop where the group discussed tai chi and other breathing exercises. That was new to him. He said meetings typically had focused on weight loss or exercise.

    "In general, the weight-loss industry has gone toward a more holistic approach to weight loss," said Linda Bolton Weiser, an analyst at D.A. Davidson & Co. "My theory is this is positive for the industry because it gives women permission to spend money on a weight-loss brand."

    More people are signing up for less expensive digital memberships, which Bolton Weiser said may dampen the revenue but has helped WW improve its gross margin.

    Of the total 4.5 million current subscribers, 1.6 million attend in-person meetings for about $45 a month while 2.9 million have access only to online features for about $20 a month. But it costs less to run an app than the meetings, and the savings have shown up in its profit margins. Last year, WW's gross profit margin increased to 53 percent, up from 50.3 percent in 2016.

    Partying WW style

    A group of women snapped pictures holding pillows flecked with white, gold and purple sequins spelling the letters WW at a party in Brooklyn on Oct. 4. More women took turns posing for photos in front of a wall of red, orange, yellow and white lights pointing to a bright circle surrounding the letters WW.

    If someone had unknowingly walked in, they might not realize this party was for Weight Watchers — at least until they saw servers carrying hors d'oeuvres with signs displaying their point values. A slice of avocado toast with watermelon, radish, lime, cilantro and 12-grain toast equaled 4 points. A vodka and tonic from the bar? Six points.

    Here at the Barclays Center in Brooklyn, executives were celebrating Weight Watchers' transformation into WW. The party was built for Instagram. Bruno Mars, the night's headliner, was the ideal person to celebrate a 55-year-old company trying to balance decades of history with its quest to attract newer, younger members.

    Grossman recognizes the challenge. She joined the company after helping turn around the Home Shopping Network. Similar to Weight Watchers, the channel shortened its name to HSN.

    It's too early to tell whether the company can convince people this brand is different than the one they tried decades ago or the one they grew up watching their parents use.

    "They have to do physical things that show this is something deeper than a name change," said Oliver Hahl, assistant professor of organizational theory and strategy at Carnegie Mellon University's Tepper School of Business. "Will this be enough to fully embrace weight as wellness and not just weight for weight's sake?"

    Some members aren't entirely sold.

    Wayne Muhlstein has been a Weight Watchers member since 1968. Then 13, his parents sent him to a meeting because they didn't want him looking "chubby" in his bar mitzvah pictures. In 1984, he became a leader and taught for "31 wonderful years" before retiring in 2015.

    Muhlstein praises the company for enduring all these years but cautions WW against moving too far away from weight loss.

    "If I want yoga, I go to my yoga studio," he said. "If I want a massage, I go to a massage therapist. If I need a shrink, I go to a shrink. If I want to lose weight, I go to Weight Watchers. And there's nothing wrong with that."

    At the party, Grossman put on a captain's hat and smiled for pictures in front of a green screen promoting WW cruises. She sat and watched celebrity chef Cat Cora tell the crowd about creating a menu for the new cafe.

    Grossman admired the wall behind Cora decorated with posters of WW spokespeople, including Winfrey. She smiled softly and turned her attention back to the moment.

    This story first appeared on CNBC.com. More from CNBC: