Oprah's Weight Watching

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Oprah's Weight Watching.

We all know about Oprah Winfrey's halo effect; as a talk show host, she only needed to mention a book she'd enjoyed and it became a bestseller. Even though she no longer has her televised talk show, Oprah's endorsements still have a profound impact on the sales and popularity of all manner of products.

The latest company to bask in the Oprah effect is diet company Weight Watchers International. Last month Oprah announced she had bought a 10% stake in the 50-year-old company, with an option to purchase more shares up to a 15% stake. The Weight Watchers share price more than doubled on the day of the announcement.

Then last week, Oprah announced that in addition to becoming a shareholder and joining the Weight Watchers board of directors, she is going to become a member and appear in an advertising campaign allowing people to follow her weight loss journey. The Weight Watchers share price rallied a further 35% on that news, giving Oprah a healthy profit already. Her stake in the company was worth US$43 million ($66 million) when she bought it and by last Friday it was worth more than US$145 million ($223 million).

This will be an interesting test of whether celebrity endorsement is sufficient to reverse the fortunes of a failing company which, by its own admission, has been too slow to anticipate and react to "an evolving competitor set" including mobile apps and activity monitors like Fitbit and Apple Watch.

Weight Watchers is the leading weight-loss brand in the world — it holds 36,000 weight-loss meetings a week and generates annual sales of US$5 billion ($7.6 billion) from coaching, meetings and branded food products.

However, the company has struggled in recent years to attract paying members, particularly as there are now so many free diet and weight loss apps available for smartphones and tablets. Sales are down 22% this year and even after their recent rally, Weight Watchers shares are down 8% year to date, having lost 60% of their value over the past three years.

One analyst suggests that Oprah's investment is an astute one, not only because her endorsement will improve the company's fortunes (and the company has already enjoyed a significant increase in website visitors and memberships since Oprah's announcement) but also because "the Weight Watchers programme doesn't work"!

Traci Mann, Ph.D. says that studies have shown that Weight Watchers, along with three other popular diets (Zone, Atkins and South Beach) leads to modest weight loss of around 4.5 kilograms per year on average. However, these studies also show that while most dieters lose weight in the short-term, they gain most of it back in the long term.

Mann says this is a brilliant investment for Oprah, because Weight Watchers is "the perfect business model. People give Weight Watchers the credit when they lose weight. Then they regain the weight and blame themselves. This sets them up to join Weight Watchers all over again, and they do."

Indeed, former Weight Watchers CFO Richard Samber explained in a 2013 documentary that the business was successful because the majority of customers regained the weight they lost and "that's where your business comes from".

According to a 2001 Weight Watchers business plan, its members have "demonstrated a consistent pattern of repeat enrolment over a number of years, signing up for an average of four separate programme cycles".

Oprah is herself no stranger to the challenges of losing weight and keeping it off. Weight Watchers may prove successful for Oprah this time around. At least she is sure to get an impressive return on her investment, one way or another.


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