A Health Kick At Weight Watchers

Think you have trouble with dieting? Consider David W. Sculley. The trim H.J. Heinz senior vice-president may not look it, but he has been living a sort of dieter's yo-yo in his three years in charge of Weight Watchers International Inc.

The problem: American dieters, a notoriously fickle bunch, in recent years have been taking matters into their own hands--dropping out of diet classes and rushing into health clubs and book stores for fitness and nutrition help. "The whole industry has been under pressure," says Goldman, Sachs & Co. analyst Nomi Getz. "There has been a shift from dieting to general health concerns such as fat intake and general lifestyle."

To cope, Sculley--kid brother of former Apple Computer Chairman John Sculley--is trying to reshape Weight Watchers with new health-oriented programs meant to appeal to a diverse cross-section of dieters, including men. Timing is critical: The industry's high season falls between New Year's and Easter, three months that account for more than half of annual sales. "This next diet season will determine the fate of a lot of companies," predicts John S. LaRosa, president of Marketdata Enterprises Inc., which tracks the industry.

While no one expects Weight Watchers to land on the casualty list, it has had a couple of lean years. The Heinz division predicted it would post $3.3 billion from class fees and sales of food in 1994--but sales reached just $1.6 billion. Worse, Weight Watchers went from a $45 million profit in fiscal 1992 to a $50 million loss in 1994, analysts figure (chart). And the industry leader admits it has lost 14% of its members during the past two years.

To win them back, Sculley is carving out a health-first, vanity-second message for dieters, who now seem more concerned about heart attacks than love handles. And he will target this message through direct marketing to Weight Watchers' prodigious database of 11 million former and current customers--a list that competitors Jenny Craig International and Nutri/System Inc. can't match. "Weight Watchers members don't think of themselves as former customers," says Len Tacconi, vice-president of marketing for Weight Watchers. "They think of themselves as being on a break."

Sculley hopes to shorten the breaks by offering refresher courses that encourage exercise. Stressing the health value of the program, he also has signed deals with insurers such as Independence Blue Cross Inc. of Philadelphia to give rebates on life-insurance premiums to Weight Watchers members. And in an attempt to reach out to the long-neglected 5% of the diet world, the company has launched male-only classes. "We don't want to sit around and talk about makeup and recipes," says Pittsburgh resident James K. Johnson, 52, who lost 171/2 pounds in six weeks on the Weight Watchers' program. "We'd rather talk about the Steelers game and having a beer."

Another ingredient in Sculley's strategy: boosting sales of Weight Watchers food. In December, Heinz acquired All American Gourmet from Philip Morris' Kraft General Foods for about $200 million. Adding the brand vaults Heinz to third from fifth place in the $3.3 billion frozen entree category, dominated by ConAgra Inc.'s Healthy Choice. Sculley is betting the acquisition will allow Heinz to reach a broader audience.

Rivals are rethinking their strategies, too. Jenny Craig, which closed more than 30 of its 608 franchises in 1994 after earnings plunged to $1 million from $59.2 million the year before, will begin TV ads that feature men. And Nutri/System, which emerged from bankruptcy in 1993 under new ownership, has added a personal trainer and weight room to its weekly classes.

So far, Wall Street likes Sculley's new strategy: Donaldson, Lufkin & Jenrette Securities Corp. is projecting a profit for fiscal 1995 of $20 million. But the success of Weight Watchers means more to Sculley than to anyone else. If the company does turn around, Heinz insiders say, it could push the 48-year-old Sculley to the front of the pack as the eventual successor to Heinz Chairman Anthony J.F. O'Reilly. You couldn't ask for more incentive than that.

Before it's here, it's on the Bloomberg Terminal.