NEW YORK (Reuters) — Facing increased competition from free calorie-counting apps, Weight Watchers is targeting a steadily growing market — employers looking for a leaner workforce.
Companies in the United States are eager to trim rising health care costs and more are implementing employee wellness programs, some involving weight loss. Those programs are expected to expand next year when provisions of the Affordable Care Act that encourage obesity prevention kick in.
Weight Watchers has seen its revenue dip in the first half of the year as it struggles to convince cost-conscious dieters to pay US$18.95 a month for an online subscription when they have access to free or inexpensive weight loss apps on their phones.
"It's been an ongoing struggle to try and differentiate themselves from those apps," said Wedbush Securities analyst Kurt Frederick.
Some of the apps even rival Weight Watchers' edge in providing a supportive community to help with weight loss. The free, calorie-counting app My Fitness Pal, for example, has an active forum online.
Weight Watchers Chief Financial Officer Nicholas Hotchkin told analysts the calorie-counting apps can't compare to the company's holistic approach to weight loss, which advocates for lifestyle and behavioral changes. But it certainly has shed some revenue. Last week, it reported second-quarter revenue down four per cent to US$465.1 million. Shares plunged. They closed on Thursday at $37.57, almost 21 per cent lower than a month ago.
But Weight Watchers' partnership with companies eager to slim down their employees was a bright spot. Experts say employee weight-loss programs are good for worker productivity and employee retention.
Weight Watchers' workforce division might be a small piece of the diet pie for now, but revenue for its partnership with large employers grew about 30 per cent this quarter. Regional partnerships, with small employers, saw a one per cent decline in sales. The company has remained tight-lipped on exact details of the division's results and declined to make an executive available to discuss them.
Called Health Solutions, the division partners with corporations to create incentive programs that range from partially subsidizing Weight Watchers program fees for employees to giving employees a discount on health insurance if they attend a certain amount of meetings, said Susan Craig, a spokeswoman for Weight Watchers.
She added employees can also attend Weight Watchers meetings in their office, or use online tools customizable to the company.
American Express and the New York Stock Exchange Euronext are among the companies using Weight Watchers.
Newly appointed CEO James Chamber, who replaced David Kirchhoff, said on a recent conference call with analysts that he has seen strong interest in the marketplace. The company, he said, plans to commit more resources to the workforce division.
But for now, Health Solutions remains small and cannot yet offset any losses inflicted by mobile competitors. Frederick estimated the workplace wellness programs likely make up less than five per cent of sales, compared to the meetings and the online business.
The potential market is growing. Some 86 per cent of the 120 U.S. companies surveyed offer wellness-based incentive programs, according to a survey by Fidelity Investments and the National Business Group on Health, a nonprofit representing large employers' perspective on health policy. That's up from 57 per cent in 2009.
But employers are not required to report their participation in these programs, so it is hard to gather exact data, said Harald Schmidt, a research associate at the University of Pennsylvania's Center for Health Incentives and Behavioral Economics. Weight loss programs are still a minority of those programs, he said.
LuAnn Heinen, vice president of the National Business Group on Health, said the health care reform could create buzz and spur further implementation of employee wellness programs. The programs have been growing in popularity for at least five years.
"Large employers are already really interested in doing this," she said. "For smaller and midsize employers, this could drive them into doing this."
The Affordable Care Act, also known as Obamacare, will raise the incentive level caps to 30 per cent to allow employers to reward healthy employees with lower insurance premiums, or penalize unhealthy workers with higher premiums.
Most employers are still far from the current cap of offering incentives at 20 per cent, and it is more common for employers to raise premiums on smokers than overweight workers, Heinen said.
Weight Watchers will have little competition in the workforce sphere, Frederick said, adding it is more attractive to employers than weight loss programs like Jenny Craig, which offers participants frozen healthy meals.
Food delivery would be more expensive for employers to subsidize, he said. A Jenny Craig year-long membership can cost US$359, plus the cost of the food, which averages about US$18 a day.
Another advantage: employers want to use weight loss programs that are clinically tested and proven, Heinen said. "Weight Watchers is the most significant stand-alone brand, and the most requested by employees by miles."