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Nestle Adds Jenny Craig Weight-Loss Business to Its Plate

The food giant will acquire the chain for $600 million as the diet industry grows.

June 20, 2006|Jerry Hirsch | Times Staff Writer

If you binge on such high-calorie Nestle products as Dreyer's Grand Ice Cream, Toll House Morsels chocolate chips and Stouffer's macaroni and cheese, the international food giant has just the answer: a Jenny Craig weight-loss center.

In a move that lets Nestle play both sides of the weight game, the company said Monday that it would buy the Carlsbad, Calif.-based Jenny Craig Inc. weight-management chain for $600 million.

Nestle is buying the company from New York private investment firms ACI Capital Co. and MidOcean Partners, and founders Sid and Jenny Craig. The deal comes at a time when an innovative advertising campaign documenting the weight loss of "Fat Actress" and "Cheers" star Kirstie Alley has boosted the company's performance.

The campaign, which company officials say will continue after the deal closes this fall, follows a series of marketing missteps that included the hiring of President Clinton's former intern Monica Lewinsky as a spokeswoman and a focus on developing diet shakes and nutritional bars to mimic the products of rival weight-loss company Slim-Fast.

Sales have risen to $430 million from $300 million four years ago, when the private equity firms bought a controlling stake in Jenny Craig for $115 million.

Jenny Craig's cash flow, an important indicator of profit, has soared more than sixfold to $66 million during the same period, said Ezra Field, managing director ACI capital and a member of Jenny Craig's board. He declined to release profit figures.

Nestle is buying into a plump market amid growing national concern about obesity.

About 25% of the American public says it is on a diet, said Harry Balzer, vice president of NPD Group, a market research company based in Port Washington, N.Y. Three-quarters of American adults say they have been on a diet at some point.

"You can always count on having a market for diets and diet products," Balzer said.

With an estimated $2.2 billion in sales last year, the commercial weight-loss business has averaged a husky 14% annual growth rate for the last five years, according to Mintel International, a Chicago market research firm.

And more growth is expected. Federal studies have found that nearly 65% of the adult population is overweight or obese and childhood obesity has risen dramatically over several decades.

Nestle acknowledged the trend when it announced the deal.

"The rise of obesity and the resulting metabolic disorders, such as diabetes and cardiovascular disease, is a major public health concern, not only in the U.S.A. but also the world over. The Jenny Craig acquisition puts us in a privileged position to help many of our consumers," Nestle Chairman and Chief Executive Peter Brabeck-Letmathe said.

A Vevey, Switzerland-based food company with international reach, Nestle posted a profit of 8 billion Swiss francs last year, or $6.4 billion, on sales of 91.1 billion Swiss francs, or $73 billion.

Nestle will continue to have third-party vendors produce the Jenny Craig meals and food offerings sold in the chain's 600 diet centers in the U.S., Canada, New Zealand and Australia.

"This was a strategic acquisition," said Laurie MacDonald, Nestle's U.S. spokeswoman. "We were not looking for synergies, so there are no plans to use our grocery distribution network, etc. Jenny Craig will stand alone from the Nestle USA business and continue to operate under current Jenny Craig management."

Nestle, which has its U.S. headquarters in Glendale, is a player in the packaged diet-foods business, owning the Lean Cuisine line of frozen offerings that sell in supermarkets and a variety of low-fat and low-calories goods such as Lean Pockets and No Sugar Added Nestle Hot Cocoa. But the Jenny Craig purchase is its first venture into the commercial diet business.

The acquisition marks the end of the line for Jenny and Sid Craig, who will sell their remaining 20% stake in the company. They have not been involved in active management since 2002.

The weight-loss centers started in Australia after Genevieve Guidroz, now Jenny Craig, became frustrated by her efforts to lose weight after having a baby. Guidroz managed a chain of fitness centers for Sid Craig. They married in 1979 and founded Jenny Craig Weight Loss Centre in Australia in 1983. The company opened its first U.S. center in 1985 and sold shares to the public in 1991.

Although Jenny Craig has almost universal name recognition among dieters, it lags far behind New York-based Weight Watchers International Inc. in the commercial diet business, according to Mintel, the research firm. Weight Watchers had revenue of more than $1.1 billion last year.

About 13% of adult respondents in a 2005 Mintel survey of dieters had participated in Weight Watchers, compared with 3% for Jenny Craig, which tends to be more expensive because it revolves around individual health and nutrition counseling and the purchase of proprietary, portion-controlled prepared meals.

*

(BEGIN TEXT OF INFOBOX)

What's your diet?

A quarter of the U.S. population says it is on a diet. Here's how it is trying to lose weight:

Diet programs and percentage of dieters who follow them

Own diet: 30.3%

Prescription diet: 12.3%

Weight Watchers: 10.8%

South Beach: 5%

Atkins: 4.5%

Others*: 37.1%

*Includes Jenny Craig

Source: NPD Group.

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