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May 02, 2010

Company Spotlight

Herbalife at 30 Gearing Up for ‘The Herbalife Decade’

by Barbara Seale

Des Walsh Michael Johnson
Des Walsh
President, Herbalife
Michael O. Johnson
Chairman and CEO, Herbalife

 Herbalife Founder Mark Hughes was a visionary, but when he opened the trunk of his car to sell the first bottles of Formula 1, he probably had no idea that the company would grow to be one of the best-known direct selling companies in the industry, conducting business in 72 countries worldwide.

Today, Herbalife’s 1.9 million independent distributors offer fiscal and physical health through the company’s business opportunity and its protein shakes and snacks; its nutrition, energy and fitness supplements; and its personal-care products. Herbalife’s 2009 net sales of $2.3 billion are a far cry from its humble beginnings. And thanks to an enthusiastic salesforce and an aggressive sports marketing campaign, its brand is globally recognized.

This year, the company celebrates its 30th anniversary and is looking forward to launching “The Herbalife Decade” at a special celebration.

“It will be a celebration of the first 30 years of Herbalife, focusing on special moments and highlights in those first three decades,” says President Des Walsh. “But, most important, is that we’ll lay out our road map for the next 10 years—The Herbalife Decade. The last 30 years have laid an outstanding foundation. How tall you build a building is related to how strong its foundation is, so now’s the time for us to really get started.”

That foundation is built on products that allow the company’s independent distributors to build a solid business.

“It’s always been about the products that help people get healthy and believing in the products and how good nutrition could change the world,” says Herbalife Chairman and Chief Executive Officer Michael O. Johnson. “Herbalife’s founder, Mark Hughes, was a true visionary. In the beginning years, Mark was able to get people to believe in themselves and showed them the possibilities. He’d say, ‘Imagine how you could help people; imagine if we took this business to other countries; imagine if there was a canister of Formula 1 in every household.’ This was before everyone was talking about weight loss and before protein shakes were commonplace. Our message hasn’t changed. A lot of those people are still part of this company, and they, in turn, introduce new people to the same dream.”

Planning for Dreams to Come True

As it continues to spread its founder’s dream, Herbalife will focus on two key areas: greater penetration in the markets where it operates today and opening new markets. It’s well-positioned to do both.

“In many markets, we already have a strong, healthy business, but we still reach just a small percentage of the population,” Walsh says. “We’re working on an initiative that will focus on specific cities, provinces and local areas where penetration isn’t great. We’ll work with our distributor leadership to increase penetration in those areas.”

To prepare to accelerate entry into new markets, in 2009, Herbalife completed the installation of an Oracle platform worldwide. The $100 million platform provides the capacity to open five or six new markets each year. Herbalife also established a dedicated team focused on new market expansion.

As it grows its business, Herbalife’s products are typically the company’s key recruiters. Most distributors start as consumers. Their experience leads them to recommend the product to others, and then they become interested in having an Herbalife business.

“Mark Hughes taught distributors to use the products, wear the brand and talk to people,” Walsh says. “That same philosophy of use, wear and talk is the same thing that works just as effectively today.” He adds, “We believe at Herbalife that we have the best compensation plan in the industry, but, in addition, distributors achieve success in that plan by bringing good health to people in their communities. Distributors speak about giving the gift of health to others. They don’t talk about selling products. That’s important psychologically.”

Spreading Success Through Sports

Promoting health is also important as Herbalife looks for ways to enhance its brand recognition. The ideal vehicle? Sports sponsorships. In its premiere sponsorship, Herbalife is the presenting sponsor of the Los Angeles Galaxy. The agreement, which began with the 2007 season and extends through 2012, gives Herbalife on-jersey exposure for its brand. The company became the official nutritional supplier of Italian football club Internazionale FC (“Inter”) for the 2008/2009 season. As part of the deal, Herbalife’s H3O Pro isotonic drink, available throughout Europe, became the team’s isotonic drink. In September 2009, Herbalife also became an official sponsor and official provider of nutritional products to one of Spain’s leading La Liga football teams, Valencia CF.

Support doesn’t stop with professional sports. The company also signed a four-year breakthrough agreement with the American Youth Soccer Organization (AYSO) that makes Herbalife the official nutrition advisor and official health and wellness provider of the country’s leading youth soccer organization. Similar to Herbalife’s agreement with the Los Angeles Galaxy Major League Soccer club, the AYSO sponsorship gives Herbalife the rights to display its name and logo on the front of AYSO jerseys, a first for the nonprofit national organization.

“Soccer, or futbol, in particular, has global appeal, and the sport has helped us introduce people to the company who might not otherwise hear about us,” Johnson says. “The events give our distributors an opportunity to meet people one on one, and the sponsorships help promote our philosophy of living a healthy, active life. Our name is becoming part of the mainstream—you’ll see our name on a jersey in a television program or on billboards. All of these things help make it easier for our distributors to conduct their business.”

The company also sponsors more than 50 sporting and fitness-related events, activities and athletes around the world that define the company’s commitment to a healthy, active lifestyle supported by good nutrition.

Scientific Support

Herbalife makes sure that its products offer good nutrition that supports a healthy lifestyle through its focus on research and development, along with participation in clinical trials of its flagship products.

“For our distributors, the scientific validation of our products is all about confidence,” Walsh says. “Being in a position to reference independent clinical studies as they talk about products is very empowering for them.”

Herbalife’s R&D organization conducts testing on new ingredients, delivery methods, and products for both nutrition and skin care. In addition, the Mark Hughes Cellular and Molecular Nutrition Laboratory, based at the University of California, Los Angeles (UCLA), Center for Human Nutrition, provides UCLA researchers with enhanced capabilities to study the large variety of compounds found in plants and herbs and their effects on human health. State-of-the-art analytical equipment is used to perform many of the initial key steps in research that begins in the laboratory and extends to human clinical trials. Three clinical studies have been completed that show the effectiveness of Formula 1. The studies, conducted at UCLA; The University of Ulm, Germany; and Seoul University National Hospital, Korea, showed that using Formula 1 meal replacements twice a day led to effective weight loss.

“We’ll continue to invest in nutrition research, studies and ingredient usage,” Johnson says. “Everyone in our industry should be able to hold up their product and show the science that went into its development, the justification for ingredients, and how it was proven to do what it’s supposed to do.”

The company’s scientific reputation is so solid that it has been able to add a star to its management team, Vasilios H. Frankos, who retired in March from the U.S. Food and Drug Administration.

“Bill Frankos is a leader in the supplement industry,” Johnson says. “As Senior Vice President of Product Safety and Compliance, he exemplifies Herbalife’s commitment to providing science-based nutritional supplements of the highest quality available in the marketplace.”

Focus on Distributors

Herbalife’s commitment to quality products through research and development, clinical trials, and even a strong management staff indicates just how much devotion it has to its distributors’ success. Every direct seller recognizes that a company’s success depends on its distributors’ accomplishments. But Herbalife takes the concept very seriously. It regularly involves distributors in decision making through conference calls and meetings. It even has two distributors who sit on the Herbalife Board of Shareholders. Walsh says that their participation has been highly beneficial, providing the distributors’ perspective as strategic issues are discussed.

And Herbalife makes sure that successful distributors are well-compensated—not only through the regular compensation plan, but also through the company’s unique Mark Hughes Bonus Award.

“It’s our annual equivalent of the Oscars,” Walsh says. “It’s open to all presidential team members who meet certain criteria in relation to their qualifying downline.”

This year’s highest bonus check paid to an Herbalife independent distributor was $2 million. In total, a record $36.5 million was paid to leading independent distributors from 29 countries—an impressive number during any year, but especially since it recognizes results in economically challenging 2009.

The milestones that Herbalife can claim from its first 30 years—becoming a publicly traded company on the New York Stock Exchange, seeing the results of clinical studies using its products published in a medical journal, doing business in 70-plus markets, and reaching 50 Casa Herbalife programs—make its executives justifiably proud. But they don’t rest on their considerable laurels. Their focus is on The Herbalife Decade.

Herbalife Founder Mark Hughes was a visionary, but when he opened the trunk of his car to sell the first bottles of Formula 1, he probably had no idea that the company would grow to be one of the best-known direct selling companies in the industry, conducting business in 72 countries worldwide.
“Inherent in the health and economic challenges facing society, there’s an unprecedented opportunity for Herbalife,” Johnson says. “As we enter our fourth decade, I believe it will be our most impressive ever.”

Herbalife’s Hispanic Harmony

While Hispanics are the fastest-growing minority group in the United States, and the growth rate of Hispanic-owned businesses is three times faster than the national average, the growth of Hispanics in Herbalife is more personal. Like almost everything else, it’s driven by distributors.

A group of strong Hispanic leaders have propelled Herbalife’s success among Hispanics, through both products and the company’s financial opportunity. Their success stories have helped those leaders attract others and build vibrant businesses.

Herbalife President Des Walsh points to one of the company’s new President’s Team members as a stellar example of success among Hispanic leaders.
“She was able to buy a house in a community, where, just a few years earlier, she had cleaned those houses to make ends meet and support her children,” Walsh says. “Now, one of her children just completed college. She would never have been able to accomplish that if she hadn’t graduated from being a housekeeper to become a successful businesswoman. Her financial success gave her the ability to set a whole-new vision for her children of what they can become in life—for generations to come.”

He also notes that Herbalife has been able to tap into an important cultural characteristic: Hispanics tend to rely on personal recommendations for products they purchase.
“It’s true more in the Hispanic community than in the general marketplace, so since our products are sold through personal testimonials, that community represents an ideal base for Herbalife products,” he says. And he points out that Herbalife’s nutritional products help balance the traditional Hispanic diet, which tends to be high in calories and fat.

Walsh credits the company’s strong, capable Hispanic leaders—some of whom have been with the company for more than 25 years—for embracing the vision of Herbalife Founder Mark Hughes and ingraining it into the new generation of distributors in business today. The company has supported them by providing a range of Spanish-language tools and marketing materials.

“For many immigrants, Spanish is the language they’re comfortable with, and it’s spoken in their communities and homes,” he says. “In addition to those tools and materials, we have local meetings all over the United States in Spanish, including some large-scale corporate meetings. It’s been an enormous source of pride and confidence for our Spanish-speaking distributors that the company is investing so heavily in supporting them and their businesses. That’s helped foster further growth.”

Those Spanish-speaking distributors have also invested in Herbalife by helping it expand into other Spanish-speaking countries. For example, when the company recently expanded into Paraguay, its experienced Hispanic distributors went there to conduct initial opportunity meetings and training, and to introduce the Herbalife history and business ethics to prospects and new distributors.

Few changes in the product line have ever been necessary for it to appeal to Herbalife’s Hispanic fans. The company did release a mango-flavored aloe drink that was hugely successful among Hispanics, and some packaging has been changed to make it more convenient or affordable. But Herbalife’s message of bringing good nutrition and business opportunity to those who need it resonates strongly among Latinos.

“Hispanics are very family-oriented, and their desire to help other family members, whether financially or through better health, is deeply ingrained in their culture,” Walsh says. “Because Herbalife represents the opportunity to do both, Hispanics have embraced Herbalife strongly all around the world.”

A Culture of Caring

Herbalife doesn’t settle simply for improving the health of distributors and customers. Through the Herbalife Family Foundation (HFF), it creates partnerships with charities to help meet the nutritional needs of children at risk.

The company’s tradition of philanthropy was formalized in 1994 when Herbalife’s late founder Mark Hughes created the Herbalife Family Foundation, a nonprofit organization supported by Herbalife Ltd., its independent distributors, employees, friends and families.

In 2005, Herbalife Chairman and CEO Michael O. Johnson saluted Hughes and one of HFF’s initial efforts when he chose the name of a Brazilian orphanage as the moniker for an expanded outreach program that now serves more than 12,000 children in 50 international locations. Hughes had visited Brazil in 1998. While there, he discovered an orphanage in dire need of repair and provided funds to renovate the building. It later became known as Casa Herbalife, the name of the program that is now HFF’s flagship. Since its inception, Casa Herbalife has expanded by about 10 partnerships a year. Already, in 2010, it has announced grants to organizations in Quito, Ecuador; Chicago, Illinois; and two locations in Mexico.

“I travel around the world, and I see the kids we’re helping through these programs. It’s often heartbreaking to hear the stories of where they came from,” Johnson says. “But we have an opportunity to help them—through good nutrition, funding and volunteerism—and we’re doing it, neighborhood by neighborhood. We have more than 50 of these programs now. You see the smiles on the kids’ faces when our distributors and employees show up, and you just know you’re doing the right thing. And I’m proud that we can help them be healthier through good nutrition.”

Partner organizations receive grants that support childhood nutrition, but they may use the grants in a multitude of ways. In addition to food itself, organizations have renovated kitchens, offered food-preparation classes, taught nutrition classes and more. In addition to nutrition grants from Casa Herbalife, the company’s local distributors often support the organizations through fundraising and volunteerism. For example, Herbalife independent distributors in Quito combined forces with HFF and raised enough money to purchase a new, larger building to house the organization.

Herbalife encourages distributors to engage in philanthropy and to support their communities, and it recognizes their efforts in a variety of ways. The most visible and prestigious recognition is the Herbalife Family Foundation Humanitarian Award. The award recognizes an Herbalife independent distributor who exemplifies community service and, through their outstanding involvement and dedication, has made a significant contribution to changing lives. In March, the award was presented to Leslie Stanford, an Herbalife distributor since 1980, for her philanthropic efforts, including sponsoring PeaceJam, an organization that brings schoolchildren together with Nobel laureates.

At the same time, HFF provides funds to organizations assisting victims of natural disasters. HFF is a global nonprofit organization working in communities around the world. Currently, it is supporting disaster relief efforts in Haiti and Chile.