Herbalife - A Summary

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by Steven Charles

Herbalife Company history

In February 1980, Mark Hughes began selling the original Herbalife weight loss product from the trunk of his car. By 1982, Herbalife had reached $2,000,000 in sales and opened a distributorship in Canada, its first outside of the United States. In 1986 Herbalife became a publicly traded company via NASDAQ. Independent distributors' personal vehicles could be seen on the street, decorated by decals bearing the mysterious slogan "Lose weight now, ask me how!". In 1994 Mark Hughes started the Herbalife Family Foundation, a charity dedicated to helping children. The organization receives donations from Herbalife itself as well as individuals within and outside the company. The Herbalife Family Foundation has donated more than $6.5 million to children's causes worldwide. In 1996 Herbalife reached $1,000,000,000 in annual sales.

In 2000, Hughes died at the age of 44 from an accidental overdose of alcohol and doxepin, a sleeping tablet. The company has continued to grow after his death.

In 2003, Michael O. Johnson joined Herbalife as CEO following a 17-year career with The Walt Disney Company, most recently as president of Walt Disney International. On December 16 2004 the company had an initial public offering on the NYSE of 14,500,000 common shares at $14/share. 2004 net sales were reported as $1.3 billion. In April 2005, the company celebrated its 25th anniversary with a four-day event attended by 35,000 Herbalife Independent Distributors from around the world. In August 2005, Dr. Steve Henig joined the company as Chief Scientific Officer, responsible for product research and development.

The company is headquartered in Los Angeles, California and employs 3500 worldwide. Products are distributed in 65 countries through a network that Herbalife claims contains 1.5 million independent distributors. Revenue has exceeded over 2 Billion US dollars world wide.

Herbalife's Products

Herbalife's product offering includes weight-management products such as Formula 1 Nutritional Shake Mix, a meal-replacement shake and one of the first products introduced by the company. Other nutritional products offered by Herbalife range from dietary supplements made from vitamins, minerals and herbs to personal care products emphasizing nutritional and herbal ingredients, such as aloe vera and vitamin C.

The Herbalife strategy is aligned with health industry recommendations for safe weight control, eating a balanced diet, low-energy food with regular exercises, and that their nutritional and weight management line of products facilitate this through macronutrient and micronutrient food formulas.

Herbalife provides testimonials from health professionals as part of their marketing campaign. Some of the products are vegetarian, some are even kosha or helal, being certified by independent assessors. The products neither conform the fairtrade guidelines, nor does the company guarantee that the products were manufactured without animal testing.

Some of the original Herbalife weight loss products contained the active ingredient Ma Huang or Sida cordifolia, two herbs containing ephedrine alkaloids. Adverse reactions involving the company's Thermojetics original green tablets were recorded by the U.S. Food and Drug Administration and Herbalife subsequently stopped using ephedrine in its products in the face of rising insurance premiums. The U.S. FDA banned supplements containing ephedra in 2004.

In its annual report Herbalife declares that all of its products are manufactured by outside companies, except for a small amount of products manufactured in its own manufacturing facility in China. The major suppliers include Nature's Bounty, Fine Foods (Italy), PharmaChem Labs and JB Labs which together account for more than 40 of distributors were still active after twelve months, up from 39.7 over the previous year; over 80% of these distributors were outside North America. The company reports the difference between the listed retail price and the actual amount distributors pay the company as "distributor allowances"; in the third calendar quarter of 2006, these allowances totaled $368 million. Assuming distributors always sold their product at listed prices, this amount spread over the qualified distributors would amount to an average "allowance" of about $500 per distributor per month. The company also paid out $109 million that quarter in "royalty overrides" – basically commissions and bonuses – to qualifying distributors.

Herbalife's Scientific Advisory Board is chaired by David Heber, M.D. Ph.D, F.A.C.P., F.A.C.N., who is professor of medicine and public health and the founding director of the Center for Human Nutrition in the Department of Medicine at UCLA.

Louis J. Ignarro, Ph.D., a Nobel Laureate in Medicine and Distinguished Professor of Pharmacology at the UCLA School of Medicine, is also a member of Herbalife's Scientific Advisory Board. Ignarro worked with Herbalife to develop Niteworks, a dietary supplement designed to boost the body's own production of nitric oxide, and later became a member of the company's Scientific Advisory Board.

Steven Charles has been a Herbalife Distributor for 5 years. He has numerous Herbalife clients.

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