Business

What's gone wrong at Weight Watchers?

Oprah Winfrey Image copyright WW
Image caption Oprah Winfrey is a shareholder and board member of WW

For a business that now sees itself as being all about wellness and not just shedding pounds, the company formerly known as Weight Watchers looks like it has been on a crash diet.

In the second half of its financial year, it dropped 600,000 subscribers.

And at the beginning of its peak season - when Christmas overindulgence morphs into New Year virtuousness - membership is well below forecasts.

The problem, it seems, is all in the name.

After 56 years of trading as Weight Watchers, the company changed its name last September to WW, which, it says, doesn't stand for anything - not Weight Watchers, not even its new tagline "Wellness that Works".

Why did Weight Watchers change its name?

The intention, under new chief executive Mindy Grossman, was to modernise the brand amid a cultural shift to body positivity that now emphasises health and wellness as opposed to counting calories.

But Ms Grossman this week admitted to analysts - when the company missed full-year forecasts and warned on profits - that using the word "weight" in its marketing actually carried, well, more weight.

"I think it needed to be more weight-loss focused, especially in the January season," she said.

She added that it needed to be made clearer that Weight Watchers is now WW.

Image copyright Getty Images
Image caption Mindy Grossman became chief executive of WW in July 2017

Yanhui Zhao, assistant professor of marketing at the University of Nebraska at Omaha, says that the rebranding of Weight Watchers to WW was "a risky move" in the first place.

"A rebranding project may lead to losses in brand awareness and brand familiarity.

"These risks were even bigger for WW, considering their almost 60-year brand history in the market. Firms should be especially cautious when abandoning a long-standing brand name."

How was the new brand received?

Not even the motivational tones of Oprah Winfrey - a board member, strategic adviser and owner of an 8% stake in WW - could lift subscriber numbers and avoid the £50m dent to operating profit in the first quarter following the name change.

Despite introducing a voice over by Ms Winfrey to its advertising explaining that Weight Watchers is now WW, the company made a "soft start" to the year which, its chief financial officer Nick Hotchkin says, is "difficult to recover from".

Camilla Butcher, strategist at branding company Siegel+Gale, questions whether the company should have changed the brand at all.

"The name, if anything, for any brand is really sometimes the most important asset. That is what a brand is when it really comes down to it, it can be name, the meaning and the feelings that are associated with that name."

She adds: "I think that we live in such a fast-moving time... and there's nothing more shifting than the diet and weight loss category."

Image copyright Getty Images
Image caption WW used to be known as Weight Watchers

WW boss Ms Grossman says the company is operating in a "very competitive environment", with trends such as the high-fat, low carb "keto" diet becoming popular.

But Ms Butcher says: "By nature, it is a whole industry of fads and things that come and go, and Weight Watchers' absolute strength was the fact that they had stood the test of time."

How did shareholders react?

Shareholders, it appears, also weren't too sold on the name change when it was announced back in September.

In a study looking at the effects of rebranding on share price returns by University of Nebraska's Prof Zhao, in association with Prof Roger Calantone and Prof Clay Voorhees from Michigan State University, an examination of 215 announcements showed that on average, stocks rose 2.5%.

But the research also found that 40% of the rebranding announcements were associated with negative shareholder reactions.

For WW, Prof Zhao found that its share price fell 30% in the month after it said it was changing its name.

Was WW right to change its strategy?

While the name change may have puzzled some, the reasoning behind it makes sense.

Ms Butcher says: "I think there are very valid conversations to be had about the term 'weight' and whether that is a helpful thing to be talking about any more."

Also, the image of the company needed refreshing, says Prof Zhao: "Their previous brand image was outdated and was not appealing to millennials, males and many other demographics."

In order to address this, WW recruited singer Robbie Williams and Instagram star DJ Khaled as "brand ambassadors".

However, it was not the idea, but its execution that has hurt WW.

Image copyright Getty Images
Image caption Instagram star DJ Khaled is a brand ambassador for WW

"I just think it happened very quickly… the timing was probably a mistake," Brian Nagel, senior equity analyst at Oppenheimer told CNBC. "They did this around October, November of last year, two months before the peak season."

WW's peak first quarter season brings in about 40% of its annual recruits.

While its total subscribers for 2018 rose by 22% on the previous year - helped by strong first half as it introduced its new WW Freestyle programme - recruitment numbers have fallen in the first quarter.

Revenue for the first three months of the year will now be down by 10% and operating profit will drop by $50m compared to the same period last year.

For the full year, sales will now be $1.4bn, down from $1.5bn in 2018, and WW will no longer meet its $2bn annual revenue target by 2020.

How should have Weight Watchers changed its brand?

Prof Zhao says: "Although rebranding was necessary for them, they probably shouldn't have acted so fast to change their brand name.

"They should have started with a revised brand strategy and updated brand offerings, and then started to made small changes to their brand identity, such as brand logo and tagline.

"Corporate name change should have been their very last step of rebranding."

For its part, WW is sticking with its new name.

Ms Grossman said: "We believe [in] the most WW and Wellness that Works for the long-term relevance and performance as a brand is the right thing to do.

She added: "We are not giving up our leadership in healthy weight loss."

Related Topics

More on this story