Nutrisystem 2007 Annual Report Download - page 10

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Competitive Strengths
We believe that our system offers consumers a sensible approach to losing weight without the use of
faddish, unhealthy or unrealistic weight loss methods. We intend to capitalize on the following competitive
strengths to grow:
Product Efficacy. We believe our customers are very satisfied with our products and believe they have lost
weight while using our program. Our customer surveys found that clients lost an average of 1.5 to 2.0 pounds per
week and tended to stay on the program for 10 to 11 weeks. We believe these surveys indicate overall
satisfaction with our program and a willingness to refer our program to others.
Strong Brand Recognition. We believe that our brand is well recognized in the weight management industry.
Our company and our predecessors have been in the weight management industry for more than 30 years, and we
estimate that our company and our predecessors have spent hundreds of millions of dollars in advertising over
that time period.
Low Cost, Highly Scalable Model. Unlike traditional commercial weight loss programs, which primarily sell
through franchisee and company-owned centers, in our direct channel we generate revenue through the Internet
and telephone. Our method of distribution removes the fixed costs and capital investment associated with diet
centers. We also minimize fixed costs and capital investments in food procurement and fulfillment: we outsource
the production of our food products to a number of vendors and we outsource approximately 90% of our
fulfillment operations to a third-party provider.
Superior Consumer Value Proposition. Our goal is to offer our customers a complete weight management
program that is convenient, private and cost-effective. Our customers place their orders through the Internet or
over the phone and have their food delivered directly to their homes. This affords our customers the convenience
and anonymity that other diets which rely on weight-loss centers cannot ensure. Additionally, we provide our
customers with a month of food, including breakfast, lunch, dinner and dessert, each day, which removes the
confusion of reading nutrition labels, measuring portions or counting calories, carbohydrates or points. At a cost
of about $10 or $11 a day for a full 28 days of NutriSystem food, we believe our weight management program
offers our customers significant value and is priced below those of our competitors. In addition, we do not charge
a membership fee, whereas many of our competitors charge such a fee.
Our Industry
Weight management is a challenge for a significant portion of the U.S. population. The 2003-2004 National
Health and Nutrition Examination Study estimated that 66% of the adult population is overweight and 33% is
obese, an increase from 47% and 15%, respectively, in 1976. There has been no statistically significant change to
these levels since the 2003-2004 study.
1976 - 1980 1988 - 1994 1999 - 2000 2001 - 2002 2003 - 2004
0%
10%
20%
30%
40%
50%
60%
70%
47%
56%
65% 66% 66%
Overweight
5%
10%
15%
20%
25%
30%
35%
15%
23%
33%
31%31%
1976 - 1980 1988 - 1994 1999 - 2000 2001 - 2002 2003 - 2004
0%
Obese
4