Nutrisystem 2010 Annual Report Download - page 9

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 customers lost an average of 1.0 to 2.0 pounds
per week and tended to stay on the program for 10 to 11 weeks (including the one free week most customers
obtain with their initial order). We believe these surveys indicate overall satisfaction with our program and a
potential willingness to refer our program to others.
Strong Brand Recognition. We believe that our brand is generally well recognized in the weight
management industry. Our company and our predecessors have been in the weight management industry for
more than 35 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, we generate revenue in our direct channel through the Internet
and telephone (including the redemption of prepaid program cards). 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 currently outsource 100% 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 as little as $11 per day, 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 do.
Our Industry
Weight management is a challenge for a significant portion of the U.S., as well as the global population.
According to the World Health Organization (“WHO”), in 2005 approximately 1.6 billion adults (age 15 and
above) globally were overweight and at least 400 million of them were obese. WHO projects that by 2015, 2.3
billion people will be overweight and 700 million of these will be obese. In the U.S., data from a nationally
representative sample surveyed in 2007-2008 found that more than one-third of U.S. adults were obese, with
another one-third being overweight.
Nutrisystem is currently operating primarily in the U.S. and Canada. Gallup surveys indicate that
approximately 42% of the people in the U.S., or an estimated 96 million were dieting during 2008. Of those
people, approximately 56 million were attempting to lose weight and 40 million were attempting to maintain
their weight. Approximately 8% participated in commercial weight loss programs and 56% conducted some form
of self-directed diet. We believe the Nutrisystem program is well positioned to attract both types of dieters.
According to the U.S. Department of Health and Human Services, overweight or obese individuals are
increasingly at risk for diseases such as diabetes, heart disease, certain types of cancer, stroke, arthritis, breathing
problems and depression. However, there is evidence that weight loss may reduce the risk of developing these
diseases, as well as improve the health and quality of life of people who have these conditions.
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