Nutrisystem 2014 Annual Report Download - page 14

annual pricing, annual purchase obligations, as well as exclusivity in the production of certain products, with
terms of five years or less. One agreement also provides for certain rebates to us if certain volume thresholds are
exceeded. These contracts may be terminated by us upon written notice, generally between 30 and 180 days, or
under certain circumstances only upon a default of the vendor. We anticipate meeting all annual purchase
obligations.
In 2014, approximately 17% and 14%, respectively, of inventory purchases were from two vendors. We have
supply agreements with these vendors that require us to make certain minimum purchases. In 2013, these vendors
supplied approximately 14% and 12%, respectively, of inventory purchases and in 2012, approximately 17% and
13%, respectively, of inventory purchases.
Our product development team uses a number of sources – customer feedback, market trends, nutrition science,
national dietary guidelines and breakthroughs in food technology – to create new ideas for our program. New
foods are created to enhance the variety of our current offerings or to support the efforts of creating a new
program. Typically, concepts are formulated in collaboration with our food manufacturers to meet our
requirements for nutrition and stability. We then contract with these food manufacturers to produce these
products based on our specifications. Alternatively, food manufacturers may suggest items. Regardless of a given
food item’s pathway through development, that food is evaluated for nutrition, compliance with our program,
taste, and cost considerations. The number of stock keeping units, or SKUs, we introduce each year varies
depending on whether we are introducing a new program or simply updating an existing one.
Our Customers
We offer weight loss programs designed for women, men, seniors as well as people with Type 2 diabetes who
want to lose weight. Based on our customer research, our typical customer is female, approximately 52 years of
age. We believe that, on average, our customers want to lose approximately 44 pounds over a period of time.
Additionally, based on our customer research, we believe our typical customers tend to stay on our program for
11 to 12 weeks, lose 1.0 to 2.0 pounds per week and have tried other popular diet programs. We believe that this
research indicates a willingness to refer our program to others and that our customers value the following
Nutrisystem program attributes:
• effective weight loss;
• convenient direct delivery to their door;
• simple to follow and stay on program;
• food can be easily prepared in minutes;
• wide variety of food choices; and
• they do not feel hungry while on the program.
Information Systems
Our ecommerce and community websites and our tools and trackers, all of which are based primarily on third-
party software customized to meet our business needs, are each hosted in top tier hosting facilities. These
facilities provide redundant network connections, physical and fire security and diesel generated power back up
for the equipment upon which our websites rely and are intended to provide an uninterruptible power supply. Our
servers and our network are monitored 24 hours a day, seven days a week.
We use a variety of security techniques to protect our confidential customer data. When our customers place an
order or access their account information, we secure that transaction by using some of the best available
encryption technologies, including secure sockets layer, or SSL. Our customer data is protected against
unauthorized access by security measures and we engage a variety of industry leading technology providers
including VeriSign, CyberSource and SecureWorks to further ensure the security of our credit card transactions
and the safety of our customers’ personal information.
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