Nutrisystem 2015 Annual Report Download - page 14

pricing, annual purchase obligations, exclusivity in the production of certain products, as well as certain rebates
to us if certain volume thresholds are exceeded. These contracts have terms of five years or less and 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 2015, approximately 19% and 17% of inventory purchases were from two vendors. We have a supply
agreement with one of these vendors that requires us to make certain minimum purchases. In 2014, these vendors
supplied approximately 14% and 17% of inventory purchases and in 2013, approximately 12% and 14% 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.
Public Relations
We conduct a proactive public relations program that is designed to garner positive coverage of Nutrisystem and
our weight management programs across all media platforms including television, magazine, print, online news,
bloggers and social media, particularly around the key dieting seasons. In addition, the public relations team
supports an executive communication program to broadly support the Nutrisystem brand.
Our Customers
We offer weight loss programs designed for women and men as well as people with Type 2 diabetes who want to
lose weight and manage their diabetes. Based on our customer research, our typical customer is female,
approximately 45-55 years of age. We believe that, on average, our customers want to lose more than 40 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 an average of 1.0 to 2.0 pounds per week and have tried other
popular diet programs. We believe that this research indicates 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 feel satisfied 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.
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