Yet revenue in the weight-management industry isn't keeping pace.
“The market forces are very contradictory,” said Dr. Philip Herschman, chief clinical officer of CRC Health Corp..
When CRC Health Corp., a Cupertino, Calif.-based company that primarily focuses on substance-abuse treatment and addiction recovery, announced its most recent quarterly results last week, it showed that its weight-management segment had slipped. Client service revenue in the division was down nearly 7% for the most recent quarter, ended Sept. 30.
CRC operates 10 weight-loss camps for children and one adult residential facility, but despite the obesity epidemic, Herschman said, the weight-management portion isn't booming because “there's no third-party reimbursement to treat obesity.
“Folks are much less apt to pay for a behavioral health program when they might be able to get reimbursement for bariatric surgery or do one of the more popular or less immersive and less expensive programs,” Herschman said.
But even those businesses have been struggling recently. Earlier this month, Nestle sold the bulk of its weight-loss company Jenny Craig to private-equity firm North Castle Partners because it had “been a laggard in the firm's portfolio for quite some time,” according to a note written by Morningstar analyst Erin Lash. Though Nestle does not disclose financial performance by business segment, management had indicated that the diet firm, which combines prepackaged meals with nutritional counseling sessions, had been struggling in recent years.
Nutrisystem, which also provides home-delivered weight-loss meal plans and nutritional counseling and coaching, reported a 14% drop in revenue for the first three quarters of 2013.
And Weight Watchers, one of Jenny Craig's main competitors, has also seen a decline in the sales and fees portion of its revenue. For its most recent quarter, ending Sept. 28, the company reported revenue of $393.9 million, representing an 8.5% drop from $430.6 million the same period in 2012. Weight Watchers' annual revenue at this point in the year is also down from where it was at this time last year, with its meeting fees and product sales taking a hit.
Management blamed “softness in the third quarter of fiscal 2013” on “difficulty in attracting new members into the brand.” Yet it doesn't seem that obese or overweight adults are necessarily pursuing other paid membership options.
In 2012, Weight Watchers launched a mobile app for tracking food and activity, but that's an add-on feature on top of its already paid subscription or membership services. There are other smartphone apps that do the same thing and do it better than Weight Watchers, said Kurt Frederick, analyst at Wedbush Securities. Some of them, such as MyFitnessPal, are even free.
“The penetration of the smartphone is the biggest dynamic,” Frederick said, “where people are switching to better and more advanced products that have been around longer and don't have a monthly subscription.”
Follow Rachel Landen on Twitter: @MHrlanden
