Jenny Craig, Inc. History

Address:

11355 North Torrey Pines Road
La Jolla, California 92037
U.S.A.

Telephone: (619) 812-7000
Toll Free: 800-388-6213
Fax: (619) 812-2700

Public Company
Incorporated: 1983
Employees: 4,100
Sales: $352.24 million (1998)
Stock Exchanges: New York
Ticker Symbol: JC
NAIC: 812191 Diet & Weight Reducing Centers; 311999 All Other Miscellaneous Food Manufacturing

Company Perspectives:

In response to the needs of today's hectic, fast-paced world, Jenny Craig, Inc. offers a comprehensive weight management program that takes a practical, non-dieting approach to losing weight to help clients develop a healthy relationship with food, build an active lifestyle, and create a more balanced approach to living.

Company History:

Through its chain of weight management centers, Jenny Craig, Inc. markets a meal plan, based on the purchase of its own prepared foods, and provides advisory and motivational services to its customers. The chain experienced rapid growth during the 1980s, and in 1998 it was operating 643 company owned and 138 franchised centers in 45 states, as well as in Australia, New Zealand, Canada, and Puerto Rico. However, by the late 1990s, the company was also showing signs of slower sales, reporting a 22 percent decrease in service revenues from U.S. company-owned operations between 1997 and 1998. Moreover, revenues had fallen from $401 million in 1996 to $352 million in 1998. The company was responding to the declines by leveraging the Jenny Craig name: expanding its conventional marketing venues to include e-commerce, and by extending its product line to include cookbooks and exercise equipment.

Company Origins

Co-founder Jenny Craig developed an interest in the fitness industry in the 1960s, through her efforts to lose weight following a pregnancy. She operated a gym in her hometown of New Orleans, before joining the staff at the Body Contour fitness center in 1970. Body Contour was headed by Sid Craig, who maintained a 50 percent interest in the company. Jenny and Sid married in 1979, and together they helped turn the struggling company into a thriving business that was reporting $35 million in sales by 1982.

That year, the Craigs sold Body Contour to a subsidiary of Nutri/System Inc. With the $3.5 million they made from the sale, the Craigs formed Jenny Craig, Inc. in 1983. Initially barred from entering the U.S. diet industry by a noncompetition clause, the company opened its first weight loss center in Australia. By 1985, 69 Jenny Craig Weight Loss Centers were in operation in Australia, and the company became one of the biggest players in that country's diet industry. That year, the Craigs returned to the United States, opening 13 centers in the Los Angeles area, which were soon followed by six additional facilities in Chicago.

U.S. Expansion in the 1980s

By 1987, the company had established 46 centers in the United States and 114 in foreign countries; of these 160 units, 45 were franchised operations. Seeking capital from outside investors, the Craigs considered taking their company public but were discouraged by a weak market for initial public offerings. Instead, Michael Tennenbaum, vice-chairman of investment banking at Bear Stearns Companies, Inc., stepped in. Tennenbaum brought together a group of investors that included his partners at Bear Stearns, the New York Life Insurance Co., and TA Associates, an investment and venture capital firm, among others. Together they invested $50 million in Jenny Craig, and two bank loans contributed another $50 million to the company's recapitalization. The successful expansion left the Craig family with a $108 million dividend.

Marketing was integral to Jenny Craig's success. In the early 1990s, ten percent of sales went into commercial advertising each year, and franchises were required to spend the higher of ten percent of sales or $1,000 a week on advertising for their centers. The company's television campaigns featured celebrities, such as actors Elliot Gould and Susan Ruttan, who had achieved success with the Jenny Craig program. Moreover, ads provided a toll free number which automatically connected callers to the center nearest to them. In 1991, the company also began a direct mail campaign based on its extensive database of two million current and former clients.

The Jenny Craig program was designed by its staff of registered dieticians and psychologists and approved by an advisory board consisting of health and nutrition research experts. The three principal tenets of the program were behavior education, proper nutrition, and exercise. Central to the program was Jenny's Cuisine, portion and calorie controlled foods that participants were required to purchase. Jenny's Cuisine was created by suppliers in compliance with standards set by a board of dieticians; suppliers included Overhill Farms, Magic Pantry Foods, Truitt Bros., Campbell Soup Company, Carnation, and Vitex Foods. The program made available 60 different breakfast, lunch, dinner, dessert, and snack food items, including apple cinnamon oatmeal, teriyaki beef, and chocolate mousse. Menus were updated to include microwaveable entrees and canned foods in 1986. The company's gross revenues from food sales increased from 60 percent in 1986 to 91 percent in 1993.

Another important part of the Jenny Craig program was its twice-weekly meetings. New clients met with a counselor, who would monitor their progress and sell them installments of Jenny's Cuisine. At subsequent group meetings, participants attended classes covering such subjects as "dining out," "asserting yourself," and "dieting as a team." In 1989, video cassette programs were introduced into counseling classes to ensure consistency at all centers. After viewing video cassettes, participants engaged in discussion facilitated by their counselor.

A Public Offering and a Challenging Marketplace

In 1991, under improved market conditions, Jenny Craig was taken public, issuing 3.5 million shares at $21 per share. The offering generated $73.5 million in capital, which was used to satisfy the company's bank loans and its debt to the investment group. During this time, the Craigs sold another 1.65 million of their own shares for $36 million, and the banks and investors garnered $11.5 million for the 550,000 shares they sold. As a result, the Craigs retained 59 percent of the company, while banks and investors controlled 20 percent and the public claimed 29 percent.

Sid Craig's expectations for company revenues to grow by 15 to 20 percent a year through expansion proved unrealistic. After a period of remarkable growth in the weight loss industry as a whole during the 1980s, public attention focused on the potential health risks involved in dieting during the early 1990s, and enrollment at diet centers dropped. In 1990, Jenny Craig and its rival Nutri/System Inc. were named as defendants in a class action lawsuit alleging that weight loss programs, like those promoted by the companies, had resulted in cases of gallbladder disease. Moreover, Jenny Craig was named in 11 other personal injury cases during this time. The disputes were settled, and the alleged link between gallbladder problems and the Jenny Craig program was never proven. However, the cases prompted a Federal Trade Commission investigation into the validity of the claims for successful weight loss made by Jenny Craig and other companies in the diet industry.

The company soon terminated its operations in the United Kingdom, due to their lack of profitability, and, in 1992, a secondary offering of public stock was postponed indefinitely, due to weak market conditions and a decline in profits linked to a failed promotional campaign. Nevertheless, Jenny Craig continued the expansion of its diet center chain, opening 89 new centers and repurchasing 41 franchises.

During 1993, the ongoing FTC investigations into the advertising and promotional practices of the diet industry generated more negative publicity. Specifically, the FTC questioned whether advertising was leading consumers to mistakenly believe that maintaining weight loss after finishing the diet program would be easy. Moreover, medical journals and newspapers reported that "yo-yo dieting"--the repeated gain and loss of weight--caused more health problems than simply remaining slightly overweight.

Jenny Craig and four other major commercial weight loss companies--Weight Watchers, Nutri/System, Diet Center, and Physician's Weight Loss Center--petitioned for standard advertising rules for the industry, but the petition was rejected.

When Nutri/System reported severe financial setbacks in April 1993 and was forced to close its headquarters and 283 of its centers, Jenny Craig immediately began an advertising campaign offering Nutri/System clients the opportunity to continue their weight loss programs at Jenny Craig at no additional service fee. In its open letter to Nutri/System clients, Jenny Craig emphasized its financial strength as a "debt-free, $500 million New York Stock Exchange Company with ten years of proven success." However, neither Jenny Craig nor Weight Watchers International, which had launched a similar campaign, saw a significant increase in enrollments.

Increased competition in the industry, largely by "do-it-yourself" diet companies, also began to cut into Jenny Craig's market by emphasizing the high costs of membership in diet center programs. Typical Jenny Craig clients--women wanting to lose 30 or more pounds--could spend over $1,000 as clients of Jenny Craig, paying an initial start-up fee and about $70 a week for meals. Other companies, such as Just Help Yourself, began offering self-administered diet plans, marketing themselves as cheaper, more convenient alternatives to diet centers.

Despite the shrinking market, the Craigs continued to expand. In 1993, Jenny Craig added 100 new centers and bought back 48 franchises, bringing its total outlets to 794. The company also introduced a program for those living in areas beyond the reach of its centers, allowing customers to order products by telephone and receive direct shipments.

Some shareholders disagreed with the company's expansion policy. Stock purchased at $21 per share in 1991 had sunk below $15 the following year. In October 1993, three shareholders filed a suit against the company, alleging that the expansion was designed to bolster sales figures, overshadowing the company's financial difficulties. While Jenny Craig's total revenues for the year ended June 30, 1993 were $490.5 million, up six percent from 1992, average revenues for each company-owned center had declined ten percent from the previous year. Moreover, although the company's Southern California centers remained profitable, these outlets had experienced a 26 percent decline in revenues.

A Change at the Top in the Mid-1990s

When Ronald E. Gerevas, chief operating officer and president, departed unexpectedly in November 1993, Jenny Craig stock dropped to $11.75 a share. Gerevas' replacement, Albert J. DiMarco, left after just four months; William R. Lewis, a former business associate of DiMarco who had just been appointed chief financial officer the month before, left with DiMarco. By this time, confidence in the company was declining, and its stock was trading at about $6.25 per share, less then one-third of its original price. In April 1994, hoping that new management would help restore investor confidence, the company appointed C. Joseph LaBonté as president and CEO, and Ellen Destray was made chief operating officer. Sid Craig remained as the company's chairperson.

Jenny Craig introduced modifications to its original program in 1994. A wider variety of meetings were offered, and clients were allowed to choose the classes most pertinent to their lifestyle. The company's video programs were also updated and made available for home use. Perhaps most importantly, the program was modified to reflect current trends in popular psychology that suggested that overeating was a result of emotional distress. Accordingly, Jenny Craig encouraged clients to discover, address, and overcome individual emotional issues that might impede the success of their dieting. Nonetheless, the company continued to struggle with declining membership into the late 1990s.

The late 1990s brought new challenges for Jenny Craig, some in the form of litigation against the company both by consumer groups and the U.S. government. In May 1997, as a result of an earlier charge of deceptive advertising against the company, the FTC imposed restrictions requiring Jenny Craig to stipulate in its advertising: "For many dieters weight loss is temporary." Furthermore, testimonials of those who had been very successful under the plan had to be accompanied by a disclaimer: "This result is not typical. You may be less successful." In addition to these provisions, Jenny Craig was also forced to publish the average weight loss its customers experienced and to provide scientific data supporting future claims.

Next, in September 1997 the Federal Food and Drug Administration recalled a popular diet drug composed of either dexfenfluramine (sold as Redux) or fenfluramine and phentermine (fen-phen). Data indicated that fen-phen damaged the heart valves of some people who used the drug. This decision affected Jenny Craig, as the company had begun using physicians outside its organization to write prescriptions for fen-phen and had incorporated the drug into the weight-loss program. Also during this time, the company faced litigation on the part of some former employees in Boston, men who alleged sex discrimination in the workplace.

In February 1999 Jenny Craig joined a coalition of weight-loss organizations in issuing guidelines to give consumers regarding program effectiveness, safety, and costs. This effort, it was hoped, would forestall further efforts at regulating the weight-loss industry. These full disclosure guidelines required weight-loss organizations to give consumers information about the qualifications of their staffs, health risks associated with obesity, health risks of rapid weight loss, and the full costs of their program, including the price of the food.

The weight-loss industry in general and Jenny Craig in particular experienced financial setbacks during this time. Net income between 1994 and 1998 was a roller coaster ride for Jenny Craig, with postings of $36.7 million in 1994, to $11.7 million in 1995, a rebound of $22.9 million in 1996, and a decline to $2.12 million in 1998. The company reported that its membership rate had stalled, and its number of outlets had fallen to 675.

1999 and Beyond

Jenny Craig reacted to uneven profits on several fronts. On December 9, 1998 the company announced the appointment of a new president, Philip Voluck, who would continue to serve as chief operating officer, a position he had gained six months earlier, coming to the company with considerable experience at ex-rival Nutri/System. Founder Jenny Craig continued to serve as vice-chairman of the company, while her husband Sid Craig remained chairman and CEO. In March 1999 the company announced its plans to refocus its mission into one of self-improvement rather than weight-loss. The new program included two new product lines: a new Advanced Nutrients line of food supplements, sold exclusively via the Internet, and a new Jenny Craig line of exercise equipment. At the same time, the company refocused its food program, and the resultant ABC program was simpler to use and gave clients more choices. Subsequent program variations included a less costly plan for clients, under which they were able to purchase supplements rather than meals.

Personal struggles also ensued for Jenny Craig herself as company spokesperson. According to her own account in People magazine, in April 1995 Craig awakened one evening, startled by the television, and her sudden movement snapped her lower jaw tight over her upper jaw. The resultant injury to the muscles of her jaws deteriorated her ability to speak. Craig's daughter took over as company spokesperson as Craig sought medical treatment from one expert after another. Finally, three years later, a California surgeon reconstructed her jaw and placed her on a rigorous therapy program. No stranger to rigorous exercise routines, Jenny Craig reported success and hoped she could start the new century with fully restored ability to speak. Similarly, Jenny Craig management hoped that its efforts to refocus the company's mission would help it withstand the uncertainty facing the weight-loss industry.

Principal Subsidiaries: Jenny Craig Weight Loss Centres, Inc.; Jenny Craig International, Inc.; Jenny Craig Australia Holdings, Inc.; Jenny Craig Weight Loss Centres Pty. Ltd. (Australia); Jenny Craig Distributing Pty. Ltd. (Australia); Jenny Craig Management, Inc.; Jenny Craig Operations, Inc.; Jenny Craig Products, Inc. JCCH1, Inc.; JCCH2, Inc.; JCH, Inc.; Jenny Craig Weight Loss Centres (Canada) Company; Jenny Craig (Canada) Holdings, LLC.

Jenny Craig, Inc. History

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