Incorporated: 1983
NAIC: 812191 Diet and Weight Reducing Centers; 311999 All Other Miscellaneous Food Manufacturing; 812990 All Other Personal Services
SIC: 7299 Miscellaneous Personal Services Nec
Jenny Craig, Inc., headquartered in Carlsbad, California, operates approximately 650 company-owned and franchised weight loss centers with locations in the United States, Canada, Australia, New Zealand, and Puerto Rico. Through these centers as well its Direct Consultant telephone service, Jenny Craig markets a meal plan that includes preprepared foods and provides individual diet counseling/motivational services to its clients. In July 2006, following several years of losses, Jenny Craig was acquired by Nestlé S.A. for approximately $600 million. Under Nestlé, in its Nestlé Nutrition division, Jenny Craig but continuing to operate as a separate entity.
Company Origins
Cofounder 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 Early Years
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, 10 percent of sales went into commercial advertising each year, and franchises were required to spend the higher of 10 percent of sales or $1,000 a week on advertising for their centers. The company's television campaigns featured celebrities, such as actors Elliott Gould and Susan Ruttan, who had achieved success with the Jenny Craig program. Moreover, ads provided a toll-free number that 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 subjects such as "dining out," "asserting yourself," and "dieting as a team." In 1989, videocassette programs were introduced into counseling classes to ensure consistency at all centers. After viewing videocassettes, 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 (FTC) 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 more than $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 less expensive, 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 6 percent from 1992, average revenues for each company-owned center had declined 10 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.
New Leadership and Challenges in the Second Decade
When Ronald E. Gerevas, chief operating officer and president, departed unexpectedly in November 1993, Jenny Craig stock dropped to $11.75 a share. Gerevas's 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 than 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 also were updated and made available for home use. Perhaps most important, 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 forced to publish the average weight loss its customers experienced and to provide scientific data supporting future claims.
Next, in September 1997 the U.S. 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 resulting 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. She had not appeared as company spokesperson since she had been injured in a car accident that resulted in a speech impediment. Craig's daughter, Denise, 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, a hope that was eventually realized. Similarly, Jenny Craig management hoped that its efforts to refocus the company's mission would help it withstand changes in the weight loss industry.
In its ongoing efforts to attract a diverse clientele and promote healthy lifestyles, in July 1999 Jenny Craig launched a new health and fitness show on television. Called Jenny's Fit in 15, the show aired on The Health Network, a new cable television network integrated with an Internet site. The half-hour daily program was geared toward women of all ages, ethnicities, and body types and combined 15 minutes of aerobic and toning exercise routines with interviews featuring women who had overcome adversity and worked to achieve health and happiness (much like cofounder Jenny Craig).
Still, net losses at the company continued to mount, and in November 1999 the company began restructuring efforts. First it announced the closing of 86 of its U.S. weight loss centers, eliminating 103 positions, including 26 at company headquarters. Also new management was brought in; Patricia A. Larchet was named president and chief operating officer. Larchet had served previously as general manager of Jenny Craig's Australian operations. She became only the second woman in the company's history to take on the position of president, after cofounder Jenny Craig herself. In another bold move, the company hired former White House intern Monica Lewinsky, known widely for her relationship with President Bill Clinton, as a commercial spokesperson in a $7.2 million advertising campaign. The company maintained that Lewinsky was hired because of her commitment to overcoming weight loss struggles, but some Jenny Craig franchises chose not to use the ads, claiming that the notorious former intern was not a role model who would appeal to many. By June 2000, the company dropped Lewinsky as its spokesperson for undisclosed reasons.
At the onset of the new century, Jenny Craig introduced new menu programs. In January 2000, a new low-carbohydrate menu option was introduced. In February, Jenny Craig ventured into the retail market for the first time when it collaborated with Balance Bar in the launch of a new nutrition bar. In April, the company initiated a new promotional campaign called It's Your Choice, through which it introduced new products and programs to fit different lifestyles, tastes, and budgets. At this time, a total of 660 Jenny Craig Centres were in operation, down from 767 from the year before; of these, the company owned 548 centers, and 112 were run by franchisees.
Losses mounted, however, for the second largest company in the weight-loss industry, and clearly some more radical shifts were in order. In 2001, Jenny Craig generated $16 million through the sale of its corporate headquarters building in La Jolla, California, to nearby National University. Still, given its lack of profitability, and its subpar equity and market capitalization, Jenny Craig was delisted from the New York Stock Exchange during this time and began trading over the counter.
Jenny Craig remained a highly recognized brand name, with a loyal customer base, and was therefore considered by some an attractive acquisition target. In January 2002, a group of investors that included the Craigs and was headed by ACI Capital Co, Inc., and MidOcean Capital Partners, Inc. (a spinoff of the Deutsche Bank's private equity arm), took Jenny Craig private in a leveraged buyout (LBO) valued at about $115 million. Sid Craig remained on the board but gave up his position as CEO, and he and Jenny Craig reduced the 67 percent stake in the company that they had founded nearly 20 years ago, retaining a minority interest of 20 percent.
Later that year, the company's headquarters were relocated to Carlsbad, California. At this point, Jenny Craig operated 652 company-owned and franchised centers and employed more than 3,000 workers worldwide. A new CEO, James P. Evans, who had served as CEO at the hotel chain Best Western International, was named to replace Sid Craig. The company then quickly set about improving its financial picture, upgrading its data platforms as well as its weight loss centers and enhancing the training available to its sales staff. The company celebrated its 20th anniversary in 2003, announcing itself as reinvigorated and ready to increase business in the coming years. It was inducted that year into the U.S. Small Business Administration's Hall of Fame.
In an age of increasing media focus on the so-called obesity problem, some analysts speculated that Jenny Craig's strength--its commitment to healthy eating and gradual weight loss with attendant counseling services--failed to match the public's demand for quick fixes. Without straying from its principles, Jenny Craig acknowledged the need for convenience and privacy by introducing a customized delivery service called Jenny Direct. Clients could have their food delivered to their homes and receive advice and encouragement via telephone consultations with trained staff.
In December 2004, Jenny Craig received a much-needed advertising boost when film and television actress Kirstie Alley joined the Jenny Craig program. Alley was set to star in a Showtime network television series called Fat Actress, which showcased Alley's struggles with weight along with her irreverent sense of humor. In one episode of the show, Alley receives a contract offer from Jenny Craig; in reality she had accepted that offer and introduced a greater and more diverse viewing audience to the Jenny Craig program. A high-profile campaign of television commercials and print ads for Jenny Craig starring Alley helped further fuel a turnaround for the company.
In 2005, veteran executive Patricia A. Larchet advanced into the CEO position. The following year, in June 2006, management announced that Nestlé S.A., a giant in the food industry, had agreed to acquire Jenny Craig for about $600 million. A company first and perhaps best known for chocolate products had chosen to add to its fold a company dedicated to weight management through healthy lifestyle choices. It was a better fit than it seemed, however, as Nestlé already owned the Lean Cuisine brand of frozen meals and had established a nutrition division, into which Jenny Craig would be incorporated. Nestlé enjoyed prominent and abundant shelf space in the country's supermarkets, and analysts predicted that sales of the Jenny Craig brand of prepackaged meals might again become available in stores. Nestlé planned to retain Jenny Craig's current management to continue running the chain of more than 600 weight loss centers from the company's Carlsbad, California, headquarters.
Meanwhile, the advertising campaign using actress Kirstie Alley had been wildly successful, nearly doubling the number of Jenny Craig clients. However, Alley's 75-pound weight loss meant that a new public success story was needed to promote the company's customized programs. In the spring of 2007, actress Valerie Bertinelli was signed to represent Jenny Craig, as her own efforts to lose weight were documented to inspire potential clients. The launch of the Bertinelli campaign reportedly garnered the greatest number of new callers to Jenny Craig in company history.
Principal Competitors
Nutri/System Inc.; Slim-Fast Foods Co.; Weight Watchers International Inc.
Further Reading
Allen, Mike, "Jenny Craig Trims Fat After $3.8 Million Loss," San Diego Business Journal, November 8, 1999, p. 34.
Barret, Amy, "How Can Jenny Craig Keep on Gaining?" Business Week, April 12, 1993, p. 52.
Berman, Phyllis, "Fat City," Forbes, February 17, 1992, pp. 72-73.
Bird, Laura, "Jenny Craig Kicks Off a Database Program," Adweek's Marketing Week, January 7, 1991, p. 8.
"Craigs Again Take Control of Jenny Craig," San Diego Business Journal, October 13, 1997, p. 47.
Goldman, Kevin, "Ads Dished Up for Nutri/System Dieters," Wall Street Journal, May 7, 1993, p. B8.
Harrison, Joan, "Weight Loss Firm Jenny Craig Is Considering a Sale," Mergers & Acquisitions Journal, July 2001, p. 27.
Holden, Benjamin A., "Financial Officer Quits Jenny Craig After Brief Tenure," Wall Street Journal, March 10, 1994, p. B10.
Hyten, Todd, "Ex-Jenny Craig Male Workers Allege Discrimination," Boston Business Journal, October 14, 1994, p. 5.
Leon, Hortense, "Doctors, Pharmacies Say Fen-Phen Recall No Problem," South Florida Business Journal, September 19, 1997, p. 5.
Lippert, Barbara, "The Weighting Game: Jenny Craig Calls on Candid Kirstie Alley for Fresh Approach," Adweek, January 10, 2005, p. 27.
------, "Weighty Matters," Adweek, January 10, 1994, p. 28.
Melton, Marissa, "Guaranteed: Lose 1 Pound in 90 Days," U.S. News & World Report, February 22, 1999, p. 67.
Pollack, Judann, "Fed Up with Promoting Diets, Weight-Loss Rivals Branch Out," Advertising Age, March 29, 1999, pp. 3-4.
Rundle, Rhonda L., "Jenny Craig Inc Delays Planned Stock Offering," Wall Street Journal, May 28, 1992, p. A8.
Saddler, Jeanne, "Three Diet Firms Settle False-Ad Case; Two Others Vow to Fight FTC Charges," Wall Street Journal, October 1993, p. B5.
Sorkin, Andrew Ross, "Nestlé to Buy Jenny Craig, Betting Diets Are on Rise," New York Times, June 19, 2006, p. C1.
Valeriano, Lourdes Lee, "Diet Programs Hope Broader Services Fatten Profits," Wall Street Journal, August 5, 1993, p. B4.
Warner, Melanie, "In Ads, 'Fat Actress' Label Seems Less Fitting," New York Times, September 12, 2005, p. C9.
Winter, Greg, "Jenny Craig Founders Are Selling Chain in $115 Million Deal," New York Times, January 29, 2002, p. C4.
— Elaine Belsito; Updated by Shannon and Terry Hughes, Robynn Montgomery
