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Little did Harold Katz know in 1971 when he set out to create a business to help people lose weight that almost 40 years later the company would become a leading provider of weight management products and services.  NutriSystem, the business which made him rich, started meagerly with $20,000 emptied from his savings account and another $20,000 obtained from a second mortgage on Katz’s home. The son of a grocer with no formal education beyond high school, Katz set out to build his business at the age of 34 after observing his mother’s battles with her own weight loss. He figured by integrating behavioral counseling, medical supervision, and low calorie meals under one roof, he could solve the problem of losing weight and keeping it off. What resulted was the creation of a series of weight loss centers that resembled medical offices.

The Spectacular Growth In The 1970s

With the first center opening up in Willow Grove, a suburb of Katz’s native Philadelphia, the company began to flourish, with other centers following, including sales to franchisees. Between 1971 and 1980, NutriSystem evolved and went through several name changes such as Shape-Up Weight Control Centers of America, Weight Loss Medical Centers of America, Nutri-System Weight Loss Medical Centers of America and finally Nutri/System.

What helped to propel the business into the spotlight and make it one of the fastest growing businesses in America was the franchise model that Katz later referred to as a “money making machine.” The centers earned money through client set up fees and then charged these clients according to the amount of weight that they lost. What really made money, however, were the prepackaged private label foods which clients were required to purchase at least five times per week.

During the decade of the 70s the number of centers increased, along with the company’s profits, and ranked as one of the 100 fastest growing companies in America. In 1979, this growth rate was measured at an annual rate of 82 percent. This led to Katz taking the company public in 1982, where his 67 percent of Nutri/System shares turned his initial $40,000 investment into $300 million. With his new found wealth, Katz moved the company into a new $2 million corporate headquarters in Huntington Pennsylvania, bought a massive estate, and spent lavishly on other items, including the purchase of his hometown basketball team, the Philadelphia 76ers.

The Turmoil In The 1980s

During the 80s the chain operated in 50 states with 500 weight loss centers, the majority of them franchisees, generating $50 million in sales annually. With a cash flow that nearly doubled with each passing year, Katz ventured into other businesses with his successful franchise model, acquiring executive placement firm Fox-Morris Associates, Gloria Marshall Figure Salons, Nutrient Cosmetics, and Tele-Cut, a hair-styling salon based on his tried and tested franchise concept. The acquisition of these additional companies proved disastrous, and their failure to turn profits led to some difficulties between Katz and his franchisees. Senior officials in the firm began to sell massive amounts of their stock, including company head Katz, his brother Robert Katz, who was Nutri/System’s vice-president, and the company’s national medical director. These actions, along with the announcement that the company’s earnings had dropped by $1.8 million, further disillusioned franchisees and stockholders.

This tension, along with discontent over the perceived high prices that franchisees were being charged for food which they were obliged to buy from Katz, led to the filing of multiple class action lawsuits against the company.  In an effort to stem his losses and repair his relationship with franchisees, Katz hired a new chief executive officer, A. Donald McCulloch, in 1985, who brought a wealth of marketing experience from work with companies such as General Foods, Wilson Sporting Goods, and Pizza Hut. His turnaround plan led to a leveraged buyout of Katz in 1986 which created a fresh start for the company along with a new privately-held status. With this new direction, the company expanded during the remainder of the 1980s, growing to 1,800 weight loss centers and $764 million in revenues by the decade’s end.

The Bankruptcy In The Early 1990s

This rebirth would be short lived, however, with damaging legal battles further taking their toll on the company in the 1990’s. Between 300 and 800 lawsuits were filed, claiming that the Nutri/System weight loss program led to medical problems for its users, including the formation of gallstones and gallbladder disease. In mid 1993, the company was forced to file Chapter 11 under the weight of these legal cases, and the company continued in a far diminished sense throughout the remainder of the 90s. As revenues continued to drop, Nutri/System executives decided to abandon their traditional approach to weight loss programs and instead opted to offer their services solely on the Internet. They sold their weight loss centers off to another company and became NutriSystem.com in 1997.

The New Era In The Dawn Of  The 21st Century

The 30 year old brand then re-emerged on the Internet and began to rebuild and transform, acquiring and dropping the Sweet Success product line from Nestle, and entering into a more productive relationship with the shopping network QVC to sell their products on cable television, which eventually accounted for more than 20% of their food sales. This now stronger company lured new owners in 2002, JHM Holdings and NewSpring Ventures, which then changed the name of the company to NutriSystem, Inc. and introduced a new food line in 2003 (the first in more than a dozen years), which contained more than 100 new selections, followed by the acquisition of the franchised fitness centers Slim and Tone in 2004.

Today the company flourishes, offering its services on the Internet by providing diet programs through its website and their online affiliates who regularly post a Nutrisystem discount coupon. The company also offers weight loss counseling online and via telephone, and continues to sell their now famous weight-loss programs and prepackaged foods. Celebrity endorsements from notable figures such as former NFLer Dan Marino and entertainer Marie Osmond in a series of prolific television commercials, along with a continued presence on QVC, help to keep their business healthy.

About The Author

Matt Papa is the publisher of  WeightLossTriumph.com, where he offers a free calorie counter log and provides tips and advice through his best weight loss diet program reviews.

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