The Los Angeles-based firm - which occupies a unique position in the market by selling its nutrition and weight management products direct to consumers via a global network of independent distributors - also plans to significantly increase its manufacturing footprint.
President Des Walsh was speaking to NutraIngredients-USA.com after the firm posted a 28.5% leap in first quarter net sales to $795m and a corresponding surge in net profits from $61.5m to $88.3m.
New Chinese botanical extraction plant operational by late 2012
He said: “18 months ago, 20 percent of our products were produced in-house and 80 percent were produced by third parties. Within the decade, we aim to reverse that, so we’re making 80 percent of our products ourselves.”
The process was already well underway, he added: “18 months ago, the only manufacturing facility was in China. Now we have a facility in Lake Forest, California and a new botanical extraction plant in China that should become operational by the end of next year.
“Beyond that, we’re looking at acquiring existing manufacturing facilities or if we believe that there is not something that meets our standards we’ll also consider building new facilities from the ground up.”
To boldly go… Herbalife24 sports nutrition range marks move into new territory
While rocketing sales in China and India had impressed analysts, Herbalife still notched up a respectable 10 percent increase in sales in the US in the first quarter, and expected its new Herbalife24 sports nutrition range to further boost sales and broaden its distributor base, said Walsh.
Five products are already on sale and a further two will launch in October.
Said Walsh: “We think this is going to bring in a whole new group of distributors, from coaches to personal trainers, and provide a complete, comprehensive range of products.
“Yes, there are a lot of sports nutrition products out there, but what we were hearing was that people were buying product A from company A and product B from company B and there was not one range that met all of their needs.”
Recession-resistant?
Walsh, who joined Herbalife in 2004, said it had a clear advantage over rivals during tough economic times owing to its direct relationships with consumers.
“At the height of the recession in 2009 our volumes were still up 2 percent. You really see the benefits of our business model in a recession.
“Yes, our products are slightly more expensive, but when you can have a face-to-face conversation with your customers you can help them understand why they are better off buying your product than something that might be cheaper, but less nutritious. We also find that in times of unemployment and underemployment we attract more distributors.”
Having direct relationships with end consumers also gave Herbalife the edge over the competition, because it could keep its finger on the pulse when it came to what consumers were looking for, he said. “We’re also sending out our staff directly into the field with distributors so they can get even closer to consumers.”
A large proportion of group sales remained in the weight management arena, which was still growing strongly, said Walsh. “But we’re also seeing growth in anti-aging products.”
Multi-level-marketing does not mean pyramid selling
So what keeps Walsh awake at night?
The biggest frustration was continued skepticism from some critics about Herbalife's multi-level-marketing business model, which was not a pyramid or a ponzi scheme, he said.
“We still have to work really hard to explain what we do, but at 49 percent we’ve got the highest retention rate [the annual renewal rate for distributors] in the industry. Compared with the average for this business model, it is quite extraordinary.”
Founded by entrepreneur Mark Hughes in California in 1980, Herbalife markets and sells its products through a network of more than 2m independent distributors in more than 70 countries.