The weight of digital transformation for Weight Watchers

It’s the trends you don’t see coming that bring you down.

Two years ago, the then-CEO of Weight Watchers David Kirchhoff dismissed the potential threat to his business model from wearables.

Big mistake. Today, as we all sport our Fitbits or track our health stats and count and our calories on our smart watch, Weight Watchers is struggling to stage a catch-up and carve itself a digital identity to compete.

It was all very different back in 1963 when the firm was founded on the basis of members staging weekly support group meetings to help them to lose weight by comparing progress with their fellows and encouraging one another one.

Today of course you don’t need to leave home to do that. You can track your progress online and share it with chosen partners-in-crime. You can download a myriad of weight-loss apps to your phone or your wrist.

Even in a country like the US where obesity is a major problem, companies like Weight Watchers find themselves struggling to remain relevant. Why pay up to $70 a month to join Weight Watchers when you can download an app for free?

The firm has made efforts to get back to optimum fitness. It’s invested in its own online capabilities, including 24 hour chat rooms for support when the midnight munchies hits you.

It’s also been splashing the cash to buy in much-needed functionality, such as this year’s purchase of Hot5, a San Francisco fitness app developer start-up, which has produced two iOS device apps - Hot5 Fitness and Vertical Escape Fitness Challenge.

Prior to that, Weight Watchers sought to tap into the selfies trend by snapping up Weilos, provider of a picture taking app to document weight loss through selfies. In addition, Weight Watchers added a firm called Wello to its arsenal. Well provides a collaboration app that connects users to personal trainers via two-way messaging.

None of these particularly sounds like rocket science, but they’re all part of what current CEO Jim Chambers says is an ambition to:

become a 21st-century technology organization, engineered for the digital era, whose innovative technology fundamentally improves the way people manage their weight, health and wellness. We will be agile service-oriented, data-driven, cloud-enabled and efficient. We will be a model for digital technology in the markets in which we compete and we will be a magnet for talented innovators both, inside and outside the company.

Progress?

So how’s that working out? Well, not much sign of success just yet. Earlier this week, the firm turned in second quarter 2015 net income of $27.9 million versus net income of $54.0 million in the prior year period, on revenues down 16.5% on a constant currency basis versus the prior year period.

Chambers remains upbeat, but emphasises that there’s a lot of unwanted tech weight to lose:

At the start of this turnaround, our tech platform was a legacy challenge and one we committed to making an enabling asset. We are on track to operate with far more speed and greater capabilities, but at significantly lower costs.

Our tech and product teams are doing a tremendous job in building the capabilities to strengthen our offerings and enabling a pipeline of innovation. For example, in the second quarter, we upgraded our visitor site, supported by a new content management system, delivered enhancements to search and navigation on our mobile products and introduced our Weight Watchers app for the Apple launch.

Our tech transformation is fully in sync with our broader efforts for our winter season 2016 innovation. We feel good about our progress and our confidence and our timelines.

This ‘winter innovation’ is something Chambers is reluctant to go into much detail about at present, but he has taken the risk of hyping it up to some considerable degree, so there will be a lot of interest in what it is and how it performs. All he hints is:

The majority of our consumer-facing capabilities will be operating on our new modern platform ahead of the program launch.

For now however, he’s happier talking about the bottom line impact of tech investment and rationalisation:

As we have built out our base of internal tech talent, we've ratcheted down our use of external resources and thereby reduced our expenses. With our new labor, development and infrastructure models in place, we are getting a lot more from tech at a significantly lower cost. To give some perspective, technology-related cash spending this year is expected to be around $85 million in total, down from $115 million at our peak last year and we expect to end the year at a roughly $60 million annual run rate.

But despite costs coming down, functional capabilities are going up, he insists, citing new Click-to-Chat capabilities as an example:

From a Click to Chat perspective I think it's one of the things that represents the improvement in our digital product suite in addition to some of the other things like search and navigation. I think it's the access to leaders in the digital product that is one of the things that has improved its performance. While we have a lot to learn and a lot to improve like any launch and product evolution, I think that has strengthened those products.

The firm has also boosted its online and digital marketing push. Chambers explains:

Our advertising and promotion efforts in the North American markets were stronger. We combined the "Lose 10 lbs on us" promotion with a return to tactics from a media perspective that have been proven in the category, which are based more on call to action advertising and higher levels of GRP.

We've changed up our media mix. We've changed up the creative. We integrated a promotion that has a lot of leverage at the consumer level.

This was an invitation It was "Lose 10 lbs". It seemed doable. It seemed inviting. It was something that wasn't as off-putting. And so we found it had a very strong effect.

So we ran that promotion on the signup dimensions of web and mobile obviously, but we also integrated into the television advertising and digital. And it had a much better than the trend we had been seeing. It had a pretty strong impact.

Inevitably Chambers is adamant that digital innovation is starting to work:

Our digital products fundamentally are getting better. They're getting stronger.

My take

This is another form of Uber-isation, just not on such a dramatically impactful form.

But Weight Watchers misjudged the long game trends in the market and now finds itself playing catch-up as a legacy providers of services and products.

On the plus side, it has a 50 year plus brand; on the negative side, it’s got an old, established business model and culture that’s going to be hard to shift.

One to watch.