Case Study – Herbalife Nutrition

Herbalife Nutrition is a global multi-level marketing corporation that develops and sells dietary supplements. The company was founded by Mark Hughes in 1980, and it employs an estimated 8,900 people worldwide. The business is incorporated in the Cayman Islands, with its corporate headquarters located in Los Angeles, California. The company operates in 94 countries through a network of approximately 4.5 million independent distributors and members. Herbalife Nutrition’s products include weight-loss and protein shakes, as well as protein bars, teas, aloes, vitamins, and sports hydration, energy, and personal care products. The company’s original product is the Formula 1 protein shake, a soy-based meal-replacement shake. The product debuted in 1980 and, as of 2015, was the company’s best-selling product accounting for nearly 30% of total sales.

The company has highly successful at Go to Market strategies for its products. It has built a culture among distributor & dealers where the dealers not only promote company’s products but also invest in training the sales team to explain to the customer how he/she can extract the maximum benefits out of the products. The company has successful track record of integrating complimentary firms through mergers & acquisition. It has successfully integrated number of technology companies in the past few years to streamline its operations and to build a reliable supply chain and successful track record of developing new products. Automation of activities brought consistency of quality to Herbalife Ltd. products and has enabled the company to scale up and scale down based on the demand conditions in the market. The company with its dedicated customer relationship management department has able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers. Herbalife Ltd. is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue stream. Herbalife Ltd. has strong

free cash flows that provide resources in the hand of the company to expand into new projects.

Lately the company has not being able to tackle the challenges present by the new entrants in the segment and has lost small market share in the niche categories. Herbalife Ltd. has to build internal feedback mechanism directly from sales team on ground to counter these challenges. Investment in Research and Development is below the fastest growing players in the industry. Even though Herbalife Ltd. is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market. Financial planning is not done properly and efficiently. The current asset ratio and liquid asset ratios suggest that the company can use the cash more efficiently than what it is doing at present. Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments. Not very good at product demand forecasting leading to higher rate of missed opportunities compare to its competitors. One of the reasons why the day’s inventory is high compare to its competitors is that Herbalife Ltd. is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel. Days inventory is high compare to the competitors – making the company raise more capital to invest in the channel. This can impact the long term growth of Herbalife Ltd. The profitability ratio and Net Contribution % of Herbalife Ltd. are below the industry average.

Questions: