For the past 10 years Harold Katz has helped people shed unwanted fat. All those losses add up to healthy profits for Nutri/System.
My mother was grossly overweight," says Harold Katz. "She was seeing a doctor, who had recommended behavioral counselling. And she was visiting a spa and was buying special food. One evening I asked her, 'Mama, you spend approximately how much on dieting?"
The answer was $35 to $60 per week. "I realized then that if you could put all of that under one roof, you'd have a fantastic business," says Katz. "I had no doubts about it."
Katz, 45, is a risk-taker who has parlayed an initial investment of $20,000 into a personal worth of around $100 million. Now, 10 years after that fateful conversation with his mother, he heads Nutri/System Inc., a company based in Huntingdon Valley, Pa., that owns and franchises 496 weight-loss centers. On this year's INC. 100 list of the fastest-growing small companies, it is number 26.The firm had revenues of $23.2 million in fiscal 1980, earning profits of $3.81 million and a return on equity of 97%.During 1981, Nutri/System recorded $49.2 million in revenues, with earnings of over $9 million.
"I'm a gambler," says Katz. "I shoot dice, play gin. I gamble for the excitement -- I like the action of it, not the winning or losing."
Once a week, Katz and some friends gather at his home for a game of poker, and, when he has the chance, he does some high rolling in Las Vegas. "I like the craps tables," he explains. "Most businessmen who have made some money are gamblers at heart. You have to roll the dice in business."
Katz looks as though most of his bets have paid off. He favors expensive European suits, wears a gold bracelet with an "H" monogrammed in diamonds, and drives a new $56,000 customized Cadillac Seville. The plates on the car read "76ers," a reference to a recent purchase. In July 1981 Katz bought the Philadelphia basketball team for a total of $12 million, including all liabilities and deferred payments.
His office, a corner suite in his company's spanking new, 26,000-square-foot headquarters, mirrors his style and taste; it is expansive but neat, flashy with glass and chrome, subtle with cream carpets, cocoa walls, and plum-colored chairs. A huge stuffed doll of an obese woman sits on a credenza.
Katz has taken a business opportunity with promise but problems, and solved the problems skillfully. He's playing with a money-making machine and the only significant problem he now faces is keeping pace with Nutri/System's remarkable growth.
When Katz was 17, his father died, leaving him to run the family business, a grocery store in the Germantown section of Philadelphia. "It was a fair-sized market at the time," Katz recalls. "It was fairly successful, but I hated the business."
After two and a half years of managing the store, he left to seek his fortune. First he sold insurance for John Hancock. After a while, he went into business for himself, setting up a burglar/fire alarm and intercom company.
R&S Safety Corp. succeeded, with annual sales of $300,000, and was eventually incorporated into a specialty sales business, Modern Trend Associates. That company was active until the advent of Nutri/System in 1971.
Katz, whose ambition was unfulfilled by Modern Trend, wanted to launch a national business and had been studying the franchise field. He had been looking in vain for a promising service that he could turn into a semblance of Ray Kroc's success with McDonald's, when his conversation with his mother provided a revelation.
Sophie Katz was paying three or four people as much as $60 per week to help her lose weight, and she had been trying to lose weight for as long as Harold Katz could remember.
Katz knew that millions of Americans were as interested as his mother was in slimming down.
Unfortunately, the weight-loss business had little other than a large market to recommend it. At the time, it was composed for the most part of small health spas, which had acquired a bad reputation for high-pressure pitches, lifetime contracts, and a disturbing tendency to disappear overnight. It was also a field that the medical profession viewed with both distrust and a proprietary interest.
Weight Watchers International had been around since 1963, but it wasn't providing the type of service Katz wanted to, and it wasn't exploiting the financial opportunities he saw. Other weight-loss programs -- TOPS, Weight Loss Clinics, Overeaters Anonymous -- had adopted piecemeal approaches.
Katz didn't research the business much -- he didn't do extensive market studies or call in consultants.After a brief look at the field and serious talks with his attorneys, he just opened a clinic. All that he needed to know was that there were a lot of overweight people in the United States who were willing to invest in a more attractive physique.
Katz designed, refined, packaged, and sold a weight-loss program that made it virtually impossible for a customer to spend money elsewhere. Under one roof he offered medical supervision, a diet, behavioral counseling, exercise, and low-calorie foods.
In December 1971, a year after the conversation with his mother gave him the idea, Katz opened his first center in an office building in Willow Grove, a Philadelphia suburb. The office, with a staff of four including Katz, was financed with $20,000 in savings and a $20,000 loan on his house. During its first year, it grossed $180,000.
He opened the second center a few months later. And a third, the first one sold to a franchisee, made its debut in center-city Philadelphia in September 1972. By the end of fiscal '75, the number had jumped to 16. Two years later, there were 55.
In order to give his centers respect-ability, Katz hired physicians to do physicals and, where it was possible, psychiatrists to do behavioral counseling. Both were lured by high hourly fees and worked at the centers part-time. Nurses were present full-time. The airy and attractively furnished centers, resembling the offices of a successful doctor, contributed to the professional impression.
When a person signs up with Nutri/System (85%-90% are women), her age, height, weight, and other vital statistics are fed into a computer, which then indicates how much weight should be lost over what period of time, the patient's daily metabolic requirement, and other aspects of the diet. For a $90 fee, patients receive a physical, blood tests, and an electrocardiogram at the medical centers; nonmedical centers, which operate with nurses only, were set up in 1978, and now account for 35% of all centers.
Clients are given exercise instruction, have access to exercise equipment at some centers, and attend weekly behavioral modification lessons. Most important, they are placed on a mandatory diet -- they are required to eat designated meals prepared from Nutri/System products five to seven days a week. The Nutri/System 2000 Foods of the Future, provided by 15 major suppliers, are sold at the centers; they include 41 separate items bearing such names as Nebula Nectar, Seafood Aurora, Solar Soup, and Jupiter Gel Fruitreat, which can be used to prepare more than 100 meals. The diet may also include vitamin and mineral supplements.
The customer spends an average of $300 to lose 30 pounds, plus $8.50 for each pound thereafter, and pays for the program in advance, a policy that creates an incentive as well as a healthy cash flow. She also spends some $28 to $33 per week on Nutri/System food. There is a money-back incentive if the customer maintains her weight loss, but in order to qualify, she must continue eating the firm's food two days a week. "There's some profitability in that," notes Norman Amster, Nutri/System's marketing director.
The typical client is 40 years old and has already tried at least one other weight-loss program. Some 67% of the clients are working women, and the median family income is more than $20,000. Customers part with an average of $680.
