Herbalife (NYSE:HLF) investors have been following the short vs. long thesis for close to a year and a half now. Whether or not regulators find Herbalife an obvious confidence game or not remains to be seen.
In the interim, one thing is for certain. Herbalife moves a lot of shake mix.
I found this article which suggests that Formula 1 now accounts for 30% market share of protein shakes on a global basis.
My next question was - "How are competitors responding to this news?"
I wish I had market share data for this industry, but I don't, still, I can at least zero-in on three of Herbalife's competitors that happen to also be publicly traded companies.
- Abbott Labs (NYSE:ABT) manufactures Ensure
- Unilever (NYSE:UN) manufactures SlimFast
- Post Holdings (NYSE:POST) (This is Mr. Stiritz' company) acquired a company that also sells shake mix called Premier Protein. The story can be found here.
What, if anything, are these companies doing to compete against Herbalife?
Let's start with Unilever. According to an article in Bloomberg, sales of SlimFast have been in steady decline. In a recent quarterly earnings release, Unilever suggested it might throw in the towel on SlimFast and put the division up for sale. Sales in the US market, in particular, have been taken behind the woodshed.
Weird, right? I thought that shake mix was the answer to the global obesity epidemic. That doesn't seem to be the story at Unilever.
What about Abbott Labs?
Here is the Ensure website, which features a ready-to-drink version of its meal replacement shake.
Here is another website published by Abbott on the merits of Ensure.
How much shake mix is Abbott selling? Hard to say, but it isn't as much as Herbalife.
Finally, let's talk about Post Holdings and The Curious Case of CEO Mr. Stiritz. On what planet should it be okay for the CEO of a publicly traded company to invest over $400 million into the common equity of a company that competes for market share with one of your own brands? How is it not a total conflict of interest to support the success of said competitor?
Q. Is the POST Board of Directors like Homer Simpson taking a nap at the nuclear plant, or am I missing something entirely?
For certain, what we can say is that we have heard nothing remotely competitive from any of these companies about Herbalife.
So, here are some ideas for those who sit as category managers or chief legal counsel or CEOs of these 3 publicly traded companies?
Idea #1 - Why aren't you copying Herbalife's business model?
If Herbalife has cracked the code as to how to move mountains of shake mix legitimately at extraordinary gross and net margins, why on earth aren't you chasing that profit pool too?
Why not buy an MLM and stuff your shake mix into the top of the sales funnel? Why not try to bid more aggressively for the spoils in this lucrative economic segment?
Idea #2 - Why on earth aren't you complaining to federal and state regulators that one of your chief competitors is stealing market share from you by operating an illegal distribution model? Why aren't you lobbying Congress, joining Mr. Ackman, and seeking an industry outcome that would see Herbalife shut down?
Idea #3 - If you are Mr. Stiritz, why on earth shouldn't you resign forthwith? How is it your board thinks it is okay for you to be publicly promoting Herbalife's business plan, when they obviously compete with POST for revenues and earnings with this brand?
Idea #4 - If you are going to compete in such an anemic way against a pyramid scheme, why not just phone them up and license your brand to the Herbalife pay plan? Heck - if you can't beat them, join them.
As investors, either short or long, doesn't the entire dynamic at work in this industry seem odd to you?
Regulators play a vital role in our economy for a number of reasons. Consumer protection is one of them, and this is certainly an important angle. Equally important is the need for regulators to ensure (pardon the pun) that competition functions on a level playing field?
You know - like charging business opportunity seekers the same wholesale price for shake mix - that sort of thing.
Q. How are legitimate firms like POST or ABT or UN supposed to compete with a global pyramid scheme for customers?
Why aren't executives at these companies crying foul as their own shake mix brands seem to languish in mediocrity, while the Herbalife con continues to proliferate?
I don't know the answer, but it struck me this week, why isn't anybody else asking the question?
If you are the brand manager at POST or ABT or UN, consider this your wake-up call.
You are getting your lunch eaten by a black market marketeer - maybe it is time to pick up the phone and do something?
After all, isn't that what your fiduciary duty is to your own shareholders?
Disclosure: I am short HLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.