GLGi: (NYC) The US Diet Market Outlook - 2008 and Beyond

1. GLGi: (NYC) The US Diet Market Outlook - 2008 and Beyond Dirk Aschmoneit March 11, 2008 New York

2. Council Member Biography • Dirk Aschmoneit is currently a Director of Marketing, Food & Retail at Jenny Craig - a division of Nestle Nutrition, where he has worked since 2004. He manages a $500 million group of food and non-food products. His duties include product development, assortment, merchandising for 500+ stores in the US & CAN, and maximizing revenue & profit growth. Mr. Aschmoneit directs overall strategy for food & non-food products to create a strategic competitive advantage and a calendar of supportive marketing efforts. Previously Mr. Aschmoneit was a Director of Marketing Operations at Metabolife International, from 1998 to 2004. He was instrumental in taking the company from a network marketing to a $355 million consumer packaged goods company. In addition to maintaining the company’s competitive position by evaluating new product concepts, Mr. Aschmoneit was frequently featured as an expert speaker at Sport, Weight Loss, and Condition Specific Supplement industry events.

3. Topics • Overview of market share, segmentation and positioning strategy • Barriers to entry and regulatory considerations in the diet category • Analysis of major players including NTRI, WTW, alli (GSK), HLF, MED, DIET • Market outlook for next 3 to 5 years based on emerging trends and key issues

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7. The US Diet Market Outlook: 2008 & Beyond • Agenda: • Overview of Market Share, Segmentation, and Marketing Strategy • Barriers to entry and regulatory considerations • Analysis of major players: WTW, NTRI, alli • Market outlook 2008 to 2010

8. Diet Category – Size • A growing category • 66% of US population is obese and/or overweight • Every 3rd person or 75 mil people in the US are on a diet at any given time • YOY growth is estimated at 3 to 4% • 1990s: Size of WL category flat around $30 billion • 2000s: Category grew to $49 billion by 2005 • 2007 estimated sales around $55 billion • US owns an estimated 70% of the global diet $ spend • Rise in childhood obesity is an indicator of future category growth • Growing obesity trends will supply dieters for years to come

9. Diet Category – Share • Highly fragmented and volatile category can shift rapidly • Typical dieter starts at the age of 20+ and continues until 60+ • Dieting behavior is predominately driven by life events and social events • The typical dieter will try several diets a year • Fad diets condition dieter and cause erratic diet behavior • Average weight loss goal is 40 lbs and average time on diet is 10 wks • Failure rate is extremely high • Premium brands experience high repeat dieters • Estimated share of market 2007 – always a moving target • DIY sub category attracts 50 mil dieters • “Seeking Professional Help” sub category attracts 10 to 20 mil dieters • OTC diet pills, MRP’s and Weight Loss Centers at 12 – 18% each • Medical Programs, Diet Drugs and Bariatric Surgery at 2 – 6% each • Fads (e.g., Atkins with 12%+ at peak) don’t grow category but cannibalize others

10. Diet Category – Segmentation Diet Food MRPs Exercise Medical Programs Bariatric Surgery Diet Soda Vs. Soda Slim Fast Ensure EAS 24 Hour Fitness Bally Crunch Medifast Optifast Surgery High Cost/ Commitment Low cost/ Commitment alli Trim Spa Xenadrine Metabolife Nutrisystem eDiets Weight Watchers Jenny Craig La Weight Loss Xenical Meridia Accomplia WL Centers OTC Diet Pills Diet Programs Diet Drugs 50 M Do It Yourself 10 - 20 M Seeking Professional Help Retention Rates: 8 to 12 weeks Highly Female Demographic

11. Diet Category – Strategy • Brand image is critical in an emotional category • Diet category is based on emotional vs. rational purchase behavior • “Before and After” and Celebrity campaigns drive leads • Male and Female overweight % are roughly at a 50/50 split • However, category is highly female • Average weight loss goal varies by entry point (e.g. college 20 lb, mother 40 lb) • Target group is 20 to 55 years of age for most diet companies • Weight-Loss follows emotional versus rational purchase patterns • Vanity is more important than health • Brand is only as good as last “collection” • Similar dynamics as in the fashion industry • PR and newness are critical in this category • “alli”: The only FDA approved OTC weight loss product • NTRI: Most affordable and convenient prepared food program • WTW: “Stop Dieting, Start Living” – Teaching good eating habits via “Points”

12. Diet Category – Barriers of Entry • Low barriers of entry and high rewards keep category dynamics high • “alli” is the classic example of how it can be, but shouldn’t be done • Frivolous claims cause high trial and abandonment rates • Serious dieter is getting distracted and is constantly in a spin • Old guard (e.g., WTW) is watched closely and has to follow rules • New kids on the block have aggressive entry strategy, get rich fast, get slapped on the wrist, start over… • CASE STUDY: • 1994, DSHEA law implemented. Created $20 B dietary supplement industry by 2005 • Industry driven by weight loss and energy supplements • Low COG & high margins, lack of regulations & non substantiated claims allow for fast development of a profitable business • Many companies fly below the radar but achieve billions in sales • Only time we hear about their success is when FTC steps in

13. Diet Category – NTRI • Roller Coaster Ride • Warned in March of ‘07 about Q3, Q4 ‘07 performance (reach maturity) • “alli” excuse for Q3 was a handy one, but only one part of the total picture • Missing YOY marketing campaign & WTW TRP’s plus new ad campaign caused 7% Q3 shortfall • CAC focus is short term metric and NTRI announced change of key metrics • Reactivation Rate is long term metric and could be 40% + of REV by 2010* • Attractive EBITDA margin for reactivation population • Q4 performance was expected to be bad due to investment spending for Q1 • $252 CAC and lower guidance for 08 sent stock down +25% • New “Advanced” product line is not different enough to pull leads and/or reactivations • NTRI lost the opportunity for potentially one of the best celebrity campaigns, when Tori Spelling got pregnant shortly after reaching goal weight • True innovation is needed and frozen food launch could bring improvements *Based on 2007 reactivation REV of $97 mil and estimated $500 spending per reactivation.

14. Diet Category – NTRI continued • Key Metrics Review • CAC, LTV, Retention, and Reactivation are all critical • Metrics interact and can’t be viewed independently • CAC at around $184 for 2007 follows industry standards • Retention rate is a short term growth indicator • Retention at 10 weeks resides at the low end of industry standard especially considering artificial inflation via Auto Ship and aggressive discounting • True retention rates might be closer to 5 weeks w/o Auto Ship • Actual cost of food might cause early exit of clients (Forbes: $113.52) • 55% of diet program calories provided might be another factor for early exit • Taste of food might cause early abandonment • Reactivation is long term growth metric • At 17% annual reactivation annual contribution from reactivation is 26% in 2008 and 32% in 2009 • At 20 to 25% annual reactivation annual contribution from reactivation is 41% in 2009

15. Diet Category – WTW • WTW is trying to reinvent itself • Poor creative execution P 3 to 4 years opened door for competition • Lack in creative strategy will keep company from true growth • Q3 ’07 with new ad campaign and adjusted ad spending • Q1 ’08 another new campaign…educating the consumer!? • Monthly Pass is driving revenue and attendance rates up • WTW looks more like NTRI and their Auto ship and Free Weeks of Food offer than a truly fixed business… • Still offers attractive margins and is leading brand in the category • CE has 50% market share and is lacking in performance compared to NA • Other diet players will enter CE and go for a piece of the market • WTW remains an attractive brand since it creates customers for life

16. Diet Category – OTC / Drugs • “alli” generated impressive trial results • Launched in 06/07, “alli” generated $300 mil+ in 2007 • 2 mil consumers for “alli” in Q3 ’07 = NTRI new customers 2003 to 2007 • Cannibalized other players in the diet space • The closer the competitors are to “alli” the bigger the impact • Q1 and Q2 ’08 will be good quarters for GSK, after that it will go flat & down • Side effects, minimal weight loss, and required life style changes will turn consumers off • Recent co-op marketing strategy with eDiets is meaningless • Sanofi Aventis most likely “in-market-scenario” is 2010 • FDA rejected drug in 6/07 because of associated increase of depression • Results in Europe are not very promising • However, once client stays on product past initial loading phase, results seem ok • Loading phase requirements will be a challenge for US customers • Mexican pharmacies sell product to US customers – if requested

17. Diet Category – Outlook 2008 to 2010/12 • Category will stabilize • DSHEA implementation in 1995 caused significant disturbance in the category • Atkins followed in early 2000’s and crashed abruptly • Nutrisystem picked up the pieces once Atkins was down and grew fast & furious • “alli” caused lots of PR but significant disturbance is questionable • No new diet on the horizon but since barrier of entry is so extremely low there could be always a surprise around the corner • WTW is the trusted brand in the category but don’t expect miracles • New “brand shifting” ad campaign is not convincing…they have to try harder! • NTRI made some significant strategic mistakes in Q3 ’07 • Increasing pressure from the competition, bad luck celebrities and poor execution of new product concepts will hurt the company in 2008 • New frozen food line could bring new momentum in 2009 and 2010 • International expansion is critical and Japan is 2nd largest diet market in the world* • “alli” is a fad and will fade after Q2 ’08 *Source: New NutritionBusiness Dec 07/Jan 08. $2 bil/Y in weight management products.