Soc­cer stars help Her­bal­ife out­run Bill Ack­man

Its ties to ath­letes have blunted Bill Ack­man’s cam­paign against it Celebri­ties sig­nal “it is some­thing cred­i­ble and le­git­i­mate”

Bloomberg Businessweek (Asia) - - CONTENTS - Matt Townsend

When Her­bal­ife cel­e­brated its 35th an­niver­sary last year at the Los An­ge­les Con­ven­tion Cen­ter, the com­pany sur­prised the crowd by hav­ing a video chat on a gi­ant screen with Real Madrid star Cris­tiano Ron­aldo. “Hello, Her­bal­ife,” said one of soc­cer’s big­gest names, giv­ing a wave that elicited a roar from the au­di­ence. “I want to wish you all the best and con­grat­u­la­tions. I think it’s un­be­liev­able.”

Ron­aldo, who’s been a paid en­dorser of Her­bal­ife since 2013, is key to Chief Ex­ec­u­tive Of­fi­cer Michael John­son’s strat­egy to main­tain growth and beat back al­le­ga­tions that the com­pany is a pyra­mid scheme. John­son aims to trans­form the mul­ti­level mar­ket­ing com­pany fo­cused on weight-loss prod­ucts into a global

sports-per­for­mance brand—with en­ergy drinks, Ron­aldo-branded sup­ple­ments, and a leaf-shaped logo he hopes will be­come as rec­og­niz­able as Nike’s swoosh. Her­bal­ife de­clined to com­ment for this story.

The sports push, which has in­cluded soc­cer stars David Beck­ham and Lionel Messi as en­dorsers, has helped the com­pany ex­pand be­yond the U.S. into soc­cer-ob­sessed Latin Amer­ica and Europe, de­spite a whirl­wind of bad press about its busi­ness model. “If you see Her­bal­ife on David Beck­ham’s shirt, that makes you be­lieve it is some­thing cred­i­ble and le­git­i­mate—some­thing you can trust,” says An­drew Hol­land, en­gage­ment man­ager for brand strat­egy con­sul­tant Vi­valdi Part­ners Group.

Hedge fund man­ager Bill Ack­man has spent three years and more than $50 mil­lion try­ing to con­vince in­vestors that the com­pany is an il­le­gal pyra­mid scheme. Ack­man’s cam­paign, which he be­gan af­ter bet­ting $1 bil­lion against Her­bal­ife’s stock, has been beaten back by not only the com­pany’s vig­or­ous de­nials of the al­le­ga­tions but also the cred­i­bil­ity of its brand am­bas­sadors. Her­bal­ife has en­dorse­ment deals with 40 teams and 80 ath­letes, and its pop­u­lar­ity has helped it keep re­cruit­ing peo­ple to re­sell its teas and vi­ta­mins. It’s added 800,000 so-called dis­trib­u­tors since Ack­man be­gan mak­ing his al­le­ga­tions in De­cem­ber 2012, lift­ing the to­tal to 4 mil­lion at the end of 2015.

Ron­aldo, with more than 100 mil­lion fol­low­ers on so­cial me­dia, is a po­tent weapon. Be­fore Ron­aldo, Her­bal­ife fea­tured Messi, ar­guably the big­gest star of the world’s most pop­u­lar sport, and for five years had its name em­bla­zoned on Beck­ham’s Los An­ge­les Galaxy jer­sey.

To­day Her­bal­ife’s en­dorse­ment deals in­clude an In­dian crick­eter and a Malaysian squash player. There’s an Is­raeli women’s bas­ket­ball team bear­ing its name—Her­bal­ife Ra­mat HaSharon—an off-road rac­ing squad from Peru, and hand­ball play­ers in France. All this mar­ket­ing comes at the rel­a­tively skimpy cost of only about 1.5 per­cent of its $4.47 bil­lion in sales last year. Consumer gi­ants Nike and Proc­ter & Gam­ble ded­i­cate about 10 per­cent of rev­enue to mar­ket­ing.

Ack­man has com­plained that Her­bal­ife’s suc­cess can be at­trib­uted to con­sumers see­ing it as a le­git­i­mate en­ter­prise be­cause of its re­la­tion­ship with Ron­aldo, Messi, and other pub­lic fig­ures it’s em­ployed, in­clud­ing for­mer Sec­re­tary of State Madeleine Al­bright and An­to­nio Vil­laraigosa, for­mer mayor of Los An­ge­les. “The best pyra­mid schemes try to re­cruit cred­i­ble peo­ple to give them cred­i­bil­ity,” Ack­man said dur­ing a 2014 pre­sen­ta­tion in which he claimed Her­bal­ife nu­tri­tion clubs run by dis­trib­u­tors were a ruse to bleed money from poor con­sumers. Her­bal­ife has de­fended the clubs.

Yet Her­bal­ife’s en­dorse­ments mimic what brands have been do­ing for decades to con­nect with con­sumers. It’s tar­get­ing peo­ple in more than 90 na­tions, with a fo­cus on Latin Amer­ica. Other soc­cer deals in­clude top clubs Barcelona, Mex­ico’s Pu­mas, and Brazil’s San­tos FC (for­mer team of the leg­endary Pelé). Spokes­men for Ron­aldo, Messi, Vil­laraigosa, and the LA Galaxy didn’t re­spond to re­quests for com­ment. A rep­re­sen­ta­tive for Al­bright’s con­sult­ing firm, Al­bright Stone­bridge Group, de­clined to com­ment.

Dur­ing Beck­ham’s 2007-12 Galaxy ten­ure, Her­bal­ife’s sales dou­bled. Its dis­trib­u­tor ranks also rose to 3.2 mil­lion from 1.5 mil­lion, with huge gains com­ing from soc­cer-lov­ing na­tions. Ex­plained John­son in a 2007 in­vestor call: “Adi­das pro­duced more than 600,000 Galaxy jer­seys in its ini­tial run, and ev­ery­one in ev­ery one of those is a mo­bile Her­bal­ife bill­board.” Ap­par­ently Ack­man wasn’t lis­ten­ing in.

The bot­tom line Her­bal­ife’s ties to soc­cer stars have al­lowed it to ex­pand be­yond the U.S. de­spite crit­i­cism of its busi­ness model.

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