Promising health, wealth and happiness

Promising health, wealth and happiness

Latinos are crucial to the financial success of global nutrition company Herbalife.

THE global weight-loss and nutrition company Herbalife estimates that Latinos account for about 60 per cent of the US sales it makes through its network of independent distributors.

And a growing slice of those sales are coming from informal nutrition clubs run out of people's homes and strip mall shops.

Sponsor … Herbalife backs David Beckham's former Major League Soccer team, the Los Angeles Galaxy.

Sponsor … Herbalife backs David Beckham's former Major League Soccer team, the Los Angeles Galaxy.

Photo: Doug Pensinger

It's a cultural phenomenon that got its start in Mexico and is quickly catching on among immigrants who have moved to southern California. Budding entrepreneurs such as Angel Perez, a 27-year-old from Los Angeles, are forming the backbone to Herbalife's growth.

Perez runs her nutrition club out of a tiny, ageing shop that from the outside shows no signs that she is even open for business.

But behind a single glass front door covered by a green curtain is a lively atmosphere.


Colombian singer Shakira's voice blares from overhead speakers. ''Hola! Como estas?'' Perez says before blending an Herbalife meal-replacement shake for a customer. She charges club members $US4 a visit, entitling them to a protein shake, hot tea and glass of aloe vera juice.

But these nutrition clubs - and Herbalife's business structure - have come under intense scrutiny.

The company is in the middle of a Wall Street battle between two billionaire activist investors. On one side, hedge fund manager Bill Ackman contends the company is a pyramid scheme in which most of the independent salespeople lose money and get stuck with a product that nobody wants. Ackman says he wagered $US1 billion that the company would fail, shorting an eye-popping 20 per cent of the company's shares.

Betting against him is billionaire Carl Icahn, who dismisses pyramid scheme accusations with high praise about Herbalife's business model. Icahn disclosed recently that he bought nearly 13 per cent of the company's shares, and was talking to executives about taking the company private.

At the heart of this battle is Herbalife's army of salespeople.

Among the biggest accusations facing the company is that it targets low-income members of minority communities, including Latinos, by making unachievable promises of vast wealth from selling its line of protein powders, vitamins, supplements and beauty products.

One of Ackman's biggest allegations is that most distributors end up with garages filled with products they cannot sell. Meanwhile, the distributors who brought them into the business get rich for recruiting them.

Herbalife, founded in 1980, has faced such criticism for decades. The debate centres on the way the company compensates its distributors, allowing them to profit from their own sales as well as sales made by distributors they've recruited - and distributors those distributors have recruited.

The company challenges the criticism, saying it's a legitimate company that sells nutritious products while offering entrepreneurs like Perez a chance to build their own businesses.

The president of Herbalife, Des Walsh, says the company does not target any specific demographic. The company's popularity among Latinos exploded in recent years, he says, when US distributors imported the nutrition club concept from Mexico, which is second to the US in Herbalife sales.

''This wasn't a company focus on the Latino community,'' Walsh says. ''This was the Latino community in the United States seeing and hearing of the tremendous success of nutrition clubs in Mexico and then seeking to replicate that here.''

Its marketing efforts do hit the Latino community. The company recently signed a 10-year, $US44 million sponsorship of the Los Angeles Galaxy professional soccer team, which has a massive Latino fan base. Each year, it holds a national convention in Spanish called ''Extravaganza Latina.''

Before nutrition clubs started in Mexico, the only way for consumers to buy Herbalife products was in bulk containers to be used at home. A cheaper alternative is being served up at the nutrition clubs, where consumers can buy single servings and drink them in social settings, surrounded by other people with similar weight-loss goals.

This concept has taken off among Latinos, who are taught at an early age that natural remedies such as herbs and juices are a better option than US-style medicine, says Alexandro Jose Gradilla, chairman of the Chicano Studies Department at California State University-Fullerton.

Selling the products for profit is also a good fit for Latinos because it allows distributors to take advantage of relationships within the close-knit immigrant community, Gradilla says.

Herbalife spokeswoman Barbara Henderson says that the company ''follows all applicable laws in dealing with distributors, whether Latino or not'', but she does not elaborate any further.

On a recent afternoon, dozens of independent distributors filled the lobby of a massive Herbalife warehouse in California, waiting to pick up products for their small businesses. Nearly all of them spoke to Herbalife staff in Spanish.

Some said they had successful businesses that generated thousands of dollars of monthly income. Many said they ran nutrition clubs based in store- fronts or at their homes. Others just had a dream.

Hipolito Bolanos, 55, wore a pin on his shirt that read, ''Pierda peso ahora. Pregunteme como!'' the slogan made famous by Herbalife founder Mark Hughes: ''Lose weight now, ask me how.''

''My hope is to open my own club, to build a business out of it,'' Bolanos says in Spanish. Other than pitching products to friends and co-workers, he has no business plan. He says he first started using Herbalife products to deal with his joint pain.

Gustavo Parra, who was loading the trunk of his BMW 528i with Herbalife products, runs a nutrition club in a Bellflower, California strip mall. He has a long list of customers and more than 500 distributors beneath him who feed his monthly commissions, which he says nets $6000 to $12,000 a month.

''I can't believe this happened to me,'' says Parra, 44, who came to the US about 25 years ago from Mexico and has been selling Herbalife products for 10 years.

Parra's success story is an exception. About 90 per cent of Herbalife distributors make little or no income, the company acknowledges.

Ismael Vasquez of Riverside, California says he gave up his nutrition club in January 2012 because he wasn't making enough money. ''There was not a lot of profit, just $500 to $600 per month,'' Vasquez says.

Los Angeles Times

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