Living large on diet aids
Zacatecas, Mexico
Selling pricey diet-shake mixes in a developing country wouldn’t seem like a very smart business idea, but Enrique Varela was despairing.
Eighteen years ago, his animal-feed business was struggling. He was thousands of dollars in debt.
Today, he and his wife own a fleet of luxury cars, four ranches and eight houses -- including a custom-built home with an elevator and a cupola-covered hot tub overlooking a golf course in this central Mexican city.
They bought it all with the proceeds from peddling products from Herbalife Ltd., the Century City-based maker of weight-loss aids and nutritional supplements.
Varela and his wife, Graciela Mier de Varela, were the No. 1 Herbalife distributors on the planet last year, with network sales topping $100 million. This year the couple got a check for $1.8 million, the largest bonus in the history of the multilevel marketing company. That’s on top of the millions the husband-and-wife team has earned through the army of independent salespeople in their network.
Their powder-pushing prowess helped make Mexico Herbalife’s top market last year with $373.2 million in sales, besting the U.S. tally of $338.3 million.
The Varelas’ sales empire is all the more stunning considering that they generate most of their business in Mexico, where a $29 canister of the company’s signature diet shake mix equals a week’s wages for many consumers.
The secret of their success? Sales 101: Know your customers.
“Mexico has a lot more poor people than rich ones,” said Varela, now 60. “We had to find a way to reach them.”
An ebullient, talkative bantam of a man, Varela said that people come to Herbalife out of “inspiration or desperation.”
For him, it was a little of both.
The son of a livestock farmer, Varela studied veterinary medicine. But what he really wanted to be was an entrepreneur. When Mexico’s economic crisis of the 1980s slammed his feed business, he needed another enterprise he could start on the cheap.
Stressed and overweight, in 1989 he went to a sales meeting for Herbalife, which was just breaking into the Mexican market. Varela tried the products and started dropping pounds. He felt better. He had found his calling.
Undaunted by his first paycheck -- a measly $43 -- he set about building his network.
“I knew I wanted to bring this good nutrition to people,” said Varela, who quaffs an Herbalife shake every morning to start his day.
Graciela joined him in the business. But like many Herbalife distributors, they eventually ran out of friends and family to pitch to. Sales flattened. Strangers didn’t like cold calls or the hard sell. Many couldn’t afford to purchase an entire canister of the products. But company guidelines forbade distributors from breaking up packages.
So the Varelas bent the rules a little.
To inaugurate a sales office in 2002 in the Mexican city of Durango, they hosted morning nutrition “chats” where people could sample the products on their way to work.
As weeks passed, the same faces started appearing. Strangers became friends. People proved willing to pay a small fee for a single serving so they could hang around to talk.
“Mexicans are very convivial,” said 61-year-old Graciela, who has a degree in psychology. “People loved the social aspect.”
The idea has been such a hit that Herbalife distributors have replicated it around the world. Mexico alone boasts 30,000 such groups, dubbed Nutrition Clubs.
“They have given us the opportunity . . . to reach a group of people who could not have afforded a traditional monthly program,” said Des Walsh, senior vice president of worldwide sales for Herbalife. “There is no question that the concept that they have developed has contributed significantly to growth.”
Fit and energetic, the Varelas boast that they are walking endorsements for Herbalife. Striding is more like it: It’s tough keeping up with the kinetic duo.
They began one recent day with a 9 a.m. visit to the Nutrition Club in downtown Zacatecas, the first of a three-stop tour that morning. Laughter and calls of buenos dias floated above the whirl of blenders as about a dozen regulars took their places around a table in a sunny second-floor office for their morning repast. For about $2 each, they received a frothy meal-replacement shake, a cup of energy tea and a shot of clear liquid aloe to aid digestion.
Retiree Nicolas Cruz says he comes six days a week. A kidney dialysis patient, he credited Herbalife products for perking up his appetite and his spirits.
“It has changed my whole character,” said Cruz, 60. “I’m no longer depressed.”
At this and other gatherings, the Varelas are greeted like celebrities by distributors who turn out to be relatives -- hardly a surprise considering that 50 family members, including their two children, are involved in the business.
A gigantic banner with the couple’s picture hangs on the wall inside the next club, where the impeccably dressed Varelas mingle with housewives, office workers and retirees.
“A million eyes are on us,” Enrique said. “We have to set an example.”
In a way, the Varelas are replicating the cult of personality of Herbalife’s founder, Mark Hughes, who as a 24-year-old high school dropout in 1980 launched the company in a former wig factory in Beverly Hills.
The handsome, charismatic Hughes was a natural-born showman who plugged his meal-replacement shakes on TV infomercials and at tent-revival-style rallies. Millions knew his slogan: “Lose Weight Now. Ask Me How.”
The guy who made millions preaching healthy living died in his Malibu mansion in 2000 from a lethal combination of alcohol and an antidepressant. He was 44.
Over the years, the company has been accused of shady business practices by state and federal regulators and sued by customers dissatisfied with its products and distributors unhappy with their earnings. Nevertheless, Herbalife has become a worldwide brand. More than 80% of the company’s $1.9 billion in sales in 2006 came from outside the United States. Herbalife posted net income of $143.1 million last year, up 54% from 2005.
The company now has more than 1.6 million distributors in 65 countries. These independent contractors make money on their own product sales. They also get a cut of the sales of other distributors they bring into the fold, and a cut from the people those distributors bring in, and on and on.
Building a “downline” of salespeople is essential to hitting it big. The Varelas, for instance, have 30,000 people below them in their network.
The couple’s sales success has put them in the elite Chairman’s Club, the penultimate step in the Herbalife pecking order. The club’s 31 members include distributors from Brazil, South Korea, Japan, Hong Kong and Israel. (The brass ring is the Founder’s Circle, which has three members -- all Americans.)
Herbalife has big hopes for China, where it operates 47 retail outlets and just received permission to bring its direct-sales model to Jiangsu province.
“I’d like to be in every market in the world,” Chief Executive Michael Johnson said.
Direct-sales companies always need fresh territory because they depend more on recruiting new distributors than on selling merchandise at the retail level, said Utah consumer activist Jon Taylor, who has studied the finances of dozens of multilevel marketing companies.
Newcomers pay fees to join a network, then lay out money for promotional materials, training and inventory, sometimes thousands of dollars. Taylor said that the washout rate was staggering and that most distributors never recouped their initial investment.
Companies “recruit in one country until they saturate the market. Then they move to another country,” said Taylor, who operates a website called Truth on MLM. “Without the constant churn of new recruits, they would collapse.”
A lawsuit filed in 2005 in San Francisco County Superior Court and transferred to Los Angeles County Superior Court alleges that Herbalife and some of its independent distributors have engaged in fraud, deceptive business practices and the running of an endless chain scheme.
Herbalife officials declined to comment on pending litigation and said they did not calculate distributors’ average earnings.
Johnson acknowledged that few get rich. But he said that even a little extra income can greatly improve the lives of distributors, particularly those in developing countries.
“Ten extra dollars may not be big in the U.S., but it is a different ballgame in Mexico,” Johnson said. “It is not big economics we are talking about, but it is an opportunity to lift their stations in life.”
The Varelas have no time for naysayers. Raised in a nation where wealthy, politically connected families still control much of the economy, they say Herbalife has given them and others a chance to rise through their own entrepreneurial hustle.
Whether tooling around Zacatecas in a gigantic Cadillac Escalade or showing a visitor around their well-appointed office with faux-classical statuary, they can talk of little else.
Rather than take it easy, they said they were working as hard as ever. They spend weeks at a time on the road at Herbalife events, taking their message of good health and potential wealth around the world.
“We believe in capitalism,” Enrique Varela said. “To stop would be a crime.”
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