Herbalife is one of the largest nutritional supplement companies in the world. It relies on a network of independent distributors to sell its products and to recruit new sales personnel. Since its founding nearly three decades ago, Herbalife has faced persistent controversy based on unsupported product claims and a sales structure that many believe resembles a pyramid scheme. The company is based in Los Angeles, and had sales totaling $2.4 billion in 2008.
The history of Herbalife dates back to Lynwood, California, in the 1970s. A 16-year-old man named Mark Hughes found himself in trouble with drugs and was sent to a residential home for troubled teens. Here Hughes learned he was a natural salesman, and began selling raffle tickets to support the residence. When he was 18 he was hired as a marketing consultant for the organization. That same year his mother died of a diet-pill overdose, prompting Hughes to explore safer weight-loss methods based on herbal supplements.
In 1979, Hughes partnered with Richard Marconi, a doctor with a Ph.D. in nutrition. Hughes and Marconi developed an herbal line of weight-loss supplements known as Herbalife and began selling their products out of their cars. The Herbalife plan involved consuming only one meal a day. This meal was supplemented with up to 20 vitamins and supplements. By the end of the first year the company had sales exceeding $2 million.
Throughout the mid-1980s, Herbalife sales soared, with gross revenue topping $500 million a year by 1985. The company relied on a network of distributors to sell its product, with many of these distributors earning commissions for finding new salespeople. In 1984, the U.S. Food and Drug Administration released a report outlining complaints against Herbalife. These included accusations of multi-level marketing (MLM) as well as false medical claims.
In 1985, the Canadian Department of Justice filed a number of claims against the company related to false advertisement and unproven medical claims. Herbalife fought back by filing a lawsuit against the FDA and the U.S. Health and Human Services Division, accusing them of defamation. The FDA responded with a civil suit against Hughes himself, blaming him for five deaths associated with his product line. These stories made headlines and greatly affected the company's sales.
The Late 1980s and Today
Hughes reached a settlement on the FDA suit in 1986, and the company posted a $3 million loss for the year. As part of the settlement, Herbalife was forced to discontinue a number of products and replace some ingredients linked to illness and death. Hughes pushed on and took the company international, building to sales of $700 million by 1993. By 2003, sales had reached $1.3 billion. Though the company is still subject to frequent FDA and MLM inquiries and lawsuits, it has managed to survive and create new products aimed at boosting sales.