Jenny Craig: Leveraging Intangible Assets to Build Value
An excerpt from The Intangible Assets Handbook
By Weston Anson
This case study provides an excellent and objective lesson on how to build a company’s value by extending and leveraging its intangible assets. Jenny Craig was preparing for a near term sale or acquisition of its assets by one or more interested parties – to be determined in an open call for bids on the company. One of the key undertakings was to quantify and recommend brand and trademark extensions. Leveraging potential via third party licensing of products, extension of existing products and services into new areas, and the internal development of new services – all of these efforts based extensively if not solely on the Jenny Craig portfolio of intangible assets.
Originally founded in Australia in 1983, Jenny Craig has been in the United States for more than 20 years. After its introduction here in 1985, the company was well managed and experienced a well deserved period of very rapid growth and expansion. The company’s expansion and growth was so robust that by 1991, the company was taken public in a very successful IPO. Much of the value in that public offering was based on the great brand and intangible assets associated both with its products and its centers. However, over the following years, the company suffered reversals, and by the year 2000, business revenues had slipped substantially. At one point, cash flow before interest, taxes, depreciation and amortization had slipped below the $10M level, which was the minimum needed to secure debt. In 2001, the company decided to go private. It was able to go private with the help of private equity groups ACI Capital and MidOcean Partners, and at the time that its stock was de-listed in 2002, the company had a capitalized value of $115 million.
Fast forwarding four years later to the year 2006, the company was sold in a competitive bidding auction for approximately $600 million. The key questions, of course, are: How did the company do this? How was it able to increase its value by a factor of 5 to 10 times? And how was it able to increase its EBITDA forecast five fold? Of course, another key question is why was Nestlé willing to spend $600 million to acquire the Jenny Craig brand and other intangible assets, and what specific role did the intangible assets and the brand play in establishing this high price? To a great extent, the answer is that there was a highly refocused effort to leverage the brand that was key to its success, as was a practical strategic and tactical plan to extend, license and leverage the intangible assets.
Jenny Craig brand extension and leverage followed four parallel paths:
- First, the success of the Kirstie Alley advertising and promotional campaign that began in 2004 was extended and formalized into “Team Kirstie.” Thus, they were able to take full advantage of the impact Kirstie Alley had on brand awareness and brand imagery.
- Second, the company built on its other intangible assets including its database, website, and call center capabilities, to launch an important extension of the brand called Jenny at Home.
- Third, an additional product service extension, Jenny Express DIY, was built using their intangible assets including their IT system, domain name, website, 800 call numbers and databases, to recapture customers and expand the use of all intangible assets. By capitalizing on the substantial increases in web traffic, and by recognizing that the online market for health and diet product and services was increasing rapidly, Jenny Craig built a new program that utilized all of their online and internet assets to make the most of their maximum potential.
- A brand licensing strategy was developed using the trademarks, recipes, and other intangibles to build a strategy and tactical plan for the launch of the multiple product lines at the retail level; and these lines would range across the food, publishing, and health and fitness categories.
Focusing on the licensing potential for the brand and its intangibles, and based on specific research and analysis along with decades of specialized experience, it was clear that the Jenny Craig brand was an eminently viable concept for licensing, which could provide substantial incremental value:
- Generate EBITDA of $40 million+ annually
- Deliver an additional $90 million+ in equivalent annual marketing value
- Enhance ROI enterprise value over the first ten years
Among the brand extension ideas that were looked at were several that were impractical. After analysis, the priority brand extension platforms that were selected for primary consideration consisted of logical and complimentary groupings of products. Exhibit VI-3 lists the majority of those categories.
EXHIBIT VI-3
JENNY CRAIG BRAND EXTENSION CATEGORIES
|
Diet & Nutrition
$50+ Million
Baked goods
Beverages
Desserts
Dairy
Meal replacement
Meals
Produce
Salad dressings and sauces
Salted snacks
|
Health & Exercise
$100+ Million
Cookbooks
Exercise videos
Fitness equipment
Housewares
Magazine
Sportswear
|
Lifestyle Services
$15 – $20 Million
Book club
Cooking schools
Hotels
Seminar
Restaurants
Travel packages
|
|
Consistent with JC: healthy relationship with food, active lifestyle, balanced approach to living
|
||
In order to be able to make rational decisions as to product category priorities for brand extension licensing, an assessment of each opportunity on a category-by-category basis was undertaken. This preliminary analysis provided for an examination of the top 21 product and service categories and to measure their appropriateness or fit with both the Jenny Craig brand and the Jenny Craig business goals. These assessments of “brand fit” and “business fit” were important and effective in identifying the product and service categories that should be targeted first. In other words, it served as a filter to establish a triage of licensing opportunities. (The right hand column of Exhibit VI-4 shows the final score for each of the 21 categories identified and that final score serves to rank the opportunity).
EXHIBIT VI-4
JENNY CRAIG BRAND LICENSING
PRELIMINARY CATEGORY ASSESSMENT
|
|
Category
|
Brand Fit
|
Business Fit
|
|
||||||
|
|
Scoring Key:
Low: 1
High: 10
|
Good Taste
|
Nutritional
|
Portion Control
|
Latent Inventory
|
Strategic Fit with JCI
|
Category Size & Growth
|
Consumer Value Protection
|
Appeal to Strategic Partner
|
Final Score
|
|
1
|
Baked Goods
|
8
|
6
|
7
|
7
|
10
|
7
|
6
|
6
|
7
|
|
2
|
Beverages
|
9
|
7
|
10
|
9
|
10
|
8
|
7
|
8
|
9
|
|
3
|
Desserts
|
10
|
5
|
10
|
7
|
10
|
6
|
8
|
8
|
8
|
|
4
|
Dairy
|
8
|
10
|
10
|
8
|
10
|
7
|
7
|
7
|
8
|
|
5
|
Meal replacement
|
8
|
9
|
10
|
10
|
10
|
6
|
8
|
7
|
9
|
|
6
|
Meals
|
10
|
10
|
10
|
10
|
10
|
7
|
9
|
10
|
10
|
|
7
|
Produce
|
7
|
10
|
7
|
8
|
8
|
7
|
6
|
6
|
7
|
|
8
|
Salad dressings & sauces
|
8
|
7
|
7
|
10
|
10
|
7
|
7
|
7
|
8
|
|
9
|
Salted Snacks
|
9
|
5
|
8
|
7
|
10
|
8
|
7
|
8
|
8
|
|
10
|
Cookbooks
|
10
|
10
|
10
|
10
|
10
|
6
|
8
|
8
|
8
|
|
11
|
Exercise videos
|
N/A
|
N/A
|
N/A
|
8
|
8
|
6
|
7
|
8
|
5
|
|
12
|
Fitness Equipment
|
N/A
|
N/A
|
N/A
|
8
|
7
|
6
|
7
|
6
|
4
|
|
13
|
Housewares
|
N/A
|
N/A
|
N/A
|
8
|
10
|
7
|
7
|
6
|
5
|
|
14
|
Magazine
|
N/A
|
N/A
|
N/A
|
10
|
8
|
7
|
8
|
8
|
5
|
|
15
|
Sportswear
|
N/A
|
N/A
|
N/A
|
7
|
7
|
5
|
5
|
5
|
4
|
|
16
|
Book club
|
7
|
7
|
7
|
7
|
7
|
6
|
6
|
6
|
7
|
|
17
|
Cooking schools
|
10
|
10
|
10
|
10
|
8
|
5
|
7
|
7
|
8
|
|
18
|
Hotels
|
N/A
|
N/A
|
N/A
|
7
|
7
|
8
|
6
|
6
|
4
|
|
19
|
Seminars
|
10
|
10
|
10
|
10
|
10
|
7
|
8
|
8
|
9
|
|
20
|
Restaurants
|
N/A
|
N/A
|
N/A
|
7
|
7
|
6
|
7
|
7
|
4
|
|
21
|
Travel packages
|
N/A
|
N/A
|
N/A
|
7
|
7
|
8
|
6
|
8
|
5
|
In summary, by effective utilization of Jenny Craig’s intangible assets, substantial incremental value was added to the company’s forecast. Brand licensing was estimated to add $20 million to $40 million annually to pre-tax revenues, and the Jenny Express/Jenny At Home concept was established as an incremental revenue producer in the mid-eight figure range.
What all of this means is that, by using their intangible assets to the maximum practical extent possible, in just a few short years the company was able to increase its total value from $115 (the value at the time of going private in 2002) up to $600 million, which was the value of the acquisition of Jenny Craig by Nestlé: A five fold increase in value via an aggressive intangible asset value maximum strategy.