Shaklee CEO Roger Barnett says he is excited about the growth prospects for the company, which marks its 50th anniversary at its convention this week. Photos of the company’s early products are displayed in Barnett’s Pleasanton office. Chronicle photo by Michael Maloney
Fifty years ago, during the era of synthetic fabrics, processed food and TV dinners, an Oakland chiropractor started a company to sell natural products to improve people’s health. Even earlier, in 1915, before the concept of vitamins was widely understood, Dr. Forrest Shaklee had invented something called Vitalized Minerals.
Shaklee Corp., the company he founded, now operates in Pleasanton, selling vitamins and other nutritional supplements, natural makeup and biodegradable cleaning products through a multilevel marketing force of 750,000 distributors and members.
Later this week, 10,000 Shaklee distributors will converge on San Francisco’s Moscone Center for their annual conference and 50th anniversary celebration. They’ll hear from such luminaries as Nobel Peace Prize-winner Wangari Maathai, Arctic explorer Will Steger and former New York Mayor Rudolph Giuliani.
Under the leadership of new owner Roger Barnett, 41, a Wall Street financier, the company is pushing to go increasingly green and global. For example, it plans to plant trees in San Francisco and Kenya to offset the emissions its convention will create.
Barnett, who is chairman and chief executive officer, spent $310 million of his and his family’s money to buy Shaklee two years ago. Under its previous owner, Yamanouchi Pharmaceutical Co. of Japan, sales slumped from $627.5 million in 1988 to less than $500 million last year. Barnett said sales have resumed single-digit growth and the company remains profitable.
Although Barnett has a blue-chip business background, with degrees from Yale and Harvard universities, he speaks of Shaklee in evangelical terms, saying it can spread economic prosperity and good health around the world.
The company “can serve as a model for combining private- and public-sector goals,” he said in an interview at the company’s Pleasanton offices, which are outfitted in soothing earth tones of green and brown and surrounded by gardens growing samples of herbs used in its products.
Shaklee now operates in five countries: the United States, Canada, Mexico, Malaysia and Japan. Barnett hopes to expand it into 50 countries within a decade. He said that Shaklee’s vitamins and supplements can help poor people combat malnutrition, while its multilevel marketing model offers a way for them “to gain an income and do it in a way that allows them to help other people.”
For some people, made cynical by stories about get-rich-quick ploys and pyramid schemes, multilevel marketing carries an unsavory whiff of hucksterism.
Multilevel marketing, practiced by such companies as Shaklee, Avon, Mary Kay and Tupperware, involves networks of independent salespeople selling directly to customers, often in their homes. There are no fixed retail locations. Salespeople earn commissions and bonuses both on the sales they make directly and those generated by salespeople they recruit.
In contrast, pyramid schemes, which often are scams, promise payments just for bringing in new recruits rather than for actually selling products.
Analysts who follow multilevel marketing, also called direct sales, say it’s a valid strategy that lets companies eliminate the expenses of storefronts, salaried salespeople and advertising while harnessing the power of anecdotal testimonials and devoted distributors who work entirely on commission.
“Anytime you’re a finance guy looking at the direct-selling business model, you can’t help but love it,” said Scott Van Winkle, managing director of Canaccord Adams, a Canadian investment bank that counts direct sellers Herbalife and Usana Health Sciences as clients.
“It’s very low capital,” he said. “You have an outsourced sales force. You don’t have to make big investments behind the selling of your product. The gross margins in direct selling are very good — about 80 percent gross margin on sales. They give essentially half of that to the distributor as a sales commission and end up with 40 percent. That’s a good margin.”
Shaklee has a remarkably low headcount for a company its size. It has 334 employees, 193 of them at its Pleasanton headquarters, 57 at a Hayward R&D facility and 84 in its Groveport, Ohio, distribution center. Its products are manufactured by outside contractors.
Shaklee’s distributors each peddle products according to their own business plan, anything from Tupperware-style parties to one-on-one meetings to online. Press materials describe distributors as including “stay-at-home moms, heartland couples, retirees and young entrepreneurs.”
On a recent weekday, a half-dozen distributors gathered at the Berkeley home of Margaret Trost for a semiweekly meeting at which Trost, a Shaklee “key coordinator,” offers advice and support to help them build their businesses. It was an informal and friendly gathering, with a baby and a miniature poodle in attendance.
Trost, 43, started with Shaklee 16 years ago and built her network to the point where she says she made $103,000 last year working 10 hours a week. She devotes most of her time to a nonprofit organization she founded to feed children in Haiti.
The others have much smaller Shaklee businesses, ranging from 10 to 40 customers (or members, because most customers pay $19.95 a year to get a 15 percent discount on the products). That’s typical of Shaklee’s distributors, most of whom are women selling the products part time for supplemental income.
Many of the distributors at the meeting were body workers — massage therapists, Pilates instructors — who sell Shaklee as an adjunct to their businesses. Others came from diverse careers: There was an ordained minister and a government executive. All spoke fervently of the role Shaklee products had played in their own lives, helping with problems from insomnia to PMS to exhaustion.
That level of loyalty tends to characterize distributors at many multilevel marketing companies.
“There are a lot of hard-core believers of the products they sell,” said Van Winkle, the investment banker. Moreover, distributors often are their own best customers. Some primarily sell to themselves and a few friends and neighbors.
“A lot of distributors do this to justify spending $1,200 to $1,500 a year on their own health,” Van Winkle said.
Trost talked the group through some basics of selling: approaching people without imposing, communicating product information, following up.
“It takes a long time to educate customers to the point where they’re committed to their health,” she said.
The women talked about ways to find potential customers, such as business-networking groups.
“Even though the product is so awesome, you have to deal with many of the challenges sales brings up,” said Sarah Hammon, 45, a massage therapist.
Critics say Shaklee and other sellers of supplements often exaggerate product claims. What’s more, they say, Shaklee’s prices are higher than those charged by drugstores. Shaklee counters that its claims are backed by scientific research and that higher quality justifies higher prices.
“Shaklee makes a lot of claims that are just not substantiated by scientific evidence,” said David Schardt, senior nutritionist at the Center for Science in the Public Interest in Washington. For example, he said, Shaklee said its Memory Optimizer has two clinically proven ingredients to increase memory function. “Research for the individual ingredients is not very convincing: very little, weak, inconsistent (and) effects are modest,” Schardt said.
Shaklee disagreed with Schardt’s assertion, saying it researched, reviewed and used data from more than 50 scientific studies and research articles to develop the formulation.
Dr. Stephen Barrett, who runs Quackwatch, which monitors multilevel marketing companies, agreed that Shaklee’s product claims seem overblown and its prices high. For example, he said, it sells 90 100-milligram chewable Vitamin C tablets for $7.60 (member price) to $8.95 (nonmember price). That’s four or five times what the supplement company NBTY charges, he said.
In a written response, Shaklee said: “Our higher cost is based in part on the quality and potency of our products. … One clinical study confirms the vitamin C bioavailability of Shaklee chewable Vita-C 100-mg.”
Shaklee CEO Barnett said the company “is incredibly cautious and careful in our claims. … We don’t produce products that aren’t clinically proven.”
It all started with vitalized minerals
Chiropractor Dr. Forrest Shaklee founded the company that bears his name in Oakland in 1956 at age 61. He traveled throughout California with his two sons in a Plymouth station wagon, selling his products. Two decades later, Shaklee saw his business become a Fortune 500 company.
During his life, he played golf with Thomas Edison, met Harvey Firestone (of the tire company) and Henry Ford, was friends with Williams Jennings Bryan and flew with Charles Lindbergh in a plane called Spirit of Unrest. He also corresponded with Casimir Funk, the Pole who coined the term “vitamin” in 1912 (three years before Shaklee introduced vitalized minerals called Vita-Lea) and created headlines in 1919 as one of the first doctors in Iowa to make house calls by airplane (a two-passenger Curtis).
Shaklee had his own radio show on which he often spoke about conservation. He designed a forerunner of the modern recreational vehicle, which he called a “touring home.” He cultivated “Dr. Shaklee’s experimental garden” on the roof of his office building, consisting of organic vegetables and greenery grown in sea sand. The sand was fertilized with his vitalized minerals.
The good doctor recommended a diet of whole wheat bread, vegetables, fish, white meat of chicken, no sugar and no fats. Egg yolks were restricted, while egg whites were permissible.
Source: “When Nature Speaks: The Life of Forrest C. Shaklee Sr,,” Shaklee Corp.