Local Nutrition Clubs are MLM Company, Herbalife, in Disguise

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The views and opinions expressed in this blog are those of the author and do not reflect the official policy or position of Auburn-Opelika Moms. Copyright Disclaimer under section 107 of the Copyright Act of 1976, allowance is made for “fair use” for purposes such as criticism, comment, news reporting, teaching, scholarship, education and research. Fair use is a use permitted by copyright statute that might otherwise be infringing.

You may have noticed a proliferation of nutrition clubs opening in the Auburn/Opelika area in the last year. I’ve counted no less than twelve different businesses called “[Insert Name] Nutrition” that have opened in our area since November of 2019. Two new ones opened as I was working on this piece. They all sell the exact same products — brightly colored loaded teas, meal replacement shakes, “donut hole shots,” beauty drinks, aloes, and other products. They market to college students, moms, teachers, healthcare workers, and anyone who needs energy and “guilt-free” sweet treats. Most of them even market to children. Okay, so what? It’s caffeine, vitamins, collagen, and stuff. It’s healthy! Who wouldn’t want businesses that promote healthy living in their community? Anyone who has qualms about unethical business practices and cares about what they ingest, that’s who. 

Let’s start with the unethical business practices.

Every single one of these “nutrition clubs” sells the exact same products because all the flavor powders and concentrates used in the drinks come from the same multi-level marketing (MLM) company, Herbalife Nutrition. Even if you’re unfamiliar with MLMs as a business strategy, I’m confident you’ve heard of one of the companies. Some of the oldest like Avon, Mary Kay, Nu Skin, Amway, Tupperware, and yes, Herbalife, have been around for decades. MLMs rely on independent distributors, consultants, representatives, or presenters (each company has their preferred term) to sell products rather than selling directly to the consumer via website or storefront. A lot of consultants have parties to share and sell their products, asking friends and family to “host” the parties, in person or virtually, in return for freebies or discounts. You’ve probably been invited to one of these parties. Before I knew much about MLMs, I’d attended several parties over the years and been invited to plenty more. 

The companies vary in the degree to which they emphasize recruitment of new distributors vs. selling products, but what they all have in common is that the only way to make any significant amount of money as a distributor is to recruit more distributors and grow a large “downline” of people from whose sales you then earn commission. You recruit five new people and each of those recruits find five more people and so on and so on, giving the individual downlines and the company as a whole the triangle shape that has led to accusations of MLMs being pyramid schemes. What they don’t tell you is that you can only repeat that cycle 15 times before you’ve exceeded the population of the entire planet. It’s math. This system works great for the few people at the top of the pyramid who get into an MLM early before market saturation occurs, but by the time most people have heard of the company and are being recruited, they will end up firmly at the bottom of the pyramid with very few people interested in joining them or purchasing their wares.

This is where the unethical business practices come in. Distributors at the bottom struggle to meet their monthly sales quotas and reach or maintain a certain commission level because there is little to no retail demand for the actual product, so they purchase large quantities of product themselves as inventory — sometimes at the encouragement of their uplines — that they struggle to ever sell to anyone outside the company. In this way, the distributors themselves ultimately become the end users of the products rather than retail customers. The distributor’s upline may frame this inventory loading as “investment” in themselves or their “businesses” and tell their downlines that they have to “spend money to make money” or “the more you spend, the more you’ll make.” John Oliver has an entertaining episode explaining how MLMs work and specifically talks about Herbalife (warning: salty language; wait until the kids are in bed). 

MLM companies will often fight back against claims that they are pyramid schemes by pointing out that any company with an organization that has a CEO, managers, employees, etc., also creates a pyramid, and they’re not wrong in the sense that most organizations have fewer people at the top, and grow larger at the bottom. However, the key difference is that in most retail businesses, the people at the bottom are employees being paid actual wages for hours worked. They are not encouraged to think of themselves as “small business owners” or “boss babes,” pressured to recruit their friends and family as employees for the business, and purchase the products for themselves as inventory to resell later. They go to work, get paid for their labor, and are issued a W-2 for tax purposes at the end of the year. Their only interest in the company’s sales are insofar as the company is able to make enough profit to keep them employed. Even sales jobs with commission structures do not rely on their salespeople recruiting other salespeople or purchasing the products themselves. MLMs’ own distributors are their customers, not the general population. They focus on recruiting more distributors and getting them to purchase products, not finding long-term retail customers.

I’ve been wary of MLMs for a long time because I personally know a lot of people who joined MLMs and lost money, including my own mother, who joined at least two. My skepticism didn’t turn into revulsion, however, until a few years ago when I listened to a podcast called The Dream that explored the predatory nature of MLMs. Now, I steer clear of anything associated with them. Full disclosure, my husband worked for the corporate headquarters of a small MLM for about a decade, and he’s the most honest person I know. He would never work for a company that he thought was exploitative. Full, full disclosure, I modeled a couple of products in that MLM’s catalog when the photos they’d taken with their regular model didn’t work out, and they needed to replace them at the last minute. I have family, friends, coworkers, acquaintances, and neighbors who are involved in MLMs. I see their posts in my social media feeds almost every day. Some of them joined their MLM of choice because they genuinely liked the products and wanted the starter kit or a discount. They purchase products for their own use, and maybe occasionally sell to a few people around them who also enjoy the products. If that works for you, go for it.

My issue is when MLMs target people using misleading claims, pretending that joining an MLM will give you flexibility while earning easy money. A lot of them prey on vulnerable women — new mothers, single moms, immigrants, widows, and those struggling to pay bills. They claim to be legitimate ways to make money at home or a side gig to bring in extra cash. Unfortunately, statistics show that the overwhelming majority of people make little to no money by joining an MLM, and a huge percentage of people actually LOSE money. In some cases, A LOT of money. A 2017 report by the Consumer Awareness Institute found that 99% of people who join MLMs lose money. According to the 2016 documentary about Herbalife, Betting on Zero, building a downline and product purchases are required to be eligible to earn income, and only 17% of all Herbalife distributors are eligible to earn anything. Based on Herbalife’s own earnings statements, 30% of the eligible 17% of distributors will earn zero dollars per year, and about 48% will earn $1,000 or less gross earnings for the year. If you factor in expenses, net income is basically nothing. And if you question your lack of success? Your upline may tell you that you’re just not working hard enough.

Which brings me back to the nutrition clubs that have infiltrated our community. They are fronts so that the Herbalife distributors who own them can masquerade as local shake shops. Herbalife started nutrition clubs as a new avenue to recruit distributors and increase sales by breaking down the cost of their overpriced products into daily doses. Herbalife’s own rules specify that these clubs are not franchises. Neither are they cafes, take-out, nor retail establishments, and they are not supposed to attract walk-in customers. Nutrition clubs are not supposed to advertise their teas and shakes or publicly post their hours of operation, and they are supposed to have people come in by personal invitation through word of mouth or written/email invitation only (hence the “club” part). They’re also not supposed to actually sell the drinks. Instead they are selling a daily “membership” to the club that entitles the member to a drink. If they ask for your contact information in order to make a purchase, that’s why. The local ones are rebels, evidently, because they do not appear to be following Herbalife’s rules. I’ve seen balloons and signs by roads, and ALL the nutrition clubs advertise on public social media accounts. With a quick internet search, you will see all but one of the clubs that are listed on Google are categorized as “Restaurant” or “Health Food Restaurant,” and the other is labeled a “Health & Beauty Shop.” I am also extremely curious to know if sales tax is being paid on the drinks sold. When I visited a local club, I paid the exact even-dollar price listed on the menu in cash and was not given a receipt. 

Herbalife’s guidelines for these nutrition clubs are specifically designed to hide any affiliation with the brand. From Herbalife’s rules document titled “Chapter 8 Nutrition Clubs“: 

8.4.5 Commercial Club Exterior Signage

Exterior “Signage may not:

    • Imply that Herbalife Nutrition products are available for purchase;
    • Imply that the occupant has an Herbalife Nutrition business;
    • Include the word shake, or use Herbalife Nutrition Intellectual Property, product names or brands, such as:

– Mark Hughes;

– Liftoff®;

– Formula 1®;

– Nutrition Club; and

– Herbalife Nutrition.”

8.4.6 Commercial Club Exterior

Commercial Clubs are not retail establishments, cafés, restaurants or takeout establishments. To avoid any misconceptions by passers-by, Commercial Clubs may not have outdoor tables, chairs, or other seating.

Door and window coverings are optional, provided they do not:

  • Display Herbalife Nutrition branding (names, logos, etc.);
  • Imply that Herbalife Nutrition products are available for purchase;
  • Feature “Before & After” photographs; or
  • Display the word “shake,” pictures of shakes or any other product (even if unbranded).”

If there is nothing wrong with the Herbalife brand, why disguise these storefronts? Chick-fil-A doesn’t hide its brand when it opens a new franchise location. Each of these nutrition clubs is required to have its own branding and logo (approved by Herbalife, of course). Why all the rules? Two reasons. To avoid regulation and because Herbalife has a terrible reputation and they know it. The company has been plagued with lawsuits, safety concerns, and ethical issues since its founding. Over the course of its history, Herbalife has been:

If my hunch is correct, all twelve of the local nutrition clubs are in one downline, with only a few people at the very top maybe seeing any actual profit. This is because once again, the only way to make money in an MLM is through what Herbalife calls “duplication.” You need people in your downline buying products, so you can earn commission from them because the products are too expensive to make a profit with strictly retail sales. Hence, TWELVE clubs in the area popping up in quick succession, all within two years of each other. They aren’t responding to true retail market demand. They’re all trying to duplicate themselves to create downlines. Don’t just take my word for it. One local nutrition club called another one its “sister store” in a comment on Instagram, and the so-called “sister store” who hadn’t yet opened its storefront answered a customer’s question about an opening date using the Instagram account of the already open club. Another nutrition club owner posted on social media about attending training at the location of the first nutrition club to open in the Auburn/Opelika area.

Nutrition clubs typically do not actually employ any of the people who work in them, in the sense that they are given W-2s at the end of the year. Instead, the people behind the counter are likely recruited distributors themselves working in the downline of the owner. I called and visited a sample of local clubs to find out their pay structure. From what I gathered, they appear to be paying their “staff” hourly wages between $8-10 but are calling them independent contractors and issuing 1099s. However, at least one club is paying “all in cash” with “no taxes taken out.” Yes, those are direct quotes. When I asked the worker if she received a W-2 or 1099, she asked me what that meant. I explained, and she said, “We’re just being paid cash.” Someone may want to check into that. The IRS says a person is an independent contractor “if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done” and “if an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor.” During my research, one club told me that they typically “hire” new people in the spring, and those people work six-hour shifts. That sounds to me like an employer-employee relationship. In other clubs around the country, the people staffing these places are only “paid” in commissions from selling the teas, shakes, and other products. In some places, they are required to rent a blender the same way a hairstylist might rent a chair in a salon and/or purchase their own ingredients to create the drinks. If they aren’t required to rent equipment, they may be required to pay the owner back for the supplies they used in creating the drinks (cups, lids, straws, etc.). 

I don’t know any of these nutrition club owners, and I have no personal vendetta against them. They may be hard-working, virtuous people (with the possible exception of the one paying college kids cash under the table). I hope for each of their sakes, they haven’t dumped their entire life savings into these clubs because the stats for the nutrition clubs aren’t better than MLM distributors generally. The Federal Trade Commission (FTC) says that the majority of nutrition club owners make nothing or lose money. In an FTC vs. Herbalife complaint, the FTC said that “Club owners reported spending an average of about $8,500 to open their club.” According to Betting on Zero, a study of clubs in New York showed that the average Herbalife Nutrition Club lost $12,000 a year. Want to take a guess who IS making money with Herbalife? The people at the top of the pyramid. For example, their current CEO made over $7 million in 2020. In 2011, their then CEO was the highest paid CEO in America taking home more than $89 million. Herbalife doesn’t care if these local owners open their storefront and never sell a single drink because they’ve already gotten what they want — a distributor who purchased enough inventory to stock an entire club. The club owners themselves are Herbalife’s target customers. 

Now let’s talk about the actual Herbalife products and their misleading claims of health benefits. On their social media accounts, the nutrition clubs claim that their products can, among other things:

  • increase energy, mental focus, and clarity;
  • boost metabolism;
  • boost immunity;
  • burn fat and control hunger;
  • help you lose weight;
  • provide biotin, collagen, vitamins, minerals, antioxidants, protein, and electrolytes;
  • improve hair, skin, nails, and cellulite;
  • increase absorption and digestion; and
  • rebuild muscle, deliver amino acids, and speed recovery after a workout.

All with very few calories and zero or very little sugar. These products sound like miracles!

Color me skeptical. 

As it turns out, these drinks, including their “coffees,” all begin as powdered formula packets or liquid concentrates from Herbalife that are mixed with water, ice, or milk and consist of highly processed soy-based protein, fructose (sugar) or artificial sweeteners, caffeine (around 160 mg per loaded tea, but one local club’s website states that theirs contains 175-200 mg), herbs, gums, fillers, additives, artificial flavors, artificial dyes, synthetic vitamins, and emulsifiers. Since Herbalife began selling these products, scientists and the medical community have had concerns about liver disease/damage and hepatitis in Israel, Switzerland, and Spain, heavy metal toxicity in India, as well as a small study involving liver damage in the United States. There have also been allegations of unsafe levels of lead in their products. Herbalife may have changed their formulas after these studies and lawsuits came to light, but what if they hadn’t been caught? Luckily for Herbalife, dietary supplements are not regulated by the FDA unless an issue is reported, so none of their current health claims have been evaluated or supported. Additionally, their ingredients have not been assessed for purity or quality. Every single local nutrition club has at least one social media post advertising their “hydration” drinks for children and/or posts a kids’ menu in their club (although the children’s drinks do not contain caffeine). I was told that there are two products they make for kids. The first two listed ingredients on one of the products are “Trehalose Dihydrate, Sugar” and the first three ingredients on the other product are “Dextrose (Glucose), Sugar (Sucrose), Maltodextrin.” Those ingredients are all sugar in various forms for those who don’t want to do internet searches. Even if these kids drinks weren’t just basically sugar, do you feel confident letting your children consume something made by this company? 

The two products I was told are the bases for kid’s drinks.

And before someone comes at me with their success story, yes, you can lose weight using Herbalife. Anything that promotes calorie restriction or meal replacement can help you lose weight. There is nothing special about Herbalife products. You can buy protein and diet shake powders way cheaper at the grocery store. I can guarantee you that I can make a less expensive and higher quality protein shake at home using real fruit and vegetables than anything I could buy at these nutrition clubs. As with most things, if a product sounds too good to be true, it probably is. 

You may be wondering why I’ve spent time researching and writing this. I could just stay away from these places and keep my mouth shut. However, I won’t because I care about this community, and I have a problem with predatory companies taking advantage of people who want to own businesses AND/OR people taking advantage of their community by hawking trendy looking “nutrition” drinks and not being upfront about what actually goes in them. I know I’m probably kicking a hornet nest, and I’ve already been told that I shouldn’t publish this because it could hurt small business owners. But I’m sorry, the club owners are distributors for a HUGE company that is rife with ethical and legal issues. Supporting the local nutrition clubs ultimately means supporting Herbalife. If those same owners want to open legit smoothie or juice bars using fresh ingredients, I’ll be happy to patronize their establishments. The people of this community have the right to know and decide exactly which businesses they are supporting and what products they are consuming. 

Now you have the facts. Do with this information what you will. As for me and my family, we will be staying far away from these unethical MLM facades with “health” products that are misleading at best and dangerous at worst. 

*If you are involved in an MLM because you were promised the opportunity to make easy money from home and not just because you want to purchase the product for your own use, I implore you to please, please keep a detailed spreadsheet of exactly how much money you are spending and how much you are making. If you’re losing money instead of making it and wondering what you’re doing wrong or if you’re just not working hard enough, know that it’s not your fault. The entire system is rigged against you. It can be tempting to keep throwing good money after bad in the hopes of things eventually turning around, but this is called the sunk cost fallacy and can cause you to lose way more money in the long run. If you need help getting out, there are resources and support available.*

 

Sources:

How MLM’s Work: https://money.cnn.com/2013/01/09/pf/multilevel-marketing-industry/index.html

MLMs vs. Pyramid Schemes: https://www.consumer.ftc.gov/articles/multi-level-marketing-businesses-and-pyramid-schemes

Pyramid Scheme Math: https://www.investor.gov/protect-your-investments/fraud/types-fraud/pyramid-schemes

John Oliver: https://youtu.be/s6MwGeOm8iI

Why MLM distributors are not Small Business Owners: https://www.huffpost.com/entry/mlm-consultant-not-small-business-owner_l_5ff749c2c5b6fc79f46382d8

“Boss Babes”: https://theath.ca/opinions/boss-babes-busted/

The Dream Podcast: https://podcasts.apple.com/us/podcast/the-dream/id1435743296

Income Statistics: https://www.vox.com/the-goods/2018/10/15/17971410/lularoe-lipsense-amway-itworks-mary-kay-mlm-multilevel-marketing

Consumer Awareness Institute Report: https://www.ftc.gov/sites/default/files/documents/public_comments/trade-regulation-rule-disclosure-requirements-and-prohibitions-concerning-business-opportunities-ftc.r511993-00008%C2%A0/00008-57281.pdf

Betting on Zero Documentary: https://en.wikipedia.org/wiki/Betting_on_Zero

Herbalife’s Nutrition Club Rules: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjG0Y-R5-_yAhXHGFkFHXQQDaoQFnoECDEQAQ&url=https%3A%2F%2Fwww.myherbalife.com%2FContent%2Fen-US%2Fpdf%2FtoolsAndTraining%2Fbusiness%2FbusinessMethods%2FDMOs%2FnutritionClub%2FWW7288_MyHL_NC_FAQ_032911.pdf&usg=AOvVaw0JkXVp23UWeU756mEcuD_7

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwjZ6pO5ovDyAhXJMVkFHTV1CysQFnoECAQQAQ&url=https%3A%2F%2Fedge.myherbalife.com%2Fvmba%2Fmedia%2F1265AF7C-A11D-4449-AA28-C63878172BD0%2FWeb%2FGeneral%2FOriginal%2FNutritionClubRules.pdf&usg=AOvVaw1NWpzU02tJNIPjoOgLgiGS

Legal Issues: https://www.chicagotribune.com/news/ct-xpm-1985-05-03-8501270403-story.html

FDA: https://www.naturalproductsinsider.com/regulatory/fda-says-herbalife-video-misleading

FBI: https://www.reuters.com/article/us-herbalife/fbi-conducting-a-probe-into-herbalife-sources-idUSBREA3A1V520140411

California Attorney General: https://www.latimes.com/archives/la-xpm-1986-10-16-fi-5791-story.html

Congressional Subcommittees: https://www.latimes.com/archives/la-xpm-1985-05-15-fi-8731-story.html

Canadian Regulatory Probe: https://nypost.com/2014/01/28/canadian-regulator-probing-herbalife/

FTC: https://www.ftc.gov/news-events/press-releases/2016/07/herbalife-will-restructure-its-multi-level-marketing-operations?fbclid=IwAR1YyLOESrGKqNs3OobB73SlNj_eJcciNNNd7YPbo2lyz0Wi7Fct3_1wJxo

https://www.ftc.gov/news-events/blogs/business-blog/2016/07/its-no-longer-business-usual-herbalife-inside-look-200

https://www.ftc.gov/system/files/documents/cases/160715herbalifecmpt.pdf

SEC & DOJ: https://www.sec.gov/news/press-release/2019-195

Distributor Lawsuits: https://www.nbcmiami.com/news/local/south-florida-couple-among-thousands-of-plaintiffs-in-1-billion-lawsuit-against-herbalife/172685/

https://www.markmigdal.com/140m-class-action-against-44-top-herbalife-distributors-reopens-in-miami-federal-court/

https://www.bloomberg.com/news/articles/2014-11-01/herbalife-to-pay-15-million-to-end-pyramid-scheme-suit

Belgium Court: https://www.moneylife.in/article/herbalife-is-an-illegal-scheme-rules-belgian-court/23157.html

Herbalife concept of “Duplication”: https://www.youtube.com/watch?v=Vm4RL1N4IuY

IRS Independent Contractor: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

CEO Salaries: https://www.ftc.gov/system/files/documents/cases/160715herbalifecmpt.pdf

https://www.theguardian.com/business/2012/may/02/michael-johnson-highest-paid-ceo

Health Concerns: https://liftbigeatbig.com/herbalife-side-effects-and-horror-stories/

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3004035/

https://www.sciencedirect.com/science/article/abs/pii/S016882780800634X

https://www.sciencedirect.com/science/article/abs/pii/S016882780800634X#aep-abstract-sec-id14

https://www.journal-of-hepatology.eu/article/S0168-8278(07)00367-4/fulltext

https://www.journal-of-hepatology.eu/article/S0168-8278(07)00368-6/fulltext

https://onlinelibrary.wiley.com/doi/10.1002/pds.2180

https://pubmed.ncbi.nlm.nih.gov/31024209/

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3004035/

https://www.reuters.com/article/us-this-hold-toni-herbalife/group-says-herbalife-products-have-too-much-lead-idUSN1955645920080520

Sunk Cost Fallacy: https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/sunk-cost-fallacy/

How to Leave an MLM: https://mlmtruth.org/2017/11/11/how-to-leave-an-mlm/ 

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Sarah Savage
Sarah Savage is originally from Crestview, Florida, but has called the Auburn/Opelika area home for the last 13 years. She graduated from Auburn in 2012 with a Bachelor’s degree in Psychology and a minor in Human Development and Family Studies. She and her husband, Jonathan, have a five year old daughter and a two year old son. Sarah works part time from home as a Communications Editor for Auburn University, but spends most of her time attempting to keep her kids from climbing—and subsequently falling off—furniture and providing an endless supply of snacks. She enjoys working out, reading, baking, listening to podcasts, and post dinner stroller walks with her family.