A sales pitch costly to swallow


April 11, 2000|By James Drake | James Drake,SPECIAL TO THE SUN

PRAGUE -- In a downtown assembly hall, a succession of clean-cut, confident men and women mount a podium to testify how their lives were changed by a wonderful discovery.

"Friends, I feel born again," exults one spry, 60-ish former miner.

But it's not the Lord that changed the miner's life. It's a California diet supplement, Herbalife.

He brandishes "before" and "after" photos to rapturous applause from the largely blue-collar audience. By skipping two meals a day and taking Herbalife International Inc.'s vitamin pills and "high-energy" milkshakes, he claims, he shed 25 pounds in a year.

Herbalife promises more than salvation from cellulite. The host of the recruitment rally is Petr Kral, Prague sales-distribution manager. His tangible earthly rewards include a blow-dried coiffure, an expensive-looking tan and chunky gold jewelry.

Like the others on stage, Kral is a satisfied customer who went on to sell the product door to door. In his first month, he claims, he more than tripled his previous annual salary as a garage mechanic.

Although the $160-a-month charge for the basic, "essential" course amounts to almost two weeks' wages for the average Czech, Kral notes that by becoming distributors, consumers qualify for a hefty discount. What's more, anyone who signs up a newcomer to the sales force takes a commission on that person's profits.

"My friends, this is a millionaire-making factory," Kral exults, his arms spread wide. "By the year 2010, more than half the world's population will be using and selling Herbalife."

Not everyone is impressed with Kral's vision. "A friend told me it could help me look nicer and also cure my eczema," recalls 19-year- old Helena Dostalova. "I tried it for three months, and by the end I could hardly move. It was worse than if I hadn't eaten anything at all."

Eventually, "eating nothing at all" seemed like the obvious alternative, so that's what Dostalova did. Now she is hospitalized with anorexia.

"It's like brainwashing: It's science fiction, not life," argues her psychiatrist, Frantisek Vrch, who has treated several women for eating disorders that he believes Herbalife caused or exacerbated.

"They are hungry because these diets are based on not eating. So they overeat and then take laxatives or induce vomiting. Then their self-esteem goes down because they feel it's not the diet's fault, but their fault. They don't look for the real solution" to their problems, he says.

The real solution, Vrch says, could lie in counseling or common-sense advice about exercise and diet. Most of the vitamins and nutrients found in Herbalife products are available in ordinary food at a fraction of the cost.

Back at the recruitment drive, Kral has no time for doubters. "Of course, you should consult a medical expert if you're worried about taking our stuff" is his response to a question about side effects. "Or you can call one of our representatives, who will advise you."

In the next breath, the high school dropout is prescribing a pick-me-up for the questioner's pregnant wife: the company's caffeine-rich Guarana tablets, which doctors warn can provoke premature labor and birth defects.

Many Czechs have learned to take Herbalife with a pinch of salt since it arrived in their country eight years ago. In 1998, about 400 Czech distributors left the sales force. The corporation claims that most were sacked for offering unauthorized discounts, but critics of the company say they more likely quit in disgust.

"It's happened in every other country they've been in," says Anna Spinkova, a Czech-Canadian consumer-rights advocate. "The more sellers they enlist, the more trouble they have finding new customers to buy their goods, the more likely those reps will be lumped with stuff they can't shift."

In the Czech Republic, there is no legal bar to the organization's multilevel marketing contacts, in which profits are siphoned to the top, driving up the cost of the product. Most U.S. states, by contrast, permit multilevel marketing organizations only as long as the sales force is compensated based on selling to customers not affiliated with the organization.

Herbalife is expanding its East European activities. A presence in Russia since 1995, it began operating in Slovakia last year and has its sights set on other former Soviet bloc territories where high unemployment and a poorly developed retail system offer fertile ground for Herbalife's personal approach. Among those hailing Kral's testimony are Ukrainian and Belarussian guest workers who will soon return home to ravaged economies and uncertain futures.

"If people think their health depends on it, they'll find the money," Arkady Arkashenko, a laborer from Kiev, says with a grin. "It's good business. It's good business."

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