Within seconds of walking into the empty café, a salesgirl is asking what I want and hovering over me as I consider the cryptic menu. She’s wearing activewear, a red-tip French manicure and thick strips of false lashes. The Biscoff shake, she tells me, is her favourite, as she presses me for my order. The menu comprises nutrition shakes and “loaded” teas. It lists flavours but not ingredients. “So, are the shakes fruit and yoghurt,” I ask, “or …”
“They’re protein shakes,” she says, and when I ask what, exactly, is in them, she tells me it’s Herbalife protein. I ask for more detail. “Um.” Stumped, she calls the manager. He’s young, friendly and eager to assist. I feel bad that I’m pretending not to know anything about his business, which has a peppy, generic name, but is in fact a Herbalife Nutrition Club.
I want to see for myself how they represent the shakes and teas because Herbalife’s rules prohibit clubs from advertising that their products are available on the premises. I recently interviewed a man who was duped into sinking more than $70,000 into one such nutrition club. He has levelled serious allegations against Herbalife, including that the company is controlling. The investor, who I’ll call John*, thought Herbalife was just a product supplier. He now likens it to a cult.
“It was very controlling in nature with strict guidelines as to what you can and cannot do in operating your ‘studio’,” he alleged in a statement to lawyers. “Its scope was well beyond what a person would understand generally to operate a retail shop.” John’s testimony forms part of an investigation into a potential class action against Herbalife. Law firm Piper Alderman says that there are grounds to allege that the “business opportunity” promoted by Herbalife may in fact be a pyramid scheme because profit primarily comes from internal sales and recruiting new members, rather than retail sales.
I buy a small berry smoothie with no protein or additives for $10 and sit in the Herbalife café for half an hour. Nobody else comes in. Cafés, or “nutrition clubs”, like these exist all over Australia. You can recognise them by their simple fit-out and identical list of products. But they’re just one iteration of how Herbalife distributes its supplements in Australia.
What is Herbalife?
Herbalife, a global “health and wellness” company selling meal replacement protein powders, weight-loss teas and other supplements, is also known as a direct-selling company, or a multi-level marketing company (MLM). In an MLM “distributors” sell to friends and others in their networks, and recruit new members (known as their “downline”) to sell. A proportion of each member’s earnings goes to the person who recruited them (known as their “upline”). For this reason, MLMs are often likened to pyramid schemes.
In 2016, Herbalife was forced to overhaul its US operations after the Federal Trade Commission (FTC) alleged that the company represented “that Herbalife distributors are likely to earn substantial income” when in fact the program “does not offer … a viable retail-based business opportunity.” The “small minority” who succeed primarily earn their money from “successfully recruiting large numbers of business opportunity participants who purchase Herbalife product,” the complaint said. The subsequent settlement, which included an agreement for Herbalife to pay $200 million in refunds, is the basis for the investigation in Australia.
The Weekly has spoken with several former Herbalife Australia distributors who were burned by their experiences with the global behemoth. One man went bankrupt. One woman had to enter a treatment centre for anorexia. The ex-members allege they faced extreme pressure to sell and recruit, bullying, manipulation and misrepresentation of income potential.
The General Manager of Herbalife Australia and New Zealand, Peter Hurley, disputes this. He says, in a statement to The Weekly, that the company’s direct selling business model is compliant with every aspect of Australia’s regulatory regime, and Herbalife’s signature product, Formula 1, is the world’s number-one meal replacement product.
“Our distributors purchase this and other products at a discount and are able to sell them to customers and immediately earn a retail profit,” he says. “Some choose to build a team of other distributors.”
Data provided by Piper Alderman shows that in 2018, 80.9 per cent of Herbalife Australia members earned no commission payments or bonuses. The former distributors The Weekly spoke with detail traumatic experiences in the company.
“It was very, very difficult on our family,” John says. “There were lots and lots of arguments. It was not pretty at all … They either treat you as a friend or an enemy. There’s actually no amicable ground in between … They’re very childish.”
Ex-Herbalife distributor Shona Gates says the pressure to lose weight using the products left her sleep deprived and malnourished. She is particularly concerned about how Herbalife targets mothers. Direct Selling Australia reported, in 2017, that 74 to 95 per cent of MLM distributors are women.
The weight-loss cult
Shona was involved in Herbalife from 2015 to 2018 after being recruited by a family friend, who was also a client of Shona’s spray-tan business. When the friend lost a dramatic amount of weight, Shona asked how she’d done it. “I was struggling with weight and health issues, so I asked her what she was using and began using the products,” Shona says. “I wanted to be healthier and I wanted to be able to run around with my kids.”
She lost six kilos within the first six weeks of using Herbalife. When her friend told her she could get a discount if she became a distributor, Shona said she wasn’t interested.
“I didn’t see it as a legitimate business,” she says. “It just felt a little bit spammy.” But the lure of the discount eventually won her over. The first warning bells rung, Shona says, when she realised the product didn’t last as long as it promised.
“I remember being really frustrated when it arrived because I thought I’d ordered enough for a month. I actually needed to order double the amount of the products to have a monthly supply. That was my first instance of going, ‘I don’t feel good about that. That doesn’t feel right’.”
Shona is a devoted mother and an ambitious business owner. She initially resisted becoming a Herbalife distributor because she was too time poor. However, some of her clients noticed her weight-loss and asked how she’d done it. The woman Shona was buying Herbalife from encouraged Shona to sell it to her clients. Within 15 minutes she’d earned $400. The results were hard to resist. “In my spray-tanning business, it would take me a week to make that kind of money,” she says. Shona’s weight-loss helped her achieve rapid success as a Herbalife distributor. She posted before and after shots of herself on social media, which attracted even more sales.
“I feel like those photos trigger something quite primal in people and logic does go out the window,” she says. Soon she got a call from a man who said he was “up the line” at the company.
He urged her to join an online training session to learn about how to take care of her clients. One call turned into four calls. Then she was urged to attend an event in a few weeks. She says that was when she began to ignore her intuition “because they’re promising that financial success”. She was lured in by promises and encouragement.
“They celebrate literally nothing. They celebrate you getting on a call. They celebrate you for losing half a kilo. You’re constantly being celebrated.”
The people at Herbalife were supporting Shona to achieve the ambitions she had put on the backburner since becoming a mother. But she soon found she had to work harder to achieve sales, and she started feeling extreme pressure to increase her revenue. That supportive culture soured and became a quagmire of toxic positivity.
“You weren’t allowed to express you had a problem. You weren’t allowed to have a bad day. You certainly weren’t allowed to post anything negative on social media. You had to live the brand,” Shona says.
“The follow-up from the business side of things to me was oppressive,” she continues. She describes gruelling hours. “So many of us” would be up at 5am, working out, and then delivering Herbalife flyers, she says. The level of work was out-of-control but Shona was told to market her business as if she was making “all this money” with no work.
“In fact, we were all working 60-hour weeks, if not more. At cost per hour, we would have been better off going to work at McDonald’s,” she says. Shona was exhausted, and her body began to break down. “I was using [the products] as hard as I possibly could,” she says.
“It almost impairs your cognitive function and your brain capacity to realise, ‘Hey this is unethical and the way that they’re marketing things is wrong,’ because you’re actually starving yourself and using the products in such an unhealthy way to continuously keep getting a result, because it’s sharing the result that makes you money … “At the time, you think you’re just hustling and building a business and this is what it takes.”
From the outside, it looked like Shona had an incredible lifestyle. “But on the inside, it was almost like things were rotten and no one wanted to acknowledge that there was this rotten smell going on.”
In 2018 Shona began treatment for anorexia. “My body had a total shutdown. I stopped having periods. It was incredibly stressful, but outside so shiny and so perfect,” she says. She now sees Herbalife as predatory and manipulative. “They’ve packaged it up in, ‘We help mums make money from home’. But at the core of the foundation of how it works and how they are manipulating people, it is textbook cult marketing,” she says.
The money pit
When John’s son and daughter-in-law said they wanted to open a protein shake café in their NSW town he was happy to support them. John’s plan was for the family to open a few cafes and sell one as a going concern so that he could give his son a deposit for a house. John’s son had learned about Herbalife from a local man who already ran several similar cafes and, based on a costings sheet provided by this man, John invested $15,000 to fit out the cafe. By the time the business opened, this cost had blown out to $73,000.
The day the café opened, John began to suspect not all was as it seemed with the business. The café owner who had enlisted John’s son – his “upline” – wanted to put a sign in the brand-new cafe asking patrons if they wanted to open their own shop.
John couldn’t understand why they would want to encourage competition before they’d sold a single drink. As time went on, John observed more strange practices. “It appeared that [the upline] was always devising tactics to open more shops, rather than concentrating on the success of existing shops,” John says.
John knew that their family café sold products supplied by a company called Herbalife. But he told lawyers: “I mistakenly never thought it necessary to conduct proper due diligence on the Herbalife company because, from my perspective, they were just another supplier.”
After more frustrating conversations with the upline, John tracked down a copy of the Herbalife Code of Conduct. “The rules were completely contradictory to what [the upline] explained during the due diligence stage,” John says in his statement.
“From what I now understand, Herbalife … essentially control your business.”
There was other unorthodox behaviour. The upline took John’s son to a Herbalife conference in Brisbane and introduced him to half a dozen people, claiming they were all multi-millionaires. “He said, ‘That’s where we aspire to be – in this room.’ There were pictures of people getting autographs from these millionaires.”
Shona has first-hand experience of these conferences and says they are part of the emotive and manipulative culture that Herbalife cultivates. “You go to these events and it’s all about the music and the feelings and the emotions and people know the exact TED-Talk style of speech, which triggers emotion,” she says. “You have this whole room of people crying, triggering this incredibly emotional, connective experience that you don’t get from your 9 to 5 … You look around the rest of the world and you think, ‘How can they not hear and see and feel this?’ But in fact, what you’re seeing and feeling and hearing has been designed [to make] you to feel that way.”
John soon learned that he couldn’t sell the nutrition café. “[The upline] told me that we cannot sell our shops at a price higher than what it costs to set up and that it would have to be sold to another Herbalife member,” he explains.
Herbalife can’t prevent a person from selling their business, “but what they can do is just stop supplying you … it was very controlling.”
When his family decided to step away from Herbalife, the upline and his wife tried to stop them. “They were trying to manipulate and trying to take control of the situation,” John says. Eventually he got a phone call from another man “further up the chain” at Herbalife, who also tried to convince him not to leave. “After this phone call, I felt it was like trying to escape a cult,” he says.
John now believes Herbalife was “nothing more than an MLM selling inferior, questionable and overpriced products … It became apparent that the shop was just there as a means to recruit … the main focus was on recruiting.” It is not a normal retail situation, he says. “You have a supplier, they supply. Herbalife are completely different. When I looked at it, I realised this is not just a supplier, they own you.”
Weight-loss of wealth-loss?
North Queensland resident Michael’s* story has much in common with Shona’s and John’s. Like them, he experienced extreme pressure to “sell, sell, sell”. He spent vast sums of money on product for his own personal use, which he felt was necessary to be an effective salesman, and he described confronting market saturation. “Everybody knew a distributor,” he says. Market saturation is one of the perils of a recruitment-based sales model.
Michael also found price-point was a problem. “People couldn’t afford to maintain it. You can go to a chemist and buy shakes for $30-$40 and we’re selling for $70 … You had to sell at those prices, or you weren’t going to get a commission,” he tells The Weekly.
After 14 months with the company Michael and his partner filed for bankruptcy. It’s stories like this that law firm Piper Alderman is investigating.
“The former members we have spoken to liken the scheme to a ‘cult’ and wish to see Herbalife’s operations shut down in Australia,” Piper Alderman partner Valerie Blacker says. If the lawsuit establishes that Herbalife’s operations have breached Australian consumer law, Australian members who lost money to Herbalife would be entitled to seek compensation. Peter Hurley says Herbalife has rules against “high-pressure sales tactics”, and members are encouraged to report any instances of misconduct to the compliance team.
Regarding John’s complaint, Peter Hurley says, “The company restricts the sale of Nutrition Clubs because only Herbalife members can sell Herbalife products. These restrictions are clearly explained to all members in Herbalife’s rules of conduct, which are made readily available to members.” John says he was only able to read the Herbalife Code of Conduct after months of asking his upline.
Professor Deanna Grant-Smith, from the faculty of Business and Law at the Queensland University of Technology, studies how MLMs operate in Australia and says they frequently condition their members to believe they failed because they didn’t work hard enough.
“If you believe that it was all yourself, and that it wasn’t this structural problem created by the company, then you are not going to complain,” says Professor Grant-Smith.
Shona agrees that this was her experience. “When I was trying to get up the courage to leave, I remember crying in my kitchen.” She phoned a former Herbalife member and asked her how she found the strength to step away, and how she knew it was the right thing to do. Five years later, Shona now helps other MLM members who want to reclaim their freedom.
“I think there’s a collective trauma bond with women who have experienced this because it’s quite niche,” she says. Herbalife says it has a “vibrant, supportive and ambitious culture”, but Shona says that’s not what it feels like from the inside.
“They’re not teaching you to run it like an actual business,” Shona says. “I would say that if you actually got people to logically answer the question, you would find very few people are clearing any profit out of the business at all.”
To learn more about the Herbalife class action, visit https://piperalderman.com.au/class-actions/herbalife-class-action/
* Names have been changed to protect privacy.
