Zinzino – Case Iceland

Iceland

Iceland is a Nordic island country in the North Atlantic, with a population of about 360,000. Over two-thirds of the population live in the capital of Iceland, Reykjavik. Almost 90 % of the population are ethnically Icelandic. It's a relatively closed society, but also a closed knit community of people.

Such an isolated and small country is an ideal place what comes to researching various diseases and genetics. Furthermore, Iceland is also a great country what comes to observing pyramid scams.

What interests me in Iceland is that Zinzino spread there in around 2015 and apparently was a big hit for a couple of years up until the boundaries of pyramid sales were met. Well, you know, it's a small country so it's evident that such a business model depending heavily on pyramid recruiting scheme is bound to have problems sooner or later.

First a disclaimer:
Zinzino itself is not a scam. It's a legitimate business selling health supplements, coffee and espresso machines via MLM.

The company was also under preliminary investigation by the Finnish police, which was closed by the end of 2013 concluding that Zinzino's business is in accordance with the Finnish law and regulations.

To end the disclaimer, those were probably the nicest things I could say about Zinzino. The truth is that under the wings of this perfectly legal business lies a pyramid shaped network selling health supplements using dubious and even prohibited marketing pitches.

Zinzino, Iceland 2014–2018

Now, I don't live in Iceland but luckily we have Zinzino's annual reports giving us clues about how things have developed. Let's go trough some figures year by year!


2014 – business blooming

Back in 2014 Zinzino was still blooming in Iceland and the percentage of Zinzino's total sales was 12 %. Not bad for a small country far, far away.

The annual report mentions that "during the year, 1,299 new distributors and 7,264 new customers were added." That means that on average each distributor had only about 5,5 customers. It goes without saying that this can not be profitable business for the vast majority of the distributors.

(SEK THOUSAND)
Growth compared to previous year	121%
Percentage of Zinzino’s total sales	12%
Net sales	37,881
Other income	4,595
Total direct costs	–41,117
Earnings before operating expenses	1,359
Profit margin before operating expenses	3.2%

Zinzino's CEO, Dag Bergheim Pettersen, 2014

2015 – Slight decline

In 2015 the figures are already showing that things are not going well. From here on Zinzino's annual report didn't disclose the numbers regarding distributors and customers. However, decreasing numbers of net sales and direct costs indicate that the pyramid shaped network of distributors wasn't growing anymore. In fact, it's likely that many of the Icelandic Zinzino reps had already abandoned the ship. The boundaries of pyramid recruiting in Iceland were met.

(SEK THOUSAND)
Growth compared to previous year	–6%
Percentage of Zinzino’s total sales	9%
Net sales	35,445
Other revenue	4,540
Total direct costs	–32,303
Earnings before operating expenses	7,682
Profit margin before operating expenses	19.2%

Coincidentally I managed to find some not-so-flattering news articles about Zinzino published in 2015 (the headlines below translated with Google Translate):

"Icelanders are everyone's favorite in the Zinzino Balance Shake"

"The ZinZino chain sends a warning to its distributors"

"Zinzino Balance shake said to cure túrverki (menstrual cramps?), coronary artery disease, diabetes, reflux; Asperger's and ADHD, vision, dyslexia..."


2016 – Pyramid collapsing

Quoting the annual report:
"Iceland is the market that was most affected by the business system change during 2015/2016, and that lead to difficulties in recovering during 2016. Total revenues during 2016 were in SEK 17.8 (40.0) million which meant a decline in growth of -56% compared to the previous year. Work is in progress in order to increase the sales in Iceland, together working on a more efficient payment. This is expected to provide increased revenues during 2017."

– "Business system change" refers to a change in company's IT system. In fact the annual report points out to the "business system change" for several other regions as well. I suppose it's just a lame excuse for negative growth. However, it's evident that the pyramid in Iceland was collapsing and that was the main reason for the appalling figures.

Growth compared to previous year	–56%
Percentage of Zinzino’s total sales	4%
Net sales	16,124
Other revenue	1,664
Total direct costs	–16,339
Earnings before operating expenses	1,449
Profit margin before operating expenses	8%

2017 – Still going down

Quoting the annual report:
"The decline in the Icelandic market slowed down in 2017. The total revenue dropped by 15% and totalled SEK 15.1 (17.8) million. The Icelandic market was hit hard by our change of IT system in 2015 and has had trouble recovering. Throughout the year, Zinzino has worked continuously to support the local sales organisation. This resulted in the Icelandic sales once against starting to increase in the final months of the year."
– Yeah, damn that IT system for ruining everything! Nah, just being sarcastic.

(SEK THOUSAND)
Growth compared to previous year	–15%
Percentage of Zinzino’s total sales	3%
Net sales	13,208
Other revenue	1,901
Total direct costs	–13,531
Earnings before operating expenses	1,578
Profit margin before operating expenses	10%

2018 – Nope, still at the rock bottom

(SEK THOUSAND)
Growth compared to previous year	–10%
Percentage of Zinzino’s total sales	2%
Net sales	11,852
Other revenue	1,682

– The direct costs per country were not disclosed. However, the annual report was surprisingly honest about the situation in Iceland:
"In Iceland, the total revenue in 2018 amounted to SEK 13.5 (15.1) million, corresponding to a decrease of 10% compared with the previous year. In addition, the Icelandic target corresponded to 2% (3%) of the total revenue. The market has experienced lower Partner activity for several years, which has hampered sales growth in the last few years. The work to stimulate the market with attractive campaigns and sales events has been ongoing and during the last six months has seen some results as the Partner activity has increased again and the sales reduction in the market has halted."
– In other words the change in the IT system wasn't the issue but the crumbling of the pyramid shaped distributor network. In a small country such as Iceland it doesn't take so long for the growth of this kind of distributor organisation to meet its boundaries.

The major problem with MLM in general is that most of the distributors are not that interested in selling products but growing their network instead.

"Zinzino Balance shake said to cure menstrual cramps, coronary artery disease, diabetes, Asperger's and ADHD, vision, dyslexia"

Yes, this is how Zinzino's Balance product have been marketed in Iceland according to an article published by visir.is in March 2015. I'm sure the company has done everything by the book abiding laws and regulations, but there's no way to control how independent sales representatives market products. Back then Zinzino tried to handle the situation in Iceland by sending a warning to its distributors guiding them only to use appropriate sales pitches. 

The use of prohibited and illegal marketing claims is a sort of common practice in MLM selling health supplements around the world. Companies themselves don't have to break any laws because they can recruit an army of independent sales representatives to do all the dirty work for them. 

What comes to the struggling sales reps, marketing overpriced health supplements can be somewhat easier when the products are promised to cure all kinds of diseases.

I'm not familiar with Icelandic legislation but I believe it's pretty close to Finnish what comes to health/dietary supplements. To put it short dietary supplements are not medicines. Any claim even implying so is prohibited by law.

However, despite legislation and supervision, prohibited and illegal sales pitches marketing health supplements are common also in Finland in multi-level-marketing. As an outrageous example I recommend this article about a Finnish Doctor who claimed that Juice Plus supplement would make smoking safe.


Sources:
You can find Zinzino's financial reports here.