Low-Carb Losing Steam
Demand May Not Be Keeping Up With Supply of Products
By Margaret Webb Pressler
Washington Post Staff Writer
Tuesday, May 18, 2004

The nation's appetite for low-carbohydrate foods seems bottomless, judging by the many low-carb products showing up in supermarkets and the new menu items at restaurants and fast-food chains. And when Krispy Kreme Doughnuts Inc. recently announced slowing sales, it put part of the blame on low-carb diets.

Yet the mood at a recent Washington conference on the business was bleak. Sales of low-carb products have fallen sharply at independent and health food stores, and some longtime industry insiders say a shakeout has begun.

"I do think now we're on the downside of the roller coaster -- and there will be ups again, but not as high," said Dean Rotbart, executive editor of industry trade publication LowCarbiz, which organized the conference. Rotbart said he is considering a new name and broader focus for his magazine.

Even as they rush to cash in on the craze, some major food manufacturers say they see the phenomenon cooling down and becoming one part of the broad market for weight-loss products. "It's kind of exploded, it's a trend, and then it becomes, really, a niche," said Michael E. Diegel, a spokesman for the Grocery Manufacturers of America Inc. "That's where it looks like it's going at this point."

The changes in the business are hardest on the entrepreneurs who have staked their business plans on the low-carb craze. Curtis Price, co-owner with his brother and another partner of Whoa . . . That's Lo!, a low-carb store in Silver Spring, is typical of specialty retailers feeling the pinch, with sales off 15 to 20 percent in the past two months. "It reached a peak, and now it's trickling off, but it's going to eventually level out," he said.

Stores like Price's have lost some customers to supermarkets and discounters as they give more shelf space to low-carb products. But a growing number of industry experts say the declines for independents may be the first sign of deeper problems: people giving up on the diet after not doing it right, a poor reception for some foods that have been rushed to market and the diet-killing temptation available in the form of low-carb pasta, cookies, ice cream and snacks -- many of which pack a wallop in calories and fat.

"More and more consumers aren't really understanding what's involved in the low-carb lifestyle . . . so you have an increasing number of people failing" to lose weight on low-carb diets, Arne Bey, president and chief executive of leading low-carb manufacturer Keto Foods LLC, said at the conference.

Because the trend can't be ignored, big brands are turning out the low-carb offerings to defend shelf space, establish a healthier-for-you image and grab a little piece of a growth market in a cutthroat business. Plus, these products can command a premium price, so they are profitable.

Diegel of the Grocery Manufacturers of America said it's the nature of the food business for companies to quickly follow a trend. "It's all about market share and growth, and if you're going to find growth, it's got to be in new products, new categories, line extensions," he said.

But some manufacturers are planning for a time when low-carb diets are no longer the consumer favorite.

"They're looking for that silver bullet right now," said General Mills Inc. spokeswoman Marybeth Thorsgaard. "In the long term, General Mills believes that weight management is about balance and calorie content and exercise, so a lot of our low-carb products offer other benefits as well," she said. "While the low-carb trend may go, for example, our new Ultra Yoplait [low-carb] yogurt also has fewer calories, giving it sustaining power."

Magazine editor Rotbart estimates sales of products labeled as low-carb are between $3 billion and $5 billion a year -- out of what the Food Marketing Institute says are annual sales of about $433 billion for the non-restaurant retail food industry. The market for low-carb products has developed so quickly that there is little data to back up Rotbart's estimates.

And even if low-carb turns out to be a really big niche in the market, some entrepreneurs touting massive expansion plans are disappearing. Brad Saltzman, profiled last month in a Time magazine cover story on the craze, is already backing out of the business, for example.

Just a couple of months ago, Saltzman was touting the astounding success of his two new low-carb stores in Los Angeles -- the first in the city -- and saying he would have a chain of stores with $100 million in sales in five years. But that was when his tiny Santa Monica store was doing $4,000 a day in sales. Now that location is ringing up less than $1,000 a day, Saltzman said, and sales are "falling every week." He has already converted his Beverly Hills store, which opened in mid-February, almost entirely to sales of gourmet foods with just a smattering of his original offerings.

"Our retail days in low-carb are over," he said.

Among the factors that hurt Saltzman's business was an investigation by a local television station in Los Angeles that found a popular low-carb bagel actually contained three times the carbs indicated on the label. Consumers, Saltzman said, are nervous about the claims made on so many low-carb products.

And in some cases, people just don't like the taste. Bey of Keto Foods said his sales are strong thanks to the demands of traditional retailers, many of whom are trying to find brands that shoppers actually like enough to keep buying.

"Many food companies, and even some major food companies . . . have placed substandard-tasting products on the shelves," Bey said. "So what you then have is hundreds of thousands, if not millions, of trial purchasers who are disappointed, and therein lie the seeds of a contraction of demand."

There is also consumer research that is discouraging to low-carb entrepreneurs. For example, NPD Group Inc.'s database of actual food consumption shows that even people who consume the fewest carbohydrates are still eating an average of 128 carbs a day -- three to four times the intake that low-carb diets recommend to lose weight.

A survey by market research firm Opinion Dynamics Corp. also showed that three-quarters of the population has never tried a low-carb diet. And only 9 percent of that large group said they might try one in the next two years. That small number "raises the question of whether the market has already been defined," said Lawrence Shiman, project manager for Opinion Dynamics. "If they haven't tried it till now, chances are they won't."

Industry executives also worry that all the new products are making it harder to lose weight. Rather than eating a steak and a salad for dinner, as previous low-carb followers might have, it's now possible to have steak and salad and low-carb pasta. So latecomers to the diet may not get one of the main weight-dropping advantages of a strict low-carb diet -- that it limits calorie intake.

A study by Consumer Reports magazine for its June issue found some new low-carb products have more calories and fat than regular foods.

"It was easier to stay disciplined before, because you couldn't be tempted because there was nothing out there that was low-carb," said Howard Cohen, chairman of Simply LowCARB Weight Loss Centers of Rockville.

Now, with so many low-carb treats on the shelves, he said, people are starting to eat more. "That's part of the problem" for the industry, he said. "When people stop losing weight, then they'll stop buying the products."

Cohen has three area centers where low-carb dieters receive individual counseling and a strict regimen to follow without all the treats. He plans to add many locations, he said, because there is a sizable core of people who are serious about losing weight and want to try low-carb because it works when it is done right.

"It's not ending," he said. "What's ending is this craziness."


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