Food makers trim low-carb plans as trend slows

By JANET ADAMY, The Associated Press, 7/12/04 8:42 AM

The Wall Street Journal

http://www.mlive.com/newsflash/busi...flash-financial

When Christine Conserva pitched her low-carbohydrate line of breads to a specialty-food market last month, she was politely turned away. The store, which catered to the low-carb crowd, was going out of business.

That didn't shock Ms. Conserva. After three years of strong orders, sales of her Accu-Carb breads are down by about half so far this year. Business "was excellent last year, and even the beginning of this year," says Ms. Conserva. Then in the spring, "it just started dropping."

As low-carb diet books hit the nation's best-seller lists, a raft of new food items stepped up to fill dieters' plates. But the tsunami of products -- coupled with early signs that carb-cutting may be waning -- is now creating something of a low-carb backlash: Food makers are revising their plans for new products amid disappointing sales and, in some cases, an inability to charge as much as they had planned.

Call it the food-fad effect. Past food trends show that only a fraction of new diet-driven products earn a permanent spot on supermarket shelves. When low-fat dieting became popular in the late 1980s, manufacturers took the fat out of everything from tortillas to spaghetti sauce. Low-fat varieties of some dairy products have become grocery staples, but many fat-free products didn't last because they didn't taste good, says Pete Mattson, chairman of food product-development firm Mattson & Co. As for the low-carb newcomers? In time, "a fairly significant portion of this stuff will be gone," predicts Mr. Mattson.

To be sure, sales of low-carb foods are still climbing and a number of food companies contend the trend hasn't lost steam. Manufacturers continue to roll out new products and some retailers -- especially large grocery chains like Kroger Co. -- are giving the goods more shelf space. During the first six months of this year, food companies launched 1,863 products geared to carb-watchers, according to packaged goods tracker Productscan Online. That's nearly three times the number introduced during all of 2003.

Yet sales growth of low-carb foods has slowed. For the 13 weeks ended March 13, sales of "carb conscious" products rose 95 percent to $336.1 million, according to market-research firm ACNielsen. But for the more recent period that ended June 12, they grew at less than half that rate, or 42 percent, reaching $478.3 million.

Food companies that were slow to roll out special products may have already missed the low-carb crescendo. The percentage of Americans who say they are following a low-carb regimen, such as the Atkins or South Beach diets, peaked in early February at 9 percent and hovered at 6 percent to 7 percent through early June, according to a survey by NPD Group Inc., a market-research firm in Port Washington, N.Y.

Several major food companies say their new low-carb products haven't exactly been flying off the shelves. George Weston Bakeries, a big U.S. food company owned by Canada's George Weston Ltd., recently stopped shipping some of its Atkins-endorsed Entenmann's bread products to some supermarkets after they sold poorly, according to Atkins Nutritionals Inc.

American Italian Pasta Co. had hoped that its reduced-carb versions of spaghetti, rotini and other noodles would offset sliding sales of traditional pasta. Instead, sales fell short of its expectations and the company cut the low-carb pasta's price. "It has not been the savior to the pasta erosion that has occurred," says Dan Trott, the company's executive vice president of marketing.

Industry experts say some products are struggling simply because new, better-tasting ones are displacing the first batch of low-carb goods created by tiny companies. Large food concerns that waited to launch products have had the luxury of tweaking recipes and backing their wares with big marketing campaigns.

Yet marketers are finding that consumers aren't always willing to pay a premium for reduced-carb products. Unilever Bestfoods had planned to charge as much as 25 percent more for salad dressings under its new Carb Options label, but was scuttled when Kraft Foods Inc. rolled out cheaper CarbWell dressings in March. General Mills Inc. has also cut the price of its Total Protein cereal.

On the retail side, those hardest hit are the niche players like Castus Low Carb Superstores Inc., a San Ramon, Calif.-based franchise chain that had planned to quadruple its owned outposts to 100 by the end of 2004. After recently lowering its expansion figures by about half, the company has hired a market-research firm to better understand what customers want.

Other specialty stores have been blindsided by market saturation. Three years ago, when Linda Langdon opened a low-carb market in Vancouver, Wash., lines stretched out the door of the then-novel store. Since then, 16 competitors have sprouted up within a 25-mile radius of her Simply Low Carb, causing Ms. Langdon to consider closing two of her affiliate stores in nearby Portland, Ore.

As Americans continue to tune their palates, some manufacturers are hedging their low-carb bets. General Mills, for instance, is offering foods that also address broader weight-management issues. Its Yoplait Ultra yogurts have less sugar, in addition to fewer carbs, than its regular low-fat yogurt. Carb Monitor frozen dinner rolls by the company's Pillsbury unit are both low fat and cholesterol-free. Says Chief Executive Steve Sanger: "We never thought the low-carb diet approach was necessarily a good long-term diet approach."