For much of the last two years it has been almost impossible to avoid the low-carbohydrate/Atkins diet hype but it appears that these products are already falling out of favour with consumers, as David Robertson reports.
This is bad news for the multitude of food companies that have jumped on the bandwagon with “low carb” offerings. A year ago many food companies were lamenting the “Atkins effect” – a drop in sales caused by consumers adopting the Atkins diet and reducing their carbohydrate intake.
To cope with this change, and to take advantage of consumer interest in low-carb products, food giants like Unilever, General Mills and Kraft rushed to introduce low-carb ranges, often at considerable expense. There is now low-carb Ben & Jerry’s ice cream; low-carb Oreo cookies; low-carb Coke (C2) and even the great oxymoron, low-carb pasta.
However, it appears that the low-carb fad is already in decline and analysts expect most of these new products to disappear from the shelves in the next year or so. According to ProductScan Online there were more than 3,300 low-carb products launched in the US this year, compared with 633 last year and 339 the year before. But Tom Vierhile, executive editor of ProductScan Online, warned: “We expect the vast majority of these new products to disappear from store shelves over the next two years. The market is totally saturated and interest in low-carb is diminishing. The peak month for low-carb and no-carb launches this year was June when 622 new products hit store shelves. Entries have been trending down since then with 229 items in November and 272 in October.”
Retailers cutting shelf space
Supermarkets have also revealed that they are planning to cut back their low-carb offerings in 2005 as sales stall.
ACNielsen Label Trends reported that US sales growth for low-carb products had slowed to 6.1% in the 13 weeks to 25 September (worth US$589.9m) compared with 26.3% in June and 105.5% in March.
Research agency the NPD Group also found that the number of people claiming to follow a low-carb diet had fallen in the US from 9.1% in February to 4.9% in November. In the UK, sales of the Atkins diet book are about a tenth of last year’s peak sale of 110,000 copies a week.
Low-cal platform back in vogue?
This has inevitably had an effect on the companies that have launched low-carb products. For example, American Italian Pasta, the country’s largest producer of dry pasta, reported that sales of its low-carb pasta were half what it expected and the company is now positioning the product as “low calorie” instead.
MGP Ingredients, a Kansas-based company that makes proteins and starches to remove carbohdrates, has cut its 2005 earnings from $1.08 per share to 40-50c per share. The company admitted earlier this month that low-carb demand had peaked.
Keto LLC, a New Jersey food company, has cut its low-carb product line from 110 to 35.
First movers may survive…
Vierhile added: “Companies definitely jumped on the bandwagon, many of them much too late to make any profit on the trend. The entire low-carb debacle is herd behaviour at its worst and looks similar to other “manias” including the tech stock debacle of the late 1990s. There was evidence that low-carb was slowing very early this year, but that didn’t stop companies from unleashing hundreds of new products. Some will survive.”
Analysts are expecting plenty of bad news in coming months from companies that got onto the low-carb bandwagon too late to make a mark. There is an expectation that many of the food giants will have to make significant write-offs as they cut back their low-carb ranges.
One of the biggest potential losers is Atkins Nutritionals – the company that makes Atkins-branded products. It licenses the brand to companies like Entenmanns and CoolBrands International but also has makes its own products.
…although Atkins itself hit hard
The company is 80% owned by Goldman Sachs and Parthenon Capital so financial data is not reported in detail. However, rating agency Standard & Poor’s said in a recent report that Atkins had written off $53m in unsold and expired food causing a loss of more than $58m for the second quarter. S&P also estimated that revenue had fallen from $87m in January to $51m in May and $29m in August.
Atkins has responded with a plan to cut 40% of its workforce and has halved its 2005 marketing budget. A turnaround specialist has also been brought in to help the company. “This is happening too quickly for us to be able to manage without outside help,” Matt Wiant, chief marketing officer, told The New York Times.
Climate shift against low-carb
There are a number of reasons for this sudden decline in the popularity of low-carb products. Part of it is due to the inherent instability of fashionable diets like Atkins and its rival The South Beach Diet – they come and go.
But the publicity machine has also shifted against these diets. Medical experts and food agencies have criticised low-carb diets for their promotion of high-fat foods and lack of nutritional balance. Typical of these warnings was the recent launch of a healthy eating campaign by the UK’s Food Standards Agency, which warned consumers that they should be eating more carbohydrates.
Health Canada, that country’s food regulator, is going even further by introducing rules that will ban the use of low-carb labelling. This will come into force in December 2005 despite complaints from manufacturers. The Food & Drug Administration in the US is also looking at how low-carb products are labelled, as is the UK.
It was probably inevitable that the low-carb craze would die out at some point, although the speed at which this diet has started to fade from popularity has been surprising.
As a result, many in the food industry are bracing for a rash of low-carb related bad news in 2005. This coming new year may be one in which food industry executives learn to curse the name Atkins.
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