Belt-Tightening & the Diet Aisle

Low-carb products are having an impact on many other aisles as well

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The food industry has looked many places for growth, but the source of its latest scheme may be the unlikeliest yet , a deceased cardiologist and his 21-year-old diet book.

It's a sad irony that cardiologist Robert Atkins died last April just as the low-carbohydrate diet he championed for years was scaling new heights of popularity and influence.

Within a month of his death, The New England Journal of Medicine and Harvard Health Letter published research indicating that his low-carb diet, long maligned by much of the medical community, appears to be effective in reducing both weight and cholesterol.

The Atkins diet, which has people munching on pork rinds rather than carrots, and eschewing high-carbohydrate foods such as fruits , and even some vegetables , while still eating plenty of fatty foods, has long flown in the face of conventional medical wisdom. Accordingly, most doctors, along with the U.S. Dept. of Agriculture's (USDA) food guide pyramid, historically encouraged high-carbohydrate, low-fat diets.

Medical researchers are only now coming around to what many Atkins adherents have believed , and practiced , for years. Recently, Unilever partly blamed its disappointing first-quarter on sales the Atkins diet had taken from its Slim-Fast products.

Slim-Fast into the act

Now Slim-Fast is marketing its own line of low-carbohydrate snack bars. And with a line of its own low-carb products built around the diet and the name, Atkins Nutritionals, Ronkonkoma, N.Y, is bringing new products to market even faster. Meanwhile, a host of other food and beverage marketers are working to make low-carbohydrate products the next big thing for the food industry.

 

If Can't Beat 'Em, Join 'Em

After losing some sales to the Atkins diet, Slim-Fast is marketing its own line of low-carbohydrate products.

New product tracker Marketing Intelligence Service (MIS), Naples, N.Y., publisher of Product Scan, indicated that low- or no-carbohydrate food and beverage products numbered 339 in 2002, down slightly from 352 in 2001 but still well above 211 in 2000 and only 47 in 1999.

"I think you'll probably see a lot more of these [no- or low-carbohydrate] tags on products that don't have any carbohydrates anyway," says Tom Vierhile, general manager with MIS. He's also seeing a surge in the closely related sector of sugar-free or reduced-sugar candy products, which accounted for 15 percent of 2003's new candy offerings through August, compared to only 6.6 percent in 1999.

"It's more than doubled, so it's a very strong trend there," Vierhile says. "They really go together, since processed sugar is something the Atkins diet warns against."

Russell Stover, which already claims to market the top-selling sugar-free candy, also recently moved into low-carb candies, in part based on the experience of company president Tom Ward, who reportedly lost 25 pounds on low-carb diets.

In a departure from its traditional boxes of chocolates, the nine-item Russell Stover Low Carb line launched in May comes in blazing red packages and candy bar-size quantities, which sell for about $1 each and include chocolates, mints, pecan bars and peanut butter cups.

"They're targeted to low-carb-conscious people," says John O'Hara, Stover's vice president of marketing. "It's an offering that allows people to satisfy their chocolate cravings and still stay on the diet. It's just been tremendously successful."

The Low Carb formulation is more than just another way of saying sugar free, O'Hara says. "The chocolate flavoring is a little different," he says. Still, he concedes, "when you take out the sugar, it automatically makes it low carb. Someone on a low-carb diet could eat our sugar-free candy."

No longer a small niche

Low-carb dieters may seem like a small niche, but they really aren't, O'Hara says. Russell Stover learned from its experience with sugar-free products that the market is far broader than it suspected. While the company initially targeted advertising fairly narrowly in magazines for diabetes sufferers, it found more success when it moved to general-market magazines such as People, O'Hara says. Russell Stover is following a similar broad-based advertising plan for Low Carb, in addition to an extensive tie-in with the WebMD site.

Low- or No-Carb Food and Beverage Products

1999

47

2000

211

2001

352

2002

339

Source: Marketing Intelligence

According to Atkins Nutritionals, 12.7 percent of the U.S. adult population (or roughly 25.4 million people) either follows or claims to have tried the Atkins diet. Another 18.4 percent, or 36.7 million, say they plan to try Atkins. These figures don't include other "low-carb followers" who use Atkins "clone" diets or follow their own low-carb regiments, according to the company.

Russell Stover hasn't changed the fat content in its Low Carb products. While critics point out that the fat content in Russell Stover is often just as high as in regular versions, O'Hara says "people on low-carb diets just aren't concerned with it."

Compared to low-carb, it's been relatively slim pickings in recent years for fat-free and fat-reduced product offerings, Vierhile says. Through August, 12.7 percent of new food and beverage items made fat reduction claims, up slightly from 12.4 percent in 2002 but well below the 25 percent making the claim in the early 1990s. So far, the growth in low-carb products and low-sugar candy products has come without much participation from larger food companies, Vierhile observes. He believes their experiences with low-fat products may account for their reluctance.

"A lot of companies got burned on the fat trend," he says. "Brands like [PepsiCo's Frito-Lay] Wow! and companies like Procter & Gamble went out there with some big propositions and in some cases lost a lot of money. But I think another tier of companies may still jump on the [low-carb] bandwagon, and you're starting to see companies that have gotten hammered by this trend react."

Besides candy, the low-carb trend is making itself felt in beer, where "low carb" is putting a new spin on the light segment. Anheuser-Busch's Michelob Ultra, touted as low-carb, made its way to No. 7 in the premium segment in its first year, prompting Miller Brewing to reposition Miller Lite as "the original low-carb beer."

The Atkins diet and the company it spawned are also shaking up the diet products industry. The once high-flying Slim-Fast brand, whose rapid growth prompted Unilever to acquire the company in 2000, suddenly finds itself fighting a new contestant in the battle for supermarket supremacy.

Sales of Slim-Fast diet drinks and powder fell 13.5 percent to $356.4 million in the 52 weeks ended May 18, according to Information Resources Inc. Much of that decline can be traced to the 2001 Atkins entry into the category, which grew 85 percent to $25 million in the same period.

Cut Carbs, Not Fat

Atkins Nutritionals is assembling a broad line of low-carb products under the famous name.

However, Slim-Fast sales continue ahead of projections made when it was acquired, Howard Green, senior vice president for investor relations, told analysts in a May conference call.

He added that the impact from the Atkins diet and Atkins Nutritionals products only began to be felt significantly in late 2002 and early 2003 , primarily in the U.S. and United Kingdom.

Green said in July that Slim-Fast's recent entries in prepared soups, similar to Campbell Soup Co.'s Soup-to-Go, plus ice cream and low-carb snack bars, should get growth back on track in the second half of 2003. But in an interview published in the Dutch daily Het Financieele Dagblad in late August, Unilever marketing director Anthony Simon was quoted saying that neither he nor Unilever Co-Chairman Antony Burgmans would predict when Slim-Fast may start picking up again.

For its part, Atkins Nutritionals isn't making life easier for Unilever. It has launched entries of its own into ice cream, soups and snack bars on roughly the same timetable as the Unilever launches.

Suddenly, a diet that has fought for two decades for legitimacy is building plenty of clout with retailers and consumers.

 

Percentage of Candy Products That Are Sugar-Free

2000

6.6%

2001

8.2%

2002

11.7%

2003

15.0%

Source: Marketing Intelligence

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