Low-carb diets may walk, not run in 2005

Sales of some high-carb foods improved as carb-counting waned, but consumers are continuing to avoid some categories with weaker nutritional profiles, food-industry analyst David Adelman said.

In addition, some food categories benefited from the introduction of low-carb alternative products, he said, citing yogurt and frozen entrees as examples.

"However," Mr. Adelman said, "we remain skeptical that the low-carb versions of products in high-carb categories will meaningfully contribute to long-term category growth."

This was the fifth such survey conducted by Morgan Stanley. The firm's research has shown about 7.8% of U.S. adults were on a low-carb diet in the fourth quarter, about 9.3% during the third quarter, about 10% in the second quarter and 9.1% during the fourth quarter of 2003.

Mr. Pecoriello expects beverage companies such as PepsiCo Inc. and Anheuser-Busch Cos. to gain the most from the declining popularity of low-carb diets.

"Consumers who drop off a low-carb diet are more likely to go back to consuming beer, fruit juice, snack bars, pretzels and cereal than other categories such as carbonated soft drinks," he said.

However, other headwinds are slowing beer-category growth, and sales of Anheuser-Busch's Michelob Ultra are declining, as 40% of its volume came from low-carb dieters, he said.

Meanwhile, Mr. Adelman continues to have a cautious view of the U.S. packaged-food industry, because of continuing challenges such as competition from store brands and changing consumer preferences.

Write to Christina Cheddar Berk at christina.cheddar@dowjones.com¹