Lean times for low-carb sellers

By KAREN ROBINSON-JACOBS
THE DALLAS MORNING NEWS
DALLAS - After taking the nation's waistlines by storm, the low-carb
juggernaut appears to be loosening its beefy grip.

Product sales, mainly at smaller specialty retailers, have slumped.
Many low-carb dabblers have defected. And in a bit of dietary
Darwinism, some makers and retailers of products aimed at what seemed
like an endless sea of low-carbers now find themselves in lean times.

"Sales have waned," said Lora Ruffner, who co-owns Low Carb Luxury, a
Web site and magazine. "We've begun to see the small merchants
struggle. There is a shake out going on."

Theories abound on why the air leaked from the low-carb balloon.

Some say an influx of products from major manufacturers flooded what
had been a niche market. American consumers can be notoriously fickle.
Many low-carb products simply don't taste good.

Even long-time carbers find it hard to argue with the recent barrage
of downward barometers. The number of U.S. adults on a low-carb diet
fell to 10 percent in the three months ended June 30, off from a peak
of 12 percent in the first quarter of the year, according to Morgan
Stanley's equity research group.

Another study from market researcher NPD Group Inc. shows the
percentage of adults on a low-carb diet dropping from a peak of 9.1
percent in January and February to 6.2 percent by April. By early
July, the firm said, the percentage rose slightly to 7.3 percent.

Among the erstwhile adherents is Ronnie Ramirez, a North Dallas
resident who found the diet too inconvenient when he needed to grab
something from a fast-food drive-through lane.

"Most of them don't offer low-carb products," said Ramirez, 39, who
lost nearly 30 pounds while on a low-carb diet from January through
May.

Also, he said, feelings of deprivation started setting in.

"I wanted pasta," he said. "I wanted chicken fried steak now and again
- with gravy."

To be sure, millions of Americans remain enthralled with the results
of diets such as Atkins and South Beach. The Natural Marketing
Institute said in July that based on its research, "the low carb
movement is here to stay."

By one estimate, there are still at least 15 million "hard core" low
carbers. Millions more are trying to limit their carbohydrate intake,
but aren't fully committed to a special diet. Others are switching to
low-carb products to combat diabetes and other illnesses.

About $1.3 billion in low-carb branded products were sold in U.S.
supermarkets and mass merchandisers in the 52 weeks ended July 10,
research firm ACNielsen says. (The data doesn't include sales at
Wal-Mart.)

But even though that sales figure represents a dramatic 283 percent
increase over the prior year, the ACNielsen data also shows the growth
rate for "carb conscious" foods isn't climbing as quickly.

"It's passed peaked," said Dean Rotbart, executive editor of
LowCarBiz.com, a Web site that follows the industry. He started
noticing a fall-off in March.

"Much of the industry is already in the valley. Many, many of the
manufacturers I'm talking to are telling me that sales are less than
50 percent of what they were in January and February," he said.

"I have one manufacturer in just one line of packaged baking mixes,
and he has more than $1 million in unsold inventory," Rotbart said.

The big change, many smaller retailers and manufacturers said, is the
arrival into the marketplace of "the big boys."

An estimated 1,863 low-carb products have been introduced so far this
year, said Tom Vierhile, executive director of Marketing Intelligence
Service Ltd.'s Productscan Online.

Smaller firms make most of those products. But a rapidly increasing
portion of the portfolio comes from the likes of Dean Foods Co.,
PepsiCo's Frito-Lay unit and Unilever NV, which introduced products
such as low-carb ice cream and tortilla chips in the spring and early
summer.

Most of their goods went straight to the shelves of mainstream grocery
stores and mass merchandisers, bypassing specialty outlets that popped
up to support the low-carb movement.

"The time has come to close the doors in the face of the Wal-Marts,
Walgreens, local grocery stores and other large retail outlets that
have started carrying Low Carb Foods!" said a note to consumers at
lowcarbnexus.com, one of the first and largest online low-carb
retailers, which recently announced it was going out of business.

With the industry giants now in the game, some smaller players are
getting out - or trying to. One California-based low-carb merchant
tried to sell his store on E-Bay and got no takers, even after
lowering the price.

The Low Carb Store in Flower Mound, Texas, closed in June. One
low-carb manufacturer said at least two retailers that carry her
products plan to close soon.

"I don't want to be in every grocery store in the country if it's
going to mean that the little Ma and Pa stores that supported us in
the beginning aren't going to have any customers," said Julee Dennis,
who heads Gram's Gourmet in Pflugerville, Texas, and has seen sales of
her low-carb snacks fall from $180,000 in January to about $60,000
today.

Loyalty notwithstanding, she's trying to get her products into
Walgreens.

Dennis and others feel that some of the products being aimed at
low-carbers have carb-conscious names and marketing approaches, but
still have more carbohydrates than allowed in most strict low-carb
diets.

Other products tout having fewer net carbs - the total number of
carbohydrate grams in a product, minus the carb grams that cause
little or no increase in your blood-sugar level.

But the net carb figure is usually an estimate, rather than a figure
determined from scientific testing, said Jon Anfinsen, a principal of
DNA Dreamfields Co., which developed a low-carb pasta.

Actual net carb count can actually be six times higher than the level
stated on the packaging, based on tests his firm ran.

Consumers try some of the products under the mistaken impression they
have fewer carbs, several industry experts said. When those consumers
don't shed the pounds, they drop the diet.

Unlike claims about "low-fat," the U.S. Food and Drug Administration
doesn't regulate what's classifies as low-carb and doesn't require
testing for net carbs.

"This industry needs regulating badly," said Dennis, adding that if it
guidelines are eventually established, "a whole lot of companies are
going to have to reformulate, or re-label.

Some in the industry speculate that many of the major manufacturers,
especially those with carb-laden marquee products, would be just as
happy to see the low-carb movement die.

"They put the money into low-carb not to be market leaders, but to
defend their sugar-based carb franchise," Rotbart said.

(Published: August 29, 2004)