Food manufacturers who have stocked store shelves with low-carbohydrate versions of everything from spaghetti sauce to ice cream may find they are eating the costs themselves, as the low-carb fad peaks, analysts and industry observers said.

"It's typical that one rushes into the party just when the party is breaking up," said William Leach, food industry analyst at Neuberger Berman.

Sales of low-carb branded foods surged $815 million, to $1.13 billion, in the 12 months ended June 13, according to market research firm Information Resources Inc. That includes both new brands like Atkins and Carb Solutions and extensions of existing brands -- like Unilever's Carb Options versions of Skippy peanut butter and Lipton soups.

But the number of people in the United States who say they are on low-carb diets like Atkins peaked in January at 9 percent, in a survey conducted by the NPD Group. It has since leveled off at about 7 percent, Harry Balzer, a vice president at the market research firm, said.

"The awareness has probably peaked," Balzer said.

The industry could have wasted "hundreds of millions" of dollars in reformulating and repackaging products as low-carb, Ken Harris, a consultant who works with consumer products and retail companies for Cannondale Associates. "Just to bring a product to market is very costly."

SAME FATE AS LOW-FAT?

Leach compared the low-carb trend with the low-fat phase in the early 1990s.

Nabisco, now a unit of Kraft Inc., launched the SnackWells brand of low-fat cookies and crackers, which was initially a hit with customers. At the beginning, retailers could not get as many packages as they wanted.

"It reminds me of 10 years ago, you had this fat phobia," Leach said. "SnackWells, one year it was on allocation. The next year you couldn't give them away."

IRI also said that the low-carb craze could go the way of low-fat. Brands like SnackWells and WOW! chips -- made by PepsiCo Inc.'s Frito-Lay unit with the controversial fat substitute olestra -- grew for about five years and have declined ever since, IRI said in a report this month.

"However, consumers may sustain interest in selected naturally low-carb products as they did with naturally low-fat yogurts," the report said. Popular foods that are naturally low in carbohydrates include bacon and eggs.

Even though the trend of people on low-carb diets seems to have peaked, it could be a while before low-carb consumption wanes, NPD's Balzer said.

"I bet it's going to be a year or so before we see declines in low-carb consumption," Balzer said, adding that consumers are likely to try various low-carb products to see if they want to include them in their normal eating habits. "If we're nothing, we are a nation that's tries."

Some of the newer low-carb products could also be repackaged to take advantage of the next big trend in food, Harris said, noting that some consumers are starting to focus more specifically on sugar than on overall carbohydrates.

But the focus on obesity remains a hurdle for food companies, Leach said.

"It's hard to be a food company and really take obesity seriously because your job is to sell food," he said.

Reference Source 89
August 23, 2004

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