Originally created 06/02/04

Low-carb industry expects a shakeout



WASHINGTON -- Like the dieters who use their products, sellers of low-carb food seem set for some thinning.

Major food processors and retailers have joined the fray and their clout will drive out some smaller food brands and specialty retailers, industry experts say.

"Over the next six months, there will be a significant amount of fallout," said Matthew Wiant, chief marketing officer of Atkins Nutritionals of Ronkonkoma, N.Y. The company founded by Dr. Robert Atkins promotes a line of food products as well as the low-carbohydrate eating plan.

In the early days - Atkins' first book was published in 1972 - low-carb processed foods were the domain of small manufacturers. That changed as demand grew. Today, Unilever, General Mills, Sara Lee and other companies sell products with a low-carb label.

Their entry has changed the market, Wiant said. "Retailers would take anything you would give them six months ago," he said. "There was a shortage of product to meet the demand."

Now, corporate buyers can be more picky. "The retailers we are talking to are starting to say, 'We are not going to take everything from everybody,"' Wiant said.

The foods that do not get picked lose, and Wiant predicted that, of at least 2,000 products now, "I bet 500 won't be on the shelf by the end of the year."

Bigger companies can use their greater efficiencies to hold down prices, said Arne Bey, chairman and chief executive officer of Keto Foods, a Tinton Falls, N.J., company that specializes in low-carb products.

Keto has expanded from specialty stores into supermarkets and can compete with the big corporate brands on price, he said.

Taste is another potential breaking point.

A poll commissioned by Continental Foods' Krusteaz brand of baking mixes indicates taste could leave some products vulnerable. The survey said 43 percent of carb counters were unsatisfied with low-carb goods' taste. An additional 40 percent said the foods tasted good but not like their high-carb counterparts.

"Taste-good is overridingly the decision-maker for the consumer," said Ron Wise, vice president and chief operating officer of Continental Mills, based in the Seattle suburb of Tukwila, Wash. "If it doesn't taste good, ultimately it will fail."

Developing a low-carb processed food is not as easy as throwing out the flour and cooking what is left. Producers have to learn how to make something that tastes good while using fiber as a replacement.

The entry of big companies also affects where consumers buy foods. When low-carb was new, people who wanted the packaged foods went to health food stores and other smaller retailers. As the trend grew, some small stores specialized in low carbs.

These days, however, low-carb foods can be found everywhere from supermarkets to drug stores. Customers who used to go to the small independent retailers now go to the big stores with greater variety of products, where "they can buy their hamburger and toilet paper and low-carb products in the same place," said Laurie Kuntz, chief executive officer of LowCarbiz, a Denver-based trade publication.

Under the pressure of competition, some of the smaller independents that specialize in low-carb are closing, some are diversifying and others are "just hoping that the wave will switch back to the upswing," Kuntz said.

Successful small stores will have to provide something customers cannot get in big ones, Wiant said. Competing on price will not work, so the smaller stores have to focus on service, such as having knowledgeable staffers who can give customers advice on nutrition, he said.