Cashing in on the low-carb trend
Elsevier Food International Vol.7, No.3, September 2004 Vincent Hentzepeter
Enjoy fat and protein-rich foods and have your waistline shrunk. In a world that faces an obesity epidemic and where consumers are ordered to downsize their portions, a controlled carbohydrate lifestyle almost comes as a treat.
This explains why cutting out carbs has become so immensely popular over the last two years. The dietary method yields instant results without the feeling of starvation. Worldwide, over 50 million people are this summer believed to be following such a diet. In terms of scale and sale, low-carb is (still) primarily an American phenomenon. US supermarkets that ignore the low-carb trend jeopardise their market share. In the UK, a comparable situation exists after a sharp rise in the demand for carb-controlled products. Tesco was the first to take action. The greed for low-carb has prompted the food retailer to introduce specialist labelling for consumers wanting to check the level of carbohydrates in private label products. Meanwhile the rest of Europe is waiting for the arrival of ‘Atkins’. Last summer the first low-carb products hit the shelves.
Market potential
The consumer’s appetite for low-carbohydrate foods shows that the staying power may be greater than anticipated. According to AC Nielsen, at the end of June 48 million people in the US and 1.8 million people in the UK were living on some kind of low-carb diet.
Compared to the British situation the low-carb market on the continent is still in its infancy. A recent report of Reuters Business Insight titled ‘Obesity, Low-Carb Diets and the Atkins Revolution’ (May 2004) sheds a general light on the European low-carb market. Key countries are Denmark, Sweden, Norway, Finland, Germany and Switzerland whereas France, Italy and Spain are showing less potential for adoption of the low-carb trend. However, quantitative statistics about the market potential of low-carb foods in Europe are not yet available. A possible clue to measure the current European Atkins-potential lies in the sale of Atkins books. Given the huge sales of this book, it seems the hype is just about to start!
The sky is the limit
Low-carb products reflect high sales. These added value products can be sold at a higher price than mainstream articles. A price level of 20 to 25 per cent above the existing brands is no exception. For unique product propositions the sky seems to be the limit. Illustrative is a product like ‘Carb Not Beanit Butter’ from Dixie, sold at $6,99 a pot. For this pricey purchase the consumer gets a soy-based spread with the assurance that its contents contain less than one gram of carbs per two tablespoons. Marketing this kind of high-margin products is an attractive perspective for food producers. This explains the eagerness of some major food companies to cash in on the low-carb trend over the last two years with complete product ranges.
‘Net carbs’
Among the low-carb introductions that hit the headlines is H.J. Heinz low-carb version of its popular Ketchup tomato sauce. Replacing sugar by sucralose, an artificial sweetener made from chlorinated sucrose (table sugar), most carbs have been removed from this product classic. Kellogg’s and Danone also came with novelties. They respectively introduced protein-rich versions of breakfast cereals and yoghurt products with artificial sugars. Frito-Lay, a unit of PepsiCo Inc., introduced low-carb Doritos and low-carb Tostitos tortilla chips. Made with soy protein and fibre, a portion contains just six net carbohydrates. The term ‘Net carbs’ has recently popped up on many low-carb food labels and refers to the total number of carbohydrate grams - e.g. sugars, starches - minus non-impact carbs, i.e. those that do not raise blood sugar levels (such as fibre).
Atkins empire
Many more companies have introduced low-carb products than the shortlist above. Even more are willing to do so to stay ahead of competition, concludes the Reuters’ obesity-report. Currently 95 per cent of European and US food and drink manufacturers are convinced that they can no longer afford to ignore the impact of low-carb dieting on industry. From the companies questioned a quarter view the development of specific products for this market as a priority. These producers are therefore actively investing in the research and development of low-carb products.
For those who have decided to launch low-carb products immediately, it will become increasingly difficult to obtain a position in the market. Competition with multinationals that led the way will be tough, as well with specialist companies like Atkins Nutritional inc. The latter has dominated the category of low-carb packaged food for years. Analysts estimate that the corporate designation of late Robert Atkins’ empire generated $200 million in revenue last year, a huge piece of the low-carb pie.
Winners and losers
Being the first in the market is often a precondition for success and the low-carb market is no exception to this rule. Those companies that took a risk and gave product development a head start have seen their sales and profits rise. One of the winners is beer giant Anheuser –Busch. The brewer introduced Michelob Ultra in the US in September 2002. This light beer contains only 2.6 grams of carbs per 12 ounces, thanks to a special choice of grains and an extended mash process. The introduction led to a 7,9 per cent sales increase in the second quarter of 2003.
The opposite is true for those companies that left it too late to respond to the low-carb trend. Anglo-Dutch food giant Unilever, for instance, ignored the diet craze and paid a high price for this misstep. One of its biggest diet brands, Slim-Fast shakes and snacks, lost market share in favour of low-carb dieting. The relatively high carb-count in the meal replacement products turned the traditional dieters away from the brand.
Declining sales?
Low-carb products have shown to be a thriving business for the lucky ones that produce, market and sell these. However, one day the fad will be over. And this moment may come sooner than many companies and retailer have in their minds, believes Marion Nestle. Nestle is professor and directive of Public Health Initiatives in the department of Nutrition, Food Studies and Public Health at New York University and famous for her critical attitude towards the food industry. “I think the fad will end when people realise that the weight they take off on low carbohydrate diets is mostly water and doesn't stay off,” she states. “The early loss in low carbohydrates is water - many pounds of it. Some comes from glycogen breakdown, some from excretion of salts and ketones. Gradually over the first two weeks the amount of fat loss increases.”
In the US, the culmination point of the hype may already have been reached. For instance, General Mills’ (GIS) low-carb range, introduced this spring, faced slipping sales as soon as early summer. The company is therefore considering to remove this brand-new product range. But there are more stories like this. Nestle: “I've already seen the first articles on declining sales of low carbohydrate products, so this may come sooner than expected. At the moment, many low carbohydrate products are advertised in highly misleading ways that suggest that certain carbohydrate calories don't count. They do. This situation will also change when the FDA finally gets involved.“
Desperation
How does Nestle explain the fact that the Atkins-hype became so big?: “The word I use is ‘desperation’. Desperation of people who want to be able to eat as much as they want without gaining weight, and desperation of food companies trying to sell products in a highly mature, overproduced food marketplace. The public is the big loser. The hype has added to public confusion about diet and health and created further confusion by suggesting that low carbohydrate equals low calories. It doesn't. Fat is still the most concentrated source of calories and people still need to balance energy intake and expenditure if they are not to gain weight.”
Therefore the low-carb track will just like other ‘light hypes’ prove to be a road with a dead end. “Every food company is desperately - that word again - trying to grow its business in a marketplace that has too much food and too many products. The public cannot possibly eat all the food that is available. Companies that want to continue growing will need to develop product, marketing, and price strategies that address the problem which, simply put, is too many people eating more than is good for them. This situation, obviously, creates a dilemma that companies will have to solve if they are to remain in business.”
Is the low-carbohydrate diet for you as producer regarded as a threat or an opportunity?
| Opportunity | 62% |
| Threat | 11% |
| Neither | 27% |
| Yes, but we are not developing anymore in the near future | 5% |
| Yes, we are developing more for the near future | 21% |
| We are considering it | 22% |
| No | 52% |
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