Starch Sales Signal End of Low-Carb Fad

November 11, 2004
The Washington Times
by Marguerite Higgins

The low-carb craze has passed its prime, as companies report a pickup in the sales of starch-heavy food.

General Mills Inc., which makes cereals such as Cheerios, Lucky Charms, Wheaties and Trix, said sales climbed almost 3 percent in the third quarter, to $ 2.58 billion from $ 2.51 billion a year ago.

Although net income dropped 19 percent to $ 183 million in the three months ended Sept. 30, the Minneapolis company blamed higher commodity costs and restructuring instead of the “Atkins effect” as it had done earlier this year.

Fewer people are using the Atkins, South Beach and other low-carb diets these days, as they grow tired of the high-protein, high-fat diets – lots of meat, no starch – and health professionals question the long-term consequences of those food choices.

The percentage of Americans on low-carb diets has dropped by almost half to 4.6 percent at the end of September from 9 percent in January, its peak, said Harry Balzer, vice president of the NPD Group Inc., a Port Washington, N.Y., marketing-research company that tracks food-consumption behaviors.

“Well, the increased awareness for the low-carb diet fad appears to be waning,” said Mitchell Pinheiro, a food analyst for Philadelphia investment bank Janney Montgomery Scott LLC.

Tasty Baking Co., the maker of Tastykake products, swung to a profit in the third quarter after posting a loss a year earlier. The Philadelphia bakery company said new products, including a lower-carb line, and an increase in sales as the bakery expanded its routes helped it earn $ 200,000 (3 cents per share) compared with a loss of $ 1.4 million (18 cents) last year.

The low-carb product line introduced by American Italian Pasta Inc., the nation’s largest manufacturer of dry pasta, in February failed to keep up with sales levels after a promising debut, President and Chief Executive Tim Webster said yesterday.

Sales of reduced-carb products were nearly 50 percent less than expected despite the $ 33.9 million spent on marketing, Mr. Webster said yesterday.

Interest in low-carb diet products in general has slowed, with sales rising only 6.1 percent for the 13 weeks ended Sept. 25. Those sales were down from double and triple-digit gains in the previous six periods, according to ACNielsen LabelTrends.

“There have been a lot of new low-carb products that have hit the shelves, but I’m not sure that they will last long,” Mr. Pinheiro said.

But several manufacturers said they still are suffering from the low-carb craze.

American Italian Pasta Inc., which makes the Mueller’s and Ronco brands, said continued declines in pasta consumption and restructuring costs caused profits to tumble for its fourth quarter and fiscal year.

The Kansas City, Mo., company reported a loss for the quarter ended Oct. 1 of $ 12.1 million (67 cents) compared with net income of $ 12.8 million (71 cents) last year. For the fiscal year, earnings plummeted 93 percent to $ 2.98 million (17 cents) from $ 42.6 million ($ 2.39) in fiscal 2003.

Industrywide, dry pasta consumption fell by 4 percent to 5 percent for the 13 weeks ended Oct. 4, according to ACNielsen.

Interstate Bakeries, the Kansas City, Mo., maker of Twinkies and Wonder Bread, said the low-carb craze was a major factor when it filed for bankruptcy protection in September.

Krispy Kreme Doughnuts Inc., which is being investigated by the Securities and Exchange Commission over accounting issues, has attributed some of its sales slump to low-carb diets.

The company in its most recent quarter said the diets and higher gasoline prices contributed to the company’s reduced income in its most recent quarter.

The Winston-Salem, N.C., doughnut-store chain said profits for its second quarter ended Aug. 1 fell 56 percent to $ 5.76 million (9 cents per diluted share) from $ 13 million (21 cents) in the previous year.