The low-carbohydrate craze sweeping North America is hitting the bottom line of major food companies and many are now scrambling to change how they do business.Yesterday, Interstate Bakeries Corp., makers of Wonder bread and Hostess Twinkies, suspended dividend payments because of falling sales. The move came less than a week after the Kansas City company, the largest baker in the United States, announced that its loss in the third quarter would be larger than expected.
Also yesterday, Minneapolis-based International Multifoods Corp., whose brands include Pilllsbury and Robin Hood, reported a 66-per-cent drop in fourth-quarter profit to $2.7-million (U.S.), mainly because of the low-carb craze.
"The low-carb diet phenomenon and its significant impact on consumer behaviour in purchasing trends appears to be negatively impacting [the company's brands]" said John Byom, the company's chief financial officer. Mr. Byom added that 2003 was the weakest year for the food service industry in more than a decade.
Industry observers have said that the low-carb trend was popularized by the Atkins Diet, created by New York weight-loss specialist Dr. Robert Atkins in the 1970s. The popularity of the Atkins diet, which claims that controlling carbs can lead to significant weight loss, has grown rapidly, especially in the United States. Followers of the diet dine on bacon, steak and butter while generally avoiding most breads, pasta and candy.
It has spawned other low-carb diet plans -- such as the South Beach and Zone diets -- and even a line of clothing featuring T-shirts, baby bibs and thongs emblazoned with "Eat Meat Not Wheat." Reports suggest as many as 20 per cent of Americans are watching their carbohydrate intake.
An Ipsos-Reid study from last August showed that 61 per cent of Canadians currently limit their carb intake "to avoid gaining weight" while 6 per cent are on some form of low-carb or no-carb diet. "Food companies that think it's a fad are going to be in trouble. There's something very real going on here," said Glenys Babcock, a vice-president of public affairs at Ipsos-Reid in Toronto.
While there are few studies on the low-carb craze's precise financial impact, the publication LowCarbiz reports that it generated $15-billion in sales last year in the United States. This year, it predicts that figure will surge to between $25-billion and $30-billion.
"It remains to be seen whether low-carb diets are merely a fad or represent a genuine sustainable shift in eating habits," Alex Smith, an analyst at Pan European Equities, said in a report. "Either way, there are now some 40 million consumers in the U.S. on controlled carbohydrate diets."
Analysts say the move to low-carb eating initially caught the industry off guard and many are frantically adjusting to respond.
Several companies including IBC, Multifoods, General Mills Inc. and Unilever PLC, are rushing to produce low-carb products in an attempt to capitalize on the trend and stem losses in other areas.
IBC said yesterday it will be introducing several new lines of low-carb bread in response to falling white bread sales, the company's most profitable area. Analysts have given IBC's initial foray mixed results. The new line "is generating some sales, but not nearly enough to offset the weakness in the white bread lines," said Leonard Teitelbaum, an analyst at Merrill Lynch & Co. Inc.
Multifoods said yesterday it will be "introducing more health-conscious products in the food service channel in tune with consumer preferences." In December, Multifoods hired consulting firm Deloitte & Touche to help restructure and cut costs.
But earlier this month, J.M. Smucker Co. of Orrville, Ohio, which makes Jif peanut butter and Crisco shortening, said it would pay $25 a share for Multifoods.
General Mills has launched a cereal called Total Protein, which claims to be designed "For Your Low Carb Lifestyle." And, Unilever, the world's third-largest food maker, has introduced 32 products in its "carb options" line, which includes dressings, spreads, bars and beverages, each with a maximum of six grams of net carbs per serving.
In Canada, companies are also realizing that catering to the low-carb crowd has the potential to beef up bottom lines.
In February, McDonald's Restaurants of Canada Ltd. unveiled a handful of high-protein, low-carb menu items.
"This is something we know more people are looking for in their diets, as a result, we've customized our menu in this way to appeal to that," McDonald's Canada spokesman Ron Christianson said before the menu's launch.
Sandwich chain Subway, with 16,000 restaurants in the United States and 1,800 in Canada, began selling low-carb wraps last December that bear the full, licensed endorsement of the Atkins organization.
Last summer, Sleeman Breweries Ltd. was first to the party with its low-carb beer, Clear. A few months later, rivals Labatt Brewing Co. Ltd. and Molson Inc. served up similar products.
Other Canadian companies with products deemed "Atkins unfriendly" are also tweaking their operations, including bread makers. Canada Bread Co. Ltd.'s Dempsters division launched its Carb Wise bread in February, with half the carbs of its regular bread.