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Carb-counting diets have claimed Krispy Kreme Doughnuts Inc., George Weston Ltd. and New World Pasta Co. as their latest casualties, and now some analysts say investors should shape their portfolios to reflect the popularity of regimens such as the Atkins and South Beach diets.

Speculation that the low-carbohydrate, high-protein craze gripping North America is only a fad has kept some investors on the sidelines, but food companies have already made major shifts in their businesses, and will likely continue to do so. And with the aging and influential baby boom generation growing increasingly health conscious, there is no guarantee that these diets will disappear.

"In my mind, that shift in investors' portfolios is not happening, but they ought to be more cognizant of it," said Daniel Peris, an analyst with Federated Investors Inc. in Pittsburgh. Earlier this month, shares of Krispy Kreme, the second-largest U.S. doughnut chain, tumbled 29 per cent in a single day after the company warned that profit this year will fall 10 per cent short of forecasts as a result of low carbohydrate diets.

During a conference call in the wake of the profit warning, Krispy Kreme chief executive officer Scott Livengood offered analysts and investors little to chew on.

"I hope it's a fad," he said.

Krispy Kreme shareholders hope it's a fad, too; the stock has shed half its value since August, 2003.

Low-carb diets like the Atkins -- named after its founder Dr. Robert Atkins -- or the South Beach diet preach lower intake of carbohydrate-rich foods such as bread, pasta, grains and fruits, while increasing the amount of protein-rich foods such as meat, cheese and eggs. The programs are causing havoc at major food and fast-food companies.

While many analysts argue that Krispy Kreme's problems are as much internal as external -- saying the stock is overvalued and the company's growth is slowing -- it is not alone in citing low-carb diets for its woes.

U.S.-based New World Pasta, one of the biggest pasta makers in the world, recently filed for bankruptcy protection. Canadian food processor and distributor George Weston, whose major holdings include supermarket giant Loblaw Cos. Ltd., blamed low-carb diets for slumping sales at its large bakery division.

"It was surprising," said Jason Hornett, an equity analyst at Calgary-based Bissett Investment Management. "I have never seen volumes of a staple like white bread fall like this."

Mr. Hornett added that currency conversions and higher wheat and energy costs also weighed on George Weston's results and ultimately the company remains "highly profitable." And the company is now selling a line of bread bearing the Atkins seal.

Shares of George Weston slipped steadily in the past year, losing 12 per cent of their value, and the stock is hovering within a dollar of its 52-week low. By all accounts, the diet phenomenon has grown into a multibillion-dollar industry. According to LowCarbiz, sales of low-carb products and services will skyrocket past $15-billion (U.S.) in 2004. The on-line industry newsletter also recently reported that low-carb products are being introduced at a rate of almost three a day.

Low-carb diets are not hurting all food producers. Sales of doughnuts and breads might be sliding, but protein-packed products such as meats are flourishing.

Commodity prices for major proteins are well above year-ago averages with beef, chicken and pork up 18.4, 24.7 and 31.7 per cent, respectively, brokerage house Harris Nesbitt Gerard said in a recent note.

Last month, Maple Leaf Foods Inc., Canada's largest pork and poultry processor, said first-quarter profit more than tripled. Operating profit at the company's meat products group jumped to $10-million (Canadian) from $4.4-million a year ago amid "strong sales increases in the company's poultry and packaged meats businesses." Net sales declined on a reduction in the number of hogs processed.

Maple Leaf Foods shares are up 22 per cent in the past 12 months.

The appetite for low-carb products shows no signs of slowing down yet. According to one estimate, 30 per cent of American adults, or nearly 60 million people, are on some form of a low-carb diet. In Canada, 3 in 10 adults are trying to lose weight, and many of them are toning down the carb intake.

Carol Culhane, president of Toronto-based International Food Focus Ltd., a company that conducts food analysis, thinks low-carb products have staying power, although given their relatively high cost, they will be purchased by just a small niche market of wealthier consumers.

She estimates that in 12 months time, between 5 and 6 per cent of North American adults will be on a true low-carb weight-reducing diet. "These low-carb diets are not about obesity, they are about affluent people who want to lose weight. The trend is here to stay," Mr. Culhane said.

Bissett analyst Mr. Hornet disagrees, calling the diet a fad. "The Atkins diet is a bit of a craze and I think we have seen the worst of it."

He said he would be surprised if anyone permanently altered their investment strategy because of it, but said that investors might want to steer clear of shares of grain-based businesses like pasta and bread, such as Canada Bread or George Weston. "The Atkins diet will subside as a big trend and at that point, the bread business looks more attractive and at that point, you go back into those stocks."

Gavin Graham, vice-president and director of investments with Guardian Group of Funds, a unit of Bank of Montreal, said that if Atkins-type diets do not fade, major producers of pasta foods and breads are in trouble.

"You would have to think this has more staying power than previous fads and that more sensible people are positioning themselves to ensure they have Atkins-approved stuff out there," he said. "It is one more additional uncertainty about what would have traditionally been regarded as defensive stocks that ought to be a safe haven in markets."

There is little consensus on how long investors ought to steer clear of carb-heavy stocks, or load up on low-carb and protein-rich food producers. Labatt Breweries of Canada expects consumers will snap up cases of its lighter beer as they head out for the Victoria Day long weekend.

"And we're only on the verge of the summer season," the company said.

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