DOWN, NOT OUT

LUCIA MOSES

Andrew Gagner, grocery buyer for the Town & Country Markets' Poulsbo, Wash., store near Seattle, gets wary at the mention of "low carb," given its disappointing sales of late.

"They're down, period," he said. "We've cut back a third already since their height six months ago. We brought in low-carb Christmas candy, and we threw half of it away."

The rise and fall of low carb, which spawned a whopping 3,375 new product launches last year, according to ProductScan Online, Naples, N.Y., is playing out similarly at other retailers. While many weight-conscious Americans make good on New Year's resolutions to shed pounds at this time of year, retailers said they look for other diet strategies to drive sales.

The signs have been pointing this way for some time. Sales of carb-conscious foods and beverages grew just 6.1% in the third quarter of 2004, vs. the previous period, compared with growth of 105.5% in the first quarter, according to ACNielsen LabelTrends.

"I think this time last year, I was getting calls and e-mails pretty much on daily basis" for products' low-carb versions, recalled Leah McGrath, dietician for Ingles Markets, Black Mountain, N.C. Ingles responded by stocking a wide range of low-carb items, creating special low-carb sections in some larger stores. "We were putting it in as fast as we could," she said.

Today, low-carb products are a side dish rather than a main entree at Ingles and other supermarkets.

A year ago, the weekly ad at Rice Epicurean Markets, with five stores in Houston, would have been dominated by low-carb items. This year, they were sprinkled throughout the post-New Year's ad, along with low-fat, low-calorie and low-salt products. The deli cases still stock Atkins Nutritionals-prepared recipes that are identified as low carb, but Douglas Dick, vice president of food service, believes shoppers are paying less attention.

"They're going back to their carbs," he told SN.

Ron Bauder, vice president of The Valen Group, Cincinnati, a food and beverage consulting firm, said the prominent low-carb displays he used to see in natural foods sections and near the entrances are gone.

"It's still more, at least in Kroger layouts I've seen, in periphery aisles, more toward the fruits and vegetables," he said. "What I don't see are the endcaps that give it that extra emphasis. I'm not seeing anything at the front of the store."

Sales at Ready Flow, a point-of-sale company based in Rogers, Ark., with annual sales of $4 million to $5 million, offer another barometer of the trend. "When it really hit the crescendo [in March 2004], we got call after call" for low-carb shelf signs, national sales manager Gary Warden said. "Our sales went through the roof, and after that they dropped."

No one's ordering low-fat and low-sugar signs either, for that matter. Part of the reason is that once bought, the signs last many months. "I think a lot of them have them up. They just haven't replaced them," Warden said.

Retailers cited disappointing taste, high cost and confusion among reasons for low carb's decline. When speaking to groups, Ingles' McGrath asked for a show of hands by members who had tried low-carb products, and all arms rose. When she asked if they liked them, she said, "Virtually all hands would go down."

Many groused that the reformulated products cost more and contained more fat than their original versions, and were confounded by terms like net carbs and total carbs, she said. She also heard complaints about gastrointestinal problems caused by maltitol, the sugar alcohol in low-carb sweets.

"What I heard in many cases was, 'It wasn't worth the money,"' she said. "They're not willing to spend the extra money to be confused and disappointed."

Instead, consumers -- inundated with warnings about obesity, trans fats and chemically processed foods -- are increasingly turning to other health-improving ways. Manufacturers are expected to continue emphasizing products touted as functional, natural and organic, whole grain, high fiber, or free of sugar or trans fats.

At Town & Country Markets, Gagner said sales of products in a naturals store-within-a store are growing like crazy. He expects no letting up. Others report more shopper interest in trans fat-free products. At the single-store Paw Paw Shopping Center in Paw Paw, Mich., sales of gluten-free products are on the rise. In response to shopper demand, Paw Paw put in a four-foot section combining 65 products at the end of a specialty section. "I did not realize people out there were interested," said Marvin Imus, Paw Paw's president.

Warden reported that demand for 5-a-Day signs promoting produce consumption has been especially strong the past couple of years. More and more retailers want to put their own logo on them. "If there's anything other than low carb," said Warden, who just produced some for a public, retailer-based program in North Carolina, "it's been the 5-a-Day program."

The demise of low carb is music to the ears of people like Steve Warnert, director of sales and marketing for Amy's Kitchen in Petaluma, Calif., whose natural and organic pizzas and other vegetarian prepared foods stand to gain from the increased interest in organic eating. Warnert said in a November interview that he'd been talking to retailers, and that, "As category reviews are being done to determine the new assortment and new shelf allocations, low carb is not being included in those discussions."

Still, retailers and manufacturers are betting that while strict low-carb dieting may be passe, the trend will live on in the form of heightened carb awareness. Thus Kraft Foods announced the launch of a new line of products under the South Beach Diet, to be distributed nationally by spring. South Beach distinguishes itself from strict low-carb diets by emphasizing "right carbs" like whole grains, fruits and vegetables, as well as unsaturated fats.

Other manufacturers have moved in this direction. For example, Birds Eye Foods, Rochester, N.Y., in April extended its Voila! line of frozen bagged meals to reduced-carb varieties, and plans to add to the line this quarter.

Phil Singh, senior marketing manager for new products at Birds Eye, said the line doesn't sacrifice taste because it uses ingredients naturally low in carbs, and it can be adapted to regular diets by adding rice or pasta. Research for Birds Eye showed 36% of people polled last August were cutting carbs, nearly unchanged from 38% a year earlier.

"There are fewer people that are following a specific low-carb diet," Singh said. "But folks who are modifying or watching their carbs -- that hasn't changed."

Ingles' McGrath echoed that belief. "I still hear people taking about, 'I don't eat rice, I don't eat pasta, I don't eat bread,' but I don't hear people saying [they're] going to go out and buy low-carb products." Diabetics also are expected to drive sales of low-carb items. "So some of those products, the better ones, will stay around and will have people who will buy them."

At Paw Paw, low-carb items fill six of a 48-foot health and diet section. Low-carb sales there have tapered off, but the store still added a half-dozen new low-carb items during the holidays based on shoppers' requests. Imus believed the motivation was health, not weight loss, though. His target shoppers are aged 45 to 55 and increasingly looking to better their health through diet.

"The questions I'm getting are more from a diabetic than a diet stance," he said. "They've made lifestyle changes, and they're looking for regular products that can be substituted" for high-sugar versions.

Imus said he plans to reevaluate the section later in the year. He might even turn it into a diabetic section.

For right now, however, low-carb sales experienced an uptick after the new year, as overweight consumers again resolved to better manage their weight. A Morgan Stanley research report issued last week found that the number of low-carb dieters should rise in January by roughly 6.5 million people, although it would still be below last year's first-quarter level, when about 12% were active low-carb dieters. The study also noted that more than 20% of adults continue to monitor or restrict their carb intake.

Carbo Charged

U.S. sales of carb-conscious food and non-alcoholic

beverages* at food,drug and mass stores** have slacked off significantly since this time last year.

Sales period: Dollar Sales (millions) %; Change vs previous period

Q1 2003: $131.8; 41.0

Q2 2003: $146.5; 11.1

Q3 2003: $174.5; 19.2

Q4 2003: $214.2;22.7

Q1 2004: $440.1; 105.5

Q2 2004: $555.9; 26.3

Q3 2004: $589.9; 6.1

* Food with a carb-related claim on the label

** Excludes Wal-Mart

Source: ACNielsen LabelTrends

DIETING YO-YO

Percent of total adults currently on low-carb diet, defined as Atkins South Beach, High Protein and all other low-carb diets as reported by consumers (chart)

Source: The NPD Group/NPD Foodworld/The Dieting Monitor