The US Diet Market Outlook

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CONSUMER

The US Diet Market Outlook To 2008 Future profit opportunities for low carb and other fast growth diets

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Copyright © 2005 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Business Insights. Business Insights Ltd accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon. While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy.

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Table of Contents The US Diet Market Outlook To 2008 Future Profit Opportunities For Low Carb And Other Fast Growth Diets

Executive Summary

12

The US Diet Market Landscape

12

Drivers and Dynamics of The Diet Market

13

The US Diet Consumer

13

Competitive Analysis of Major Low Carb Brands

14

Medical & Regulatory Environment

14

The Future of Low Carb Dieting and Beyond

15

Low Carb Diet Growth Strategies

16

Chapter 1

The US Diet Market Landscape

18

Summary

18

Introduction

19

Key findings

19

Dieting in the United States Overview Ever more homogeneous dietary habits and lifestyles Consumer weight profile Consumer health profile Metabolic syndrome Diabetes The cyclical nature of dieting Popular diets by type Low carb diets Low fat diets Other diets Diet support groups Individual Dieting The weight-loss industry

20 20 20 21 22 22 22 25 25 26 27 27 28 29 29

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Low carb dieting The original low carb diet The Atkins Advantage Consumer segmentations Consumer dietary habits by type Dedicated low carb lifestylers Flexible low carb lifestylers Consumer perception of the low carb lifestyle

30 31 31 32 32 33 34 35

Conclusions

36

Chapter 2

Drivers and Dynamics of The Diet Market

38

Summary

38

Introduction

38

Key findings

39

Market size

39

Market segments

40 40 42 43 45 46 47

Snacks Soft Drinks Dairy Bakery Confectionery Prepared meals Strengths and weaknesses of the low carb trend The strengths… Manufacturer survival Prevalence of flexible dieters Scientific findings do not refute low carb benefits A new alternative …and the weaknesses Market saturation Potential lack of scientific support Decrease in efficacy and/or success stories

49 49 49 49 50 50 50 50 50 50

Conclusions

51

Chapter 3

The US Diet Consumer

54

Summary

54

Introduction

54

Key findings

55

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Consumer profile Segmentation by weight Motivated to get thin

55 55 56

Consumer survey Dieting population profile Consumer behavior Willpower diminishes throughout the day Only Low Carb Dieters interested in carbohydrate intake True Low Carb Dieters are few and far between Understanding consumers’ food choices Understanding consumers’ drink choices Consumer drivers Personal relationships drive consumers’ diet choices Taste and price drive the consumer Taste is a barrier for attracting new low carb consumers

57 57 59 59 60 62 62 64 66 66 67 69

Conclusions

69

Chapter 4

Competitive Analysis of Major Low Carb Brands

72

Summary

72

Introduction

72

Key findings

73

Manufacturer identification Low carb manufacturers Larger companies weigh in on the low carb trend Competition among low carb manufacturers Changing the landscape of the low carb market Major CPGs manufacturers entering the market: a lesson from organics Low carb new product development: diversifying products Low carb as a scapegoat

73 73 74 76 80

Case Study: Atkins Nutritionals A history of Atkins Nutritionals Atkins food and drink products Partnerships and the pyramid The future for Atkins

83 83 85 86 86

Case Study: Keto Foods Reformulating favorite foods Research and development are key business areas Future growth

87 88 89 89

Industry survey

90 90 91

The low carb market is an opportunity for growth Manufacturers’ forecasts for low carb diets

81 82 82

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Comparison to the low fat trend Future market drivers Endorsements and brand awareness Drivers contributing to product success

92 94 96 96

The low carb marketplace Price premiums are high Price premiums as a barrier to market growth Low carb ingredients and product formulation Marketing a low carb product

97 97 99 99 101

Conclusions

101

Chapter 5

Medical & Regulatory Environment

104

Summary

104

Introduction

104

Key findings

105

The science behind dieting The low fat and low carb theories The low fat theory The low carb theory The low fat and low carb trends The low fat trend The low carb trend The glycemic index Low carbohydrate studies Short-term studies Long term studies

105 106 106 107 108 108 109 109 110 111 113

Government The Food Guide Pyramid Atkins and the Food Pyramid The FDA and nutrition labels Low Carb Claims and Nutrition Labels Regulating organics

114 114 115 115 118 119

Conclusions

120

Chapter 6

The Future of Low Carb Dieting and Beyond

122

Summary

122

Introduction

122

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Key findings Rapid growth of low carb bakery, snacks and prepared meals The rapid growth of the bakery category Guilt-free snacking Low carb frozen meals will appeal to busy consumers Increased market consolidation Distribution and shelf space Market consolidation The importance of “Buy-in” of Healthful Eaters and healthcare referrals Internalizing the low carb message Medical factors The next “big thing” - five years away Industry and consumer components necessary for significant trends Increased media coverage of low carb weight loss High levels of controversy A charismatic spokesman Development of ingredients and improved product taste A mature food and beverage industry The “coolness” factor The promise of a quick fix Scientific logic that makes sense to the layman

Chapter 7

123 123 124 125 126 126 127 127 128 128 129 129 130 131 132 134 135 136 137 139 140

Low Carb Diet Growth Strategies 142

Summary

142

Introduction

142

Key findings Improve the taste, competitiveness and appeal Product formulation and taste Reducing price premiums Target evening eating occasions Brand building and preparation for strategic alliances and acquisitions Small, niche low carb companies Large CPG manufacturers Education through marketing partnerships Create wider appeal through marketing campaigns Partner with healthcare professionals Develop community outreach programs

143 143 143 144 145 145 145 146 146 146 147 148

Conclusions

149

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List of Figures Figure 3.1: Figure 3.2: Figure 3.3: Figure 3.4: Figure 3.5: Figure 4.6: Figure 4.7: Figure 4.8: Figure 4.9: Figure 4.10: Figure 4.11: Figure 4.12: Figure 4.13: Figure 4.14: Figure 5.15: Figure 5.16: Figure 6.17: Figure 6.18: Figure 6.19: Figure 6.20:

US population by BMI category, by gender, %, 2002-2007 56 Ranked meal occasion by ease of diet adherence, by consumer group, % (where 1 = easiest and 6 = hardest) 59 Consumption changes made when attempting weight loss/maintenance, by consumer group, % respondents who answered “always” 61 Consumption changes when attempting to lose/maintain weight, by food category, % respondents 64 Consumption changes when attempting to lose/maintain weight, by drinks category, % respondents 65 Low carb beer and malternative entrants, 2004 77 “Mid-carb” soda entrants, 2004 78 Reduced-carb orange juices, by brand, 2004 79 Atkins food product examples, 2004 84 Atkins-certified co-venture examples, 2004 86 Keto food product examples, 2004 88 Industry perception of low carb trend, by importance, % respondents 91 Manufacturer opinion of low fat and low carb consumers and purchases now and in five years, % respondents 94 Industry perceptions of low carb consumer drivers, by importance, % respondents 95 Glycemic index certification symbol 110 Proposed changes to nutrition labels, 2004 118 Market size, by category, $bn, 2003-2008 125 USDA Food Guide Pyramid, 2003 132 Atkins Food Guide Pyramid, 2004 134 Consumer groups and product attributes, by degrees of “coolness” 138

List of Tables Table 1.1: Table 1.2: Table 1.3: Table 1.4: Table 1.5: Table 1.6: Table 2.7: Table 2.8: Table 2.9: Table 2.10: Table 2.11: Table 2.12: Table 2.13:

Prevalence of overweight and obesity, 2002-2007 Prevalence of diabetes, by type, (million), 2003-2009 Risk factors associated with being overweight and obese Breakdown of the weight-loss industry, by category Consumer segmentation, by dieting/lifestyle type Consumer perception of the low carb diet, by “agree completely” and “agree somewhat,” by consumer group (% respondents) U.S. low carb food and beverage market value, by category, ($m), 1998-2008 Growth of low carb snacks market, ($m), 1998-2008 Low carb product introductions, snacks category Growth of low carb soft drinks market, ($m), 1998-2008 Growth of low carb dairy market, ($m), 1998-2008 Low carb product introductions, dairy category Growth of low carb bakery market, ($m), 1998-2008

21 24 24 30 33 35 40 40 42 42 43 44 45

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Table 2.14: Table 2.15: Table 2.16: Table 2.17: Table 2.18: Table 3.19: Table 3.20: Table 3.21: Table 3.22: Table 3.23: Table 3.24: Table 3.25: Table 4.26: Table 4.27: Table 4.28: Table 4.29: Table 4.30: Table 4.31: Table 4.32: Table 4.33: Table 5.34: Table 5.35: Table 5.36:

Low carb product introductions, bakery category 46 Growth of low carb confectionery market, ($m), 1998-2008 46 Low carb product introductions, confectionery category 47 Growth of low carb prepared meals market, ($m), 1998-2008 47 Low carb product introductions, prepared meals category 48 Main reason for dieting, by gender, % respondents 57 Consumer groups, by age, % respondents 58 Consumption changes made when attempting weight loss/maintenance, by consumer group, % respondents who answered “always” 60 Consumption changes when attempting to lose/maintain weight, by food category, % respondents 63 Consumption changes when attempting to lose/maintain weight, by drinks category, % respondents 65 Ranked influencing factors in dieting choice, by consumer group, (where 1 = strongest and 8 = weakest) 66 Ranked purchasing priorities, by consumer group (where 1 = strongest and 10 = weakest) 68 Low carb companies and respective product categories, 2003 74 Multinational companies and respective new low carb product introductions, through June 2004 75 New product introductions, #, 1999-2003 82 Manufacturer opinion of low fat and low carb consumers and purchases now and in five years, % respondents 93 Industry perceptions of low carb consumer drivers, by importance, % respondents 95 Ranking of manufacturer vs. consumer preferences 97 Low carb price premium examples, 2004 98 Sweetener substitute glossary 100 Average reduction in weight and heart disease, and dropout rate, by specific diet, % 112 Pounds lost, by time on diet, low carb vs. conventional dieting, 2003 113 FDA guidelines 116

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Executive Summary

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Executive Summary The US Diet Market Landscape


Obesity continues to rise in the United States, and greater numbers of individuals are developing health complications associated with the condition, creating an evergrowing market for these services and products;




44% of the population is actively trying to lose weight. 32% can be classified as Healthy Eaters, while the remainder are not particularly concerned with their eating habits;




34% of the adult population in the U.S is currently overweight and 31% obese;




Changes in the way people live and eat have had significant impacts on the waistline of the average American. These include, a change in diet with the development of processed and convenience food, three meals-a-day has given way to constant grazing and the changes in living patterns have tended to make people’s lives less active;




It is expected that the total number of obese and overweight individuals to climb to 204 million in 2007;




Conventional Dieters, Healthful Eaters and Non Dieters may not be well informed about the low carb lifestyle, and may believe it is simply a short-term eating regimen, rather than a necessary part of a wider lifestyle change;




The recent trend toward low carb dieting has led increasing numbers of consumers to diets such as Atkins, The South Beach Diet, and Sugar Busters, and 15% of consumers are now following some form of a low carb diet.

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Drivers and Dynamics of The Diet Market


The United States low carb market is expected to see rapid growth through 2008. Though all categories of the low carb market are expected to develop substantially, the areas expected to see the greatest developments are the Bakery and Prepared Meals segments;




The low carb market’s greatest strengths include its appeal to flexible dieters, who constitute a larger proportion of the consumer population than dedicated dieters and that it was initially driven by consumer demand and is now being sustained by manufacturer interests.




Its weaknesses include the lack of long-term scientific studies to determine future effects of the low carb diet on health;




The popularity of salty snacks among consumers and the high level of development already present in the sector make this a robust area for low carb innovation.

The US Diet Consumer


By and large consumers are typically driven by two factors: price and taste;




The most difficult time of day for consumers to adhere to a diet is in the evening and late evening;




Two-thirds of all adult Americans are overweight or obese, and the number is expected to climb in the coming years. Also, the percentage of overweight children is increasing. This suggests the weight loss industry will continue to grow;




According to the consumer survey, only 37% of men are actively trying to lose weight, compared to 51% of women. This suggests that women, who are also more interested in weight-loss for cosmetic reasons than to maintain good health, are a stronger market for weight-loss products;

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United States consumers’ dietary behaviors are strongly affected by their personal relationships with medical professionals, family and friends, as well as by previous personal dieting success;




Across all lifestyles and eating regimens, it seems that all consumer groups ranked doctor’s advice and previous personal dieting success as the most important factors in choosing a diet.

Competitive Analysis of Major Low Carb Brands


The low carb market, once populated solely by small, niche companies, has changed drastically over the last two years;




Low carb NPD increased substantially between 1999 and 2003, growing from 0.4% of total new products introduced to 3.4% of new product roll-outs;




As larger corporations begin to introduce low carb products, smaller niche companies are finding it increasingly difficult to fight for shelf space at supermarkets, drugstores and other retail outlets, therefore many of the smaller low carb manufacturers are likely to be squeezed out of the market;




Thirty-one percent of manufacturers foresee the low carb trend lasting six to ten years, and 67% view the low carb trend as an opportunity to gain a larger audience;




95% of manufacturers believe that price will dictate future consumer interest in low carb products. Flavor and taste, the variety of options available to consumers, and the way in which those products are marketed will have the strongest effects on the longevity of the low carb trend.

Medical & Regulatory Environment


The Obesity Working Group (OWG), is currently considering changes to nutrition labels to reflect changing attitudes about serving size, calories per serving and is 14

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beginning to explore the possibility of adding carbohydrate count to nutrition labels as well;


Glycemic index testing is being developed to determine the effects of different foods on blood sugar;




Only about four percent of the public eats a diet that conforms to the recommendations of the USDA and the Food Guide Pyramid;




The FDA is working to better define serving sizes and encourage consumers to eat according to caloric content, rather fat or carbohydrate content;




Nutritionists speculate that, in the very long term, dieters adhering to a strict low carb diet such as Atkins will find their cholesterol and triglyceride levels skyrocket, and their insulin levels increase;




Plans to change the Food Pyramid Guidelines and nutritional labels might moderately impact the marketplace, but the potential regulation of low carb claims on food packaging will have the most effect on the trend’s future.

The Future of Low Carb Dieting and Beyond


The low carb market will continue to grow over the next five years, and categories such as bakery, snacks and prepared meals, will emerge as areas of sustained growth and consumer interest;




The rapid growth will lead to an industry shakeout and consolidation, as smaller low carb companies find it increasingly difficult to compete against major CPG manufacturers currently entering the marketplace;




The bakery category is expected to have the most dramatic growth rate of any food or drink category over the next five years, and will drive the low carb marketplace;




The low carb frozen meals section will gain in popularity, probably cannibalizing the low fat frozen meals market to some extent; 15

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Acquisition of smaller low carb manufacturers will be an immediate benefit for the larger companies, providing instant entry into the low carb market with minimal time needed to formulate products or build consumer loyalty and brand awareness;




The largest consumer groups sustaining the low carb market will be Healthful Eaters and type 2 diabetics;




Often a trend’s popularity is based on consumers’ perception that it is a “cool” thing to try.

Low Carb Diet Growth Strategies


Develop ingredient substitutes to improve the taste of low carb products, while maintaining competitive prices and late night snacking appeal;




Ensure a thorough understanding of the low carb landscape in order to build a strong brand and become well-positioned to make strategic alliances and acquisitions;




Educate consumers by emphasizing the healthfulness of a low carb lifestyle through marketing campaigns, partnerships with healthcare professionals, and community outreach programs;




Recent accelerated growth has changed the low carb market from a niche market worth $185 million in 1998 into a robust, multibillion-dollar industry. It is expected to increase from its value of $3.6 billion in 2003 to $14.9 billion in 2008.

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Chapter 1

The US Diet Market Landscape

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Chapter 1

The US Diet Market Landscape

Summary


Obesity continues to rise in the United States, and greater numbers of individuals are developing health complications associated with the condition, creating an ever-growing market for these services and products;




44% of the population is actively trying to lose weight. 32% can be classified as Healthy Eaters, while the remainder are not particularly concerned with their eating habits;




34% of the adult population in the U.S is currently overweight and 31% obese;




Changes in the way people live and eat have had significant impacts on the waistline of the average American. These include, a change in diet with the development of processed and convenience food, three meals-a-day has given way to constant grazing and the changes in living patterns have tended to make people’s lives less active;




It is expected that the total number of obese and overweight individuals to climb to 204 million in 2007;




Conventional Dieters, Healthful Eaters and Non Dieters may not be well informed about the low carb lifestyle, and may believe it is simply a short-term eating regimen, rather than a necessary part of a wider lifestyle change;




The recent trend toward low carb dieting has led increasing numbers of consumers to diets such as Atkins, The South Beach Diet, and Sugar Busters, and 15% of consumers are now following some form of a low carb diet.

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Introduction The weight loss industry is a robust and diverse market within the United States, comprising dozens of eating regimens, dieting support groups, supplements, food products, meal replacements, books, and videos. As the prevalence of overweight and obesity continue to rise in the United States, greater numbers of individuals are developing health complications associated with those conditions, creating an evergrowing market for these services and products. 44% of the population is actively trying to lose weight. Of the remaining 56%, 32% can be classified as Healthy Eaters, while the remainder are not particularly concerned with their eating habits.

This chapter will present a profile of the United States population in terms of a weight and health profile, as well as outline the popular diets by type and describe population segmentations by dietary/lifestyle goals.

Key findings


According to the National Institutes of Health, 34% of the adult population is currently overweight and 31% obese;




Approximately 6.2% of the United States population has diabetes, accounting for 17.5 million individuals. An additional eight million Americans are estimated to suffer from diabetes and remain undiagnosed;




Seventy percent of diabetes risk can be attributed to excess weight;




Ninety percent of people who successfully lose weight gain it all back within a year. Dieters often cycle through several weight-loss attempts in a single year, each one lasting anywhere from four weeks to six months;

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At present, 15% of consumers surveyed for this report are considered low carb dieters who follow an Atkins-style diet to some degree. A total of 24% of respondents are monitoring their carbohydrate intake.

Dieting in the United States Overview Ever more homogeneous dietary habits and lifestyles Multiple changes in the way people live and eat have had significant impacts on the waistline of the average American. Most of these changes have happened only gradually over the past 20 to 30 years. Their effects have been equally gradual, and are now becoming more visible, in part because the first generations to grow up wholly experiencing many of these changes have become a significant portion of the overall population.

Diets have changed with the development of processed and convenience food. In the 1950’s, the average United States daily calorie intake was 2,000 calories. Today it is nearer to 3,000, while the calorific output has fallen. While processed and convenience food usually contain more calories than an equivalent ‘fresh’ meal, the ease with which it can be prepared or purchased ready-to-eat has been the key driver towards altering people’s diets. The traditional three meals-a-day has given way to constant grazing.

The changes in living patterns have tended to make the majority of people’s lives more sedentary and less active. Sedentary work plays a role in a large number of people’s lives, as does technology, combining to reduce the amount of energy expended by the average person during the average workday. Outside the work place, cars are used for ever-shorter journeys, thus reducing the amount of walking per capita. Home entertainment technology has also developed significantly and encourages people to spend more of their leisure hours in sedentary activities. This trend is most noticeable

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in the younger generations, who have grown up with widespread access to home entertainment devices.

Consumer weight profile The United States has seen dramatic growth in the incidence of overweight and obesity over the past few years. 113 million adults – or 40% of the adult population – are currently overweight, while 24% are obese. It is expected that the total number of obese and overweight individuals to climb to 204 million in 2007.

Table 1.1: Prevalence of overweight and obesity, 2002-2007 BMI Classification

Units

2002

2007

Overweight

No. people (million) % of population No. people (million) % of population

113 40% 67 24%

129 43% 75 25%

No. people (million) % of population

180 64%

204 68%

Obese

Total Overweight/Obese

Business Insights Ltd

Source: Business Insights

Women are more likely to be obese than men, with 33% of the adult female population having a BMI of greater than 25, compared to 28% of men.i However, while women are more likely than men to be obese, they are also more likely to be of a healthy weight. Women are likely to diet for cosmetic reasons rather than health reasons, with two-thirds of females surveyed for this report stating they diet for cosmetic reasons, compared to one-quarter of males.

Today’s children also constitute a growing subset of the future overweight and obese population – leading to a generation of future overweight and obese adults. The National Institutes of Health reports that 10.8 million (15%) children aged 6 to 11 and

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For more information about Body Mass Index, refer to the Appendix

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10.9 million (16%) of children aged 12 to 18 are overweight or obese. With their bodies taxed at a much younger age by the health risks as associated with being overweight or obese, they are also more prone to illnesses such as type 2 diabetes and heart disease.

Consumer health profile Metabolic syndrome Nutritionists define metabolic syndrome as a concatenation of illnesses caused by obesity. Also known as “Syndrome X,” symptoms of metabolic syndrome include hypertension, hardening of the veins and arteries, high cholesterol levels, high blood sugar, and insulin resistance ranging from pre-diabetes to full-blown type 2 diabetes.

According to nutritionists interviewed for this report, metabolic syndrome is caused solely by obesity, and can be reversed by weight loss of 5%-10% of body weight, coupled with exercise. In addition, several nutritionists recommend controlling and lowering blood sugar by limiting carbohydrate and sugar intake. Dr. Carla Wolper, Clinical Coordinator of the Obesity Research Center at St. Luke's/Roosevelt Hospital and Cornell Medical College, notes that sufferers of metabolic syndrome are urged to lower carbohydrate and sugar intake from 55% of daily calories to 45% or less. In addition, sufferers are advised to distribute carbohydrates evenly throughout the day in order to keep blood sugar levels even.

Diabetes The National Institute of Diabetes, Digestive and Kidney Disease (NIDDK) statistics state that approximately 6.2% of the United States population has diabetes, accounting for 17.5 million individuals. It is estimated that an additional eight million Americans suffer from the disease but are undiagnosed.

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Type 1 diabetes Type 1 diabetes, previously known as insulin-dependent diabetes mellitus, occurs most often in children or young adults and accounts for 5-10% of the diagnosed diabetes patient population. Type 1 is thought to be the result of an autoimmune attack on the body’s pancreas, which ultimately leads to the daily injections of insulin required by all type 1 patients.

Type 2 diabetes Type 2 diabetes, previously called non-insulin-dependent diabetes mellitus or adultonset diabetes, accounts for 90-95% of diagnosed diabetes cases worldwide, and typically develops in middle-aged adults. Unlike type 1 patients, type 2 patients are able to produce insulin. However, type 2 diabetes, which is linked to incidence of overweight and obesity, is caused when a body develops a resistance to its own insulin. Indeed, more than two-thirds of type 2 diabetics have a BMI of greater than 27, and almost half of all type 2 diabetics are classified as obese.

Increased calorie consumption and the higher frequency of meals chronically activate the body’s insulin response. The end result of this chronic activation is to decrease sensitivity of the body’s cells to the effects of insulin, which in turn leads to higher insulin production to compensate and achieve a normal blood glucose level. This results in an inability to produce enough insulin to maintain a normal blood glucose level.

According to the United States Census Bureau, Hispanics, with the fastest-growing incidence of type 2 diabetes, are projected to comprise 20% of the United States Population by 2010. According to the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK), within the last five years the United States has seen a 37% increase in type 2 diagnoses among Caucasians and a 10% increase among AfricanAmericans. Today, 11% of African-Americans, 10% of Hispanics, and 6% of Caucasians suffer from the disease.

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The NIDDK estimates that about 70% of diabetes risk can be attributed to excess weight. Given that the growing waistlines in the United States show no signs of slimming, it is estimated that by 2009, 19.6 million Americans will suffer from type 2 diabetes, up from 16.2 million in 2003.

Table 1.2: Prevalence of diabetes, by type, (million), 2003-2009 2003

2005

2007

2009

CAGR 2003-2009

Type 1 diabetes Type 2 diabetes

0.8 16.2

17.3

0.9 18.6

0.9 20

2.0% 3.6%

Overall diabetes % of population

17.0 6.1%

18.1 6.5%

19.5 7.0%

20.9 7.5%

3.5% Business Insights Ltdd

Source: Business Insights

Other risks of overweight and obesity Overweight and obesity increase health risks, incurring healthcare costs of well over $117 billion each year in the United States, according to the Surgeon General. Costs are passed on to companies and consumers via increased insurance premiums and lost workdays. In the coming years, that cost is expected to increase in conjunction with the country’s collective waistline.

Table 1.3: Risk factors associated with being overweight and obese Being overweight or obese is a known risk factor for:

Obesity is associated with:

· Diabetes · Heart disease · Stroke · Hypertension · Gallbladder disease · Osteoarthritis (degeneration of cartilage and bone of joints) · Sleep apnea and other breathing problems · Some forms of cancer (uterine, breast, colorectal kidney, and gallbladder)

· High blood cholesterol · Complications of pregnancy · Menstrual irregularities · Increased surgical risk · Psychological disorders such as depression · Stress incontinence (urine leakage caused by weak pelvic-floor muscles) · Hirsutism (presence of excess body and facial hair) Business Insights Ltd

Source: Business Insights

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The cyclical nature of dieting According to Yale University Medical School professor Dr. Lisa Sanders, nine out of ten people who successfully lose weight gain it all back within a year. Nutritionists surveyed also agreed that very few dieters are able to lose weight and keep it off for any substantial period of time. Dieters often cycle through several weight-loss attempts in a single year, each one lasting anywhere from four weeks to six months. Morgan Stanley reports a 70% attrition rate among dieters within the first three months of any new eating regimen. However, that percentage drops to 45% among dieters following a low carbohydrate, high fat plan.

Dieting attempts are affected by seasonal factors as well. According to the Calorie Control Council, weight gain during wintertime holidays, coupled with New Year’s resolutions, lead to higher numbers of dieters during that time. In addition, warmer weather in May and June leads to increases in dieters, as men and women attempt to fit into shorts, skirts and bathing suits.

Weight-loss programs such as eDiets and Weight Watchers have come to depend on “recycling” their customers. There are currently 1.5 million members of Weight Watchers, over 44,000 classes and 15,400 instructors, and 75% of members are repeat customers who have tried the program at least once before. The repetitive nature of dieting provides a never-ending audience for weight loss products. Each successive dieting attempt is an opportunity for manufacturers to instill brand loyalty in their customers; indeed, the consumer survey shows that consumers depend on previous personal dieting success when choosing a new diet.

Popular diets by type Nutritionists agree that lifestyle change is the only real route to long-term or permanent weight loss. In addition to increasing activity levels and altering unhealthy habits, eating patterns is an area where change is usually recommended as a path to reaching a target weight. A wide variety of diets have come in and out of favor over the last 100 years, including:

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Low carb diets;




Low fat diets;




Other diets;




Diet support groups;




Individual dieting.

Low carb diets
The Atkins Diet – Developed in 1963 and initiated in 1972 with the release of the book “Dr. Atkins’ Diet Revolution,” and again thrust into the public eye with the 2003 release of the updated “Dr. Atkins New Diet Revolution,” the high-protein diet severely restricts carbohydrate intake and is comprised of four stages: Induction, Ongoing Weight Loss, Pre-Maintenance, and Lifetime Maintenance. More than a short-term, quick fix diet, the “controlled carb lifestyle” Atkins diet allows for very little fruit or vegetables in addition to the much-hyped reduction in “obvious carbs” such as bread and pasta. It begins with the stringent two-week Induction phase, calling for the intake fewer than 20 grams of carbohydrates per day. Each successive phase allows for the gradual inclusion of complex carbohydrates, up to 130 grams per day – the minimum amount recommended by most nutritionists. Proponents of the diet claim that rapid weight loss occurs because, in the absence of carbohydrates, the body is forced to burn fat instead.


The South Beach Diet – Similar in nature to the Atkins Diet, the South Beach diet advocates low carbohydrate intake and higher protein consumption in a three-phase diet. Phase I, a two week period known as “Banishing Your Cravings,” is very similar to the Induction Phase of the Atkins diet, but allows for caffeinated beverages such as coffee or tea. Phase II, “Reintroducing Carbs,” and Phase III, “A Diet For Life” are the next steps. The diet, which first came into public notice in April 2003 with the release of the book “The South Beach Diet,” allows for the consumption of more fruit and higher levels of carbohydrates. The South Beach

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Diet also advocates a long-term lifestyle change as the only answer for lifetime weight management.


Sugar Busters – Advocating high fiber vegetables and whole grains, the Sugar Busters diet also encourages reducing fat intake through consumption of lean meats and fat-free dairy products, as well as limiting the consumption of “incorrect” carbohydrates. The diet was fist popularized in 1998 with the book, “Sugar Busters! Cut Sugar to Trim Fat.” Proponents of the diet posit that incorrect carbohydrates, such as bleached flours, pastas, cakes and cookies, cause the body to produce too much insulin and thus convert excess sugar to fat. While there is no phased meal plan, the diet strictly limits refined sugar intake.

Low fat diets
Product-driven low fat – The low fat craze that took consumers by storm in the 1990’s, was a product-driven, flexible version of a strict low fat lifestyle. It was characterized by lower-fat versions of regular food products, and is best symbolized by SnackWells cookies, an extremely popular low fat cookie with sales of over $600 million in 1996.


The Pritikin Diet – Created by Dr. Nathan Pritikin, a heart disease sufferer, the Pritikin Diet was first published as a diet and fitness program for other sufferers of heart disease in 1979. The low fat, high carbohydrate diet plan advocates diligent calorie counting and ranks foods according to their calorie content per pound. Pritikin-approved meals generally contain less than 400 calories per pound of food.




The Ornish Diet – Developed by Dr. Dean Ornish, the extremely low fat lifestyle was designed for heart attack survivors wishing to prevent future heart problems. Also known as the Prevention Diet, it advises that less than 10% of daily caloric intake should come from fat, far less than the FDA’s recommended 30%. The diet claims to lead to lower cholesterol levels and greater cardiovascular health.

Other diets
Dr. Phil’s Diet – In his 2004 book, The Ultimate Weight Solution: 7 Keys To Weight Loss Freedom, Dr. Phil advocates weight loss through behavioral 27

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modification in order to counteract “emotional eating.” His seven keys, ranging from “The Right Thinking,” to “The Healing Feelings,” and “A Circle of Support,” also suggest exercise and mastery over impulse bingeing. Critics of the diet say that it is no different from a typical dietary regimen prescribing lower caloric intake and increased exercise. A popular television personality closely associated with Oprah Winfrey, Dr. Phil has used his afternoon show to promote his diet.


The Zone Diet – Much more carbohydrate-rich than the Atkins and South Beach diets, the Zone diet advocates eating a mix of carbohydrates, fats and proteins in a 40%-30%-30% ratio. Developed by Dr. Barry Sears and popularized by celebrities such as Jennifer Aniston and Oprah Winfrey, it purports that eating foods with this ratio of nutrients puts the dieters in the “zone” of weight loss.

Diet support groups
Weight Watchers – Weight Watchers started as a support group for dieters 1961. The weekly group get-togethers allow dieters to share stories and motivate each other to lose weight. In 1997 Weight Watchers introduced its proprietary POINTS™ system, assigning a point value to each food and calculating the maximum amount of points allotted daily for each member, based on individual body weight and activity level. There are approximately 1.5 million Weight Watchers members in the United States who pay membership fees and weekly meeting dues. Initial registration fees range from $15 to $30, and members pay a fee for each class they attend. The company saw sales of $974 million and revenues of $944 million in 2003. In early 2004, the company announced a partnership with Applebee’s restaurant chain to include Weight Watchers-approved meals on the menu. In the fall of 2004, all 1,500 Applebee’s restaurants will offer Weight Watchers entrees.


Nutri-System – With sales of $28.7 million and revenues of $22.6 million in 2003, Nutri-System is a dieting program and support group. The 28-day program provides paying members access to counselors, online exercise plans, online newsletters, and daily weight loss advice. Nutri-System’s diet is based on the glycemic index, a measurement tool that determines the effect of each food on blood sugar. The

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program also offers its own proprietary meal plan, and can be followed online or through face-to-face contact with counselors and nutritionists.


eDiets – A Web site that has garnered 1.3 million paid members since its founding in 1997, eDiets currently has 406,000 active members and serves as a portal for many different types of diets. eDiets has formed strategic partnerships with SlimFast, the Zone, Nutri-System, and Dr. Phil. In May 2004, eDiets renewed its partnership with Atkins Nutritionals, and will continue to provide its products and diet regimen. Members can log on to the Web site and receive guidance from nutritionists, or use chat rooms to connect with other dieters, buy products, and track their individual progress. The company’s revenues were $38.2 million in 2003, and sales topped $42 million.

Individual Dieting
Do-It-Yourself Dieting – By far the most popular type of dieting, DIY dieters account for 71% of the total dieting population according to Citigroup analysts. They are not members of any dieting support groups, ascribe to no particular plan and do not consult nutritionists, doctors, or support groups. Often, DIY dieters follow their own versions of popular diets, bending the “rules,” and employing their own eating and exercise regimens.

The weight-loss industry The weight-loss industry as a whole contains a number of distinct categories, each being a separate avenue for consumer spend. The range of weight-loss tools available to dieters varies widely. For the purposes of this report, only the market for low carb food products will be sized.

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Table 1.4: Breakdown of the weight-loss industry, by category Category

Description

Example

Supplements

Pills and powders used to enhance nutrition; can be purchased at supermarkets, drug stores, and retail outlets.

Nature’s Science Vitamins One-A-Day Multivitamin

Food Products

Food products range from energy bars to low fat, low calorie or low carb versions of regular food products.––

SmartOnes Frozen meals and entrees

Meal Replacements

Including shakes, meal replacements Slim-Fast Shakes are meant to be consumed instead of MetRX Protein Plus a regular meal. shake mixes

powdered Books

Dieting books made up about 9% of all book sales in 2003, or $2.1 billion.

Dr. Atkin's New Diet Revolution The South Beach Diet

Programs

Organized plans that dieters can follow, usually within a group or with a counselor/leader.

Weight Watchers Nutri-System Ediets

Videos

Exercise or fitness tapes to be followed at home.

Gym In a Box Tae-Bo Business Insights Ltd

Source: Business Insights

Low carb dieting There is a great deal of confusion among dieters and consumers as to what exactly, a “low carb diet” refers to, and how they might follow one. Dozens of diets exist that recommend a reduction in carbohydrate intake, ranging from Atkins to South Beach to Sugar Busters and the Zone. The media often uses all of these names interchangeably with the term “low carb diet.” Consumers follow a variety of low carb diets, ranging from very strict, Atkins-style diets to more flexible eating regimens incorporating low carb products wherever convenient. Described below is firstly the Atkins diet that “started it all,” and secondly, a definition of consumer segmentations, which are used throughout the report.

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The original low carb diet “After years of promoting low fat/high-sugar products, many large food companies are seeing their products rejected by millions of people. These same companies are now sprinting to capture lost profits by placing low carb on many of their existing or slightly modified products—often disregarding whether they still have excessive levels of refined carbs or contain hydrogenated oils, neither of which are recommended when you are trying to control carbs for health.” – Atkins Nutritionals, Inc., June 2004

The Atkins Advantage The Atkins Diet got its start in 1972 when Dr. Robert Atkins published his diet book, Dr. Atkins’ Diet Revolution. The corporation behind it, Atkins Nutritionals, Inc. began as Complementary Formulations in 1989, distributing vitamin products via mail order. In 1997, the company rolled out its first food bar, called the Atkins Advantage.

Founded and owned by Dr. Atkins, the company was purchased by a partnership between Goldman Sachs Capital Partners and Parthenon in October 2003. Within the past two years, Atkins Nutritionals has grown rapidly, adding cereals, breads, mixes and desserts to its list of products. The company had annual sales of $148 million in 2003, a growth of 225% from 2002, according to Goldman Sachs Capital Partners.

As a corporate entity whose livelihood is tied into the popularity of low carb dieting, Atkins Nutritionals has a major stake in the outcome of the current low carb trend. The company has already launched an advertising campaign with the slogan “Atkins: Low carb help without the low carb hype,” warning low carb dieters and consumers about the dangers of other low carb products, claiming that theirs are the only ones with the Atkins guarantee.

In addition, Atkins Nutritionals has sought to cultivate the image of the Atkins diet as a scientifically sound eating regimen. Its 2004 advertising campaign includes the publicizing of its own food pyramid, pre-empting the USDA’s as-yet-unreleased Food Guide Pyramid.

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Indeed, as larger corporations such as General Mills and Unilever have introduced low carb products into the marketplace, Atkins Nutritionals has stepped up its advertising and sought to increase its brand-recognition and market penetration through partnerships with eDiets, Subway Restaurants, and Sara Lee Foods.

Consumer segmentations In May 2004, an online consumer survey of 1,005 nationally representative respondents was conducted. From the results four mutually exclusive groups were created:


Low Carb Lifestylers;




Conventional Dieters;




Healthful Eaters;




Non-Dieters.

Consumer dietary habits by type Fifteen percent of consumers surveyed are considered Low Carb Lifestylers who follow an Atkins-style diet either strictly or to some degree, while a total of 24% of respondents claim that they are monitoring their carbohydrate intake. Ninety-five percent of Low Carb Liestylers are considered “flexible”, while the remaining 5% are “dedicated”. Table 1.5 shows the dieting population profile.

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Table 1.5: Consumer segmentation, by dieting/lifestyle type Dieting/lifestyle type

Definition

% of survey respondents

Low Carb Lifestylers

Actively trying to lose weight and consciously following a low carb regimen. These dieters make a concerted effort to limit carb intake and eat higher levels of protein with the goal of losing weight.

15%

Conventional Dieters

On an explicit diet, but not following a low carb-eating regimen as defined above. These dieters represent the proportion of respondents who noted that they are actively trying to lose weight, but are not seriously monitoring carbohydrate intake to do so. The respondents in this category are mutually exclusive from respondents in other categories.

29%

Healthful Eaters

Not on an explicit diet, but making an effort to eat relatively healthy foods and achieve a balanced diet. This is a lifestyle group that incorporates healthy eating into everyday choices, all year round, and represents the proportion or respondents who noted that they are actively trying to eat healthfully, but not those trying to lose weight.

17%

Non-Dieters

Not on an explicit diet, and not making a real effort to eat healthfully or live a healthy lifestyle. This is the largest consumer group and is the least likely to be interested in or affected by dieting trends.

39%

Business Insights Ltd

Source: Business Insights

Dedicated low carb lifestylers Comprising 5% of all Low Carb Lifestylers, dedicated Low Carb Lifestylers follow the strictest form of the low carb lifestyle – the Atkins Diet. This diet consists of four phases: Induction, Ongoing Weight Loss, Pre-Maintenance, and Lifetime Maintenance. Most of the publicity surrounding the diet stems from the two-week Induction phase, during which carbohydrate consumption is limited to 20 grams per day and almost all fruits and vegetables are forbidden, but meats and other proteins can be eaten in abundance. Eventually, however, Atkins dieters slowly begin to reintroduce

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carbohydrates into their diets. The later phases of the Atkins diet allow for the consumption of vegetables and complex carbohydrates.

The Atkins Diet is a lifestyle change, and dieters who follow it strictly tend not to consumer above 130 grams of carbohydrates – the minimum daily amount recommended by the FDA and most nutritionists – even after reaching their goal weight and moving into the Lifetime Maintenance phase.

Some subsets of dedicated low carb dieters include sufferers of diabetes and metabolic syndrome. Since their recommended daily intake also includes foods low in fat, they are less likely to follow an Atkins-style diet heavy in meats and cheeses, and rather rely on low carbohydrate, low sugar alternatives to regular food products.

However, media coverage of the Atkins Diet has centered on the Induction Phase and the ability to eat high levels of saturated fats, meats and cheeses, and has led some dieters to believe that a low carb diet is a license to eat any high-fat food they wish. This has led to a great deal of controversy within the media, as large quantities of highfat foods have long been seen as extremely unhealthy. The government and medical communities advocate a low fat, high carbohydrate diet, which the low carb diet refutes.

Flexible low carb lifestylers Flexible Low Carb Lifestylers are those that consume lower levels of carbohydrates, but follow a much more flexible plan than their Atkins-following counterparts. These dieters purchase more packaged foods and make attempts to consume lower carbs when it is convenient. However, they do not only purchase low carb products, and are still somewhat concerned with the amount of fat per serving in each food product. They comprise 95% of all Low Carb Lifestylers.

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Consumer perception of the low carb lifestyle Educating consumers Perceptions of the low carb lifestyle, it effectiveness, and its healthfulness differ between each dieting and lifestyle type. As shown in Table 1.6, Low Carb Lifestylers were most likely of any consumer group to perceive the low carb diet as a healthy diet – not surprising, since this is their chosen method of diet. This is likely due to the fact that consumers following a low carb lifestyle are the best informed about its characteristics through personal experience, rather than through news stories and the media.

Table 1.6: Consumer perception of the low carb diet, by “agree completely” and “agree somewhat,” by consumer group (% respondents) Total Increased exercise is a more effective weight loss method The low carb diet works well The low carb diet is a healthy diet

Low Carb Conventional Healthful Lifestylers Dieters Eaters

Non Dieters

67% 45%

57% 83%

74% 43%

72% 35%

62% 37%

39%

79%

37%

33%

27%

Business Insights Ltd

Source: Business Insights

While 37% of Conventional Dieters, 33% of Healthful Eaters and 27% of Non Dieters agreed “completely” or “somewhat” that the low carb diet is a healthy eating regimen, fully 79% of Low Carb Lifestylers responded as such. Low Carb Lifestylers were also far more likely to believe the diet works well. However, Low Carb Lifestylers were the least likely to note that increased exercise is a more effective way to lose weight.

The results suggest that Conventional Dieters, Healthful Eaters and Non Dieters may not be well informed about the low carb lifestyle, and may believe it is simply a shortterm eating regimen, rather than a necessary part of a wider lifestyle change. In fact, 41% of Healthful Eaters disagreed somewhat or completely with the statement that a low carb diet is healthy, suggesting that they have internalized the media publicity surrounding the high-fat Induction Phase of Atkins, rather than understanding the lifestyle in its entirety. 35

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As such, educating these and other consumers as to the benefits of combining a proper low carb diet with exercise and other healthful practices may help them to better understand the low carb lifestyle.

Conclusions This chapter has qualified the categories within the weight loss industry, the dieting options available to consumers, and the health risks associated with overweight and obesity. The increasing prevalence of people with a BMI of greater than 25 has led to increased nationwide healthcare costs and growing numbers of type 2 diabetics and sufferers of metabolic syndrome. In a robust weight loss industry that offers dozens of types of diets and slimming products, consumers trying to lose or maintain weight have a wealth of choices. The recent trend toward low carb dieting has led increasing numbers of consumers to diets such as Atkins, The South Beach Diet, and Sugar Busters, and the report’s consumer survey revealed that 15% of consumers are now following some form of a low carb diet.

As media attention and consumer interest increases, Consumer Packaged Goods (CPG) manufacturers are introducing a wider array of low carb foods and drinks into the marketplace. The next chapter will address key categories within the low carb food and beverage industry and focus on ways in which the marketplace will grow over the next five years.

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Chapter 2

Drivers and Dynamics of The Diet Market

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Chapter 2

Drivers and Dynamics of The Diet Market

Summary


The United States low carb market is expected to see rapid growth through 2008. Though all categories of the low carb market are expected to develop substantially, the areas expected to see the greatest developments are the Bakery and Prepared Meals segments;




The low carb market’s greatest strengths include its appeal to flexible dieters, who constitute a larger proportion of the consumer population than dedicated dieters and that it was initially driven by consumer demand and is now being sustained by manufacturer interests.




Its weaknesses include the lack of long-term scientific studies to determine future effects of the low carb diet on health;




The popularity of salty snacks among consumers and the high level of development already present in the sector make this a robust area for low carb innovation.

Introduction The United States low carb market is expected to see rapid growth through 2008. Though all categories of the low carb market are expected to develop substantially, the areas expected to see the greatest developments are the Bakery and Prepared Meals segments. Each low carb category has its own major and burgeoning players, and large CPG manufacturers are beginning to make their presence known through large-scale product launches and brand introductions. Indeed, though the low carb market was originally driven by consumer demand, manufacturer interests are now sustaining it.

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This chapter addresses the relative strengths, weaknesses and future growth of the low carb trend, detailing ways for manufacturers to determine how to leverage them to build the greatest market share within the rapidly growing industry.

Key findings


The low carb market is expected to grow from $3.6 billion in 2003 to $14.9 billion in 2008, at a CAGR of 33%;




Low carb snacks, worth $498 million in 2003, is expected to be a strong category for growth, particularly given that other dietetic snacks have traditionally proven successful;




Valued at $545 million in 2003, the low carb bakery category is expected to grow the most rapidly, reaching $3.2 billion in 2008;




The low carb market’s greatest strengths include its appeal to flexible dieters, who constitute a larger proportion of the consumer population than dedicated dieters;




A lack of long-term scientific studies makes it impossible to determine the future effects of the low carb diet on health.

Market size The United States low carb market is expected to maintain its rapid growth, with a projected five-year compound annual growth rate (CAGR) of 33% between 2003 and 2008. It is estimated the size of the low carb food and beverage market in 2003 to be $3.6 billion, with market growth expected to reach $14.9 billion by 2008. Among the fastest areas for growth are the Bakery and Prepared Meals categories.

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Table 2.7: U.S. low carb food and beverage market value, by category, ($m), 1998-2008

Category Snacks Soft Drinks Dairy Bakery Confectionery Prepared Meals Other Overall

1998

2003

2008

CAGR 1998-2003

CAGR 2003-2008

42 5 13 12 44 7 63

498 282 250 545 652 194 1,170

1,505 1,283 922 3,237 2,319 860 4,779

64% 120% 81% 116% 72% 97% 79%

25% 35% 30% 43% 29% 35% 33%

185

3,591

14,904

81%

33%

* Note: Numbers may not add due to rounding Business Insights Ltd

Source: Business Insights

Market segments Within the low carb industry, there are several food categories of note, with major and burgeoning players in each. The section below details each category, highlighting their developments within the low carb industry.

Snacks Table 2.8: Growth of low carb snacks market, ($m), 1998-2008

Category

1998

2003

2008

Snacks % of overall low carb market

42 23%

498 14%

1,505 10%

CAGR 1998-2003

CAGR 2003-2008

64%

25%

Business Insights Ltdd

Source: Business Insights

Including chips, nuts, popcorn, pretzels, and other savory foods, Morgan Stanley notes that snacks comprised 12% of total low carb NPD in 2003. The United States snack foods category was worth $16.6 billion that year. Traditionally, manufacturers have sought to develop dietetic alternatives to products that consumers consider indulgences, and snacks constitute a strong area for product innovation. Indeed, according to 40

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Product Alert, snacks comprised 6.2% of NPD in 2003. The popularity of salty snacks among consumers and the high level of development already present in the sector make this a robust area for low carb innovation.

An early entrant into the low carb trend, the snacks category commanded a large share of the industry in 1998. As other categories increasingly enter into the low carb marketplace, the percentage of snacks as an overall share of the low carb market will continue to decline, reaching 10% of the overall market in 2008. However, this is due to a higher overall share of products across all categories in the low carb marketplace, the low carb snacks industry will continue to see double-digit growth over the next five years.

Soy is developing into a strong low carb area within the snacks category, witnessing the greatest amount of new product growth. As manufacturers remove corn, wheat, and other high carbohydrate ingredients from their snack products, they are using soy protein as a replacement.

The snack category’s largest manufacturers include PepsiCo’s Frito-Lay, which had global sales of $9.1 billion in 2003; General Mills, with snack sales of $1.4 billion; and Kellogg, with snack sales totaling $1.3 billion. Frito-Lay introduced low carb versions of its Doritos and Tostitos snack chips in January 2004, utilizing soy protein instead of starch. Doritos Edge and Tostitos Edge contain 60% fewer carbs than their regular counterparts. The brands were rolled out in May 2004. Not all previous dietetic snacks have met with success. Frito-Lay’s WOW chips, launched in 1998, garnered $330 million in sales at their peak. Over the last few years, sales have decreased to $100 million, and Frito-Lay plans to reintroduce the potato chips as Lays Light later this year.

Other low carb snack producers include Atkins Nutritionals, sold under its Crunchers brand, Hain-Celestial’s Carb Fit PureSnax low carb soy nuts, cheese puffs, and tortilla

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chips pretzels and pretzels, Keto tortilla chips and nachos, and Carb Sense soy tortilla chips and pretzels.

Table 2.9: Low carb product introductions, snacks category Company Atkins Nutritionals Frito-Lay Unilever Bestfoods Trader Joe's Carbsense Foods

Product

Date of introduction

Atkins Flatbread Crackers Doritos Edge 6g Net Carbs Tortilla Chips Carb Options Snack Bar Joe's Lows Reduced Carb Snack Twists Carbsense Soy Pretzels

February 2004 February 2004 February 2004 January 2004 September 2003 Business Insights Ltdd

Source: Productscan

Soft Drinks Table 2.10: Growth of low carb soft drinks market, ($m), 1998-2008

Category Soft Drinks % of overall low carb market

1998

2003

2008

5 3%

282 8%

1,283 9%

CAGR 1998-2003 120%

CAGR 2003-2008 35%

Business Insights Ltdd

Source: Business Insight

It is estimated the low carb soft drink category to be worth $136 million for 2003. The category comprised of bottled water, carbonates, juices, iced teas, functional drinks and coffees, encompassed 4% of low carb NPD in 2003, according to Morgan Stanley. Traditionally a strong market for dietetic products, the soft drink category has recently seen a great deal of low carb growth.

As a relatively late entrant into the low carb marketplace, the soft drinks category has only begun developing low carb products within the past two years. As a result, its share of the low carb industry remained very low until 2003. Continued product development will mean that the soft drinks category market share will increase as a percentage of the overall low carb market.

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Coca-Cola and Pepsi, which accounted for $60 billion and $42 billion in beverage sales, respectively, in 2003, have introduced a range of low carb beverages – most recently, Coca-Cola C2, introduced in June 2004, and Pepsi Edge, released in July 2004. In addition, Tropicana Light ‘N Healthy entered the soft drink market as a low carb juice in January 2004, and had sales of $8 million during its first 16 weeks on the market. Minute Maid Premium Light, another low carb juice, was introduced in May 2004. Other major soft drink manufacturers include Cadbury-Schweppes, which introduced low carb Snapple drinks in November 2003, and Unilever, who released low carb iced tea mixes under its Carb Options line.

Smaller low carb manufacturers also offer drink products, though in powdered and mix form rather than as ready-to-drink beverages. Atkins offers low carb drink mixes as part of its Morning Start brand, in Apple, Fruit Punch, Orange, and Peach Tea. Baja Bob’s, a non-alcoholic drink mix company, also offers a range of mixes, along with Keto Foods.

Dairy Table 2.11: Growth of low carb dairy market, ($m), 1998-2008

Category Dairy % of overall low carb market

1998

2003

2008

13 7%

250 7%

922 6%

CAGR 1998-2003

CAGR 2003-2008

81%

30%

Business Insights Ltdd

Source: Business Insights

The $56 billion dairy industry accounted for 6% of low carb NPD in 2003 according to Morgan Stanley, and comprises $250 million of the low carb industry. While the dairy market will remain the same proportion of the low carb marketplace over the next five years, it will continue to see double-digit growth during that time period.

Comprised of milks, yogurts, yogurt drinks, ice cream, cheese, chilled desserts, and spreadable fats, much of this category’s product growth is due to low carb ice creams, yogurts and soymilks. Most high-fat low dairy foods such as cheese, butter, cream, and

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full-fat milk are deemed acceptable for low carb dieters to consume as part of their daily intake, and, as a result, these areas will not see much growth for low carb product reformulations.

General Mills, whose dairy sales were $3.2 billion in 2003, introduced Yoplait Ultra in May 2004. It also developed 8th Continent Soymilk Light in February 2004 as a low carb alternative to its regular 8th Continent Soymilk. Hain Celestial also produces low carb soymilks under its Carb Fit line. Dannon launched its own low carb yogurt line, Light ‘N Fit Carb Control, in Spring 2004, and announced a new low carb frozen yogurt line with YOCream in June 2004.

Other dairy giants, such as Unilever, which had $5.7 billion in 2003 sales, have introduced low carb premium ice creams. Ben & Jerry’s, a division of Unilever, introduced Carb Karma ice cream in early 2004, in Chocolate, Vanilla Swiss Almond, and Brownie Chocolate Chip Cookie Dough.

Smaller low carb manufacturers have also made inroads with low carb ice creams. Carbolite, Atkins and Keto also frozen desserts, and Blue Bunny ice cream, owned by Wells Dairy, introduced its own line of low carb ice creams in June 2004. Known as Carb Freedom, Blue Bunny’s low carb brand is sold in Vanilla Bean, Butter Pecan, Chocolate Almond, Double Strawberry, and Mint Chip, as well as in bars.

Table 2.12: Low carb product introductions, dairy category Company Unilever Bestfoods Atkins Nutritionals Marigold Foods Atkins Nutritionals Good Humor-Breyers Ice Cream

Product Carb Options Skippy Peanut Spread Atkins Endulge Premium Ice Cream Cups Kemps Carb Promise Premium Low-Carb Ice Cream Atkins Carb Counters Sunny Butter Breyers CarbSmart Ice Cream

Date of introduction April 2004 March 2004 March 2004 February 2004 November 2003 Business Insights Ltdd

Source: Productscan

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Bakery Table 2.13: Growth of low carb bakery market, ($m), 1998-2008

Category Bakery % of overall low carb market

1998

2003

2008

12 6%

545 15%

3,237 22%

CAGR 1998-2003

CAGR 2003-2008

116%

43%

Business Insights Ltdd

Source: Business Insights

Perhaps the hardest hit by the low carb trend, the bakery market, comprised of breads, rolls, baked goods, pastries, cookies, crackers, and cereals, has had to develop new low carb products in order to retain market share. According to Morgan Stanley, bakery goods accounted for 15% of 2003 low carb NPD. As the bakery category increases its introduction of low carb products, its share as a percentage of the low carb marketplace will continue to grow, comprising 22% of the total low carb industry in 2008.

The $64 billion category includes high carb staple goods such as breads, which consumers buy regularly. High carb bakery products such as cereals, normally eaten at breakfast, are also a key area for development. In addition, cookies, cakes and pastries constitute an area where low carb, options could prove popular among consumers, who are reluctant to give up indulgences when dieting and might prefer dietetic versions for guilt-free snacking.

With $3.2 billion in bakery sales, Sara Lee Foods released its first low carb product, Delightful Bakery bread, in December 2003. Its 2004 projected sales for the one product are $75 million. General Mills and Kellogg have introduced low carb versions of popular cereals such as Total and Smart Start, respectively, in an effort to appeal to consumers’ healthful side as well as their desire for low carb products. In addition, Hain-Celestial’s CarbFit line markets an instant hot cereal, similar to oatmeal.

While smaller companies such as Atkins are also producing bakery goods, the price premiums are much higher. Its cereal line, sold under the Morning Start brand, includes

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cereal bars in Apple Crisp, Blueberry Muffin, Chocolate Chip Crisp, and Creamy Cinnamon Bun, along with Atkins Morning Start Ready-to-Eat muffins. Its cereal line was recently discontinued. Ready-to-Eat breads, rolls and bagels are also available under its Bakery brand. Many other small manufacturers, such as Keto Foods, Carbolite, Carb Sense, and Better Bakery, sell low carb breads and rolls in mixes, an area which is not included in the bakery category.

Table 2.14: Low carb product introductions, bakery category Company General Mills Arnold Foods Unilever Bestfoods Atkins Nutritionals

Product

Date of introduction

General Mills Total Protein Cereal Arnold Carb Counting Multi Grain Bread Carb Options Ragu Pasta Sauce Atkins Celebration Cake

March 2004 March 2004 February 2004 January 2004 Business Insights Ltdd

Source: Productscan

Confectionery Table 2.15: Growth of low carb confectionery market, ($m), 1998-2008

Category

1998

2003

2008

Confectionery % of overall low carb market

44 23%

652 18%

2,319 16%

CAGR 1998-2003

CAGR 2003-2008

72%

29%

Business Insights Ltdd

Source: Business Insights

As the most highly valued segment of the low carb market, the confectionery category made up 29% of total low carb NPD in 2003 according to Morgan Stanley. Like snacks, confectionery products such as chocolate, gum, sugar treats, and cereal bars are seen as an indulgence by consumers, and have thus been a strong field for dietetic products that consumers can eat and not feel guilty. The $24 billion industry has seen the introduction of low carb chocolate treats from manufacturers such as Hershey’s, Russell Stover, Atkins, Carbolite and Pure De-Lite.

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Russell Stover’s 16 low carbohydrate products are an addition to its well-known line of sugar-free confectionery products aimed at the diabetic market. In addition, it is also marketing a low carb “All Occasion Basket,” a variation on its non-dietetic chocolate assortments. The company, which has $456 million in sales in 2003, has long had a reputation as a manufacturer of diabetic-friendly treats, and is expanding on that status with its low carb line.

Hershey’s, another confectionery company with a strong foothold in the diabetic candy market, introduced three different varieties under its 1gram line. The company plans to introduce other low carb candies later this summer.

One of Atkins’ best-selling brands is its Endulge line, a group of low carb chocolate bars and sweets. In addition, Carbolite and Pure De-Lite offer their own lines of chocolate candies.

Table 2.16: Low carb product introductions, confectionery category Company Carb Solutions Russell Stover Candies Russell Stover Candies Ketogenics Carbolite

Product

Date of introduction

Carb Solutions Candy Bar Russell Stover Low Carb Assorted Chocolates Whitman's Net Carb Assorted Chocolates Sampler Box Ketogenics Low Carb Chocolate Bar Carbolite Original Chocolate Bar

February 2004 January 2004 January 2004 November 2003 April 2003 Business Insights Ltdd

Source: Productscan

Prepared meals Table 2.17: Growth of low carb prepared meals market, ($m), 1998-2008

Category Prepared Meals % of overall low carb market

1998

2003

2008

7 4%

194 5%

860 6%

CAGR 1998-2003

CAGR 2003-2008

97%

35%

Business Insights Ltdd

Source: Business Insights

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Including frozen dinners and entrees, the prepared meals category has only recently begun developing low carb alternatives. Long a very strong market for low fat and other dietetic products, this area will probably comprise the strongest future growth for the low carb industry. As consumers work longer hours and have less time to prepare meals, they will undoubtedly be looking for an easy way to eat low carb foods, and be sure they are not miscounting carbohydrate content.

The low carb prepared meals market was worth $194 million in 2003, comprising 4% of total 2003 low carb NPD according to Morgan Stanley. However, major players in the frozen food category, such as Nestle, Unilever, Heinz and ConAgra, have begun introducing low carb products, which will spur market growth.

Nestle’s frozen foods line, sold under the brand Stouffer’s Lean Cuisine, recently released 11 low carb frozen entrees, while its Lean Pockets line introduced one new low carb product. In addition, ConAgra introduced 14 new low carb frozen entrees under its Life Choice brand name.

The newest entrant to the frozen food market, Atkins Nutritionals, announced in June 2004 that, through a distribution partnership with Sara Lee Foods, it would introduce a low carb frozen pizza line under its Quick Quisine brand.

Table 2.18: Low carb product introductions, prepared meals category Company ConAgra Foods Low Carb Creations Atkins Nutritionals Nestle United StatesA Monterey Pasta Company

Product LifeChoice Frozen Meal Bella Carb Frozen Gourmet Pizza Atkins Frozen Entrees Stouffer's Lean Cuisine Cafe Classics Frozen Entrees Carb-Smart Frozen Prepared Entrees

Date of introduction March 2004 March 2004 February 2004 February 2004 January 2004 Business Insights Ltdd

Source: Productscan

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Strengths and weaknesses of the low carb trend The strengths… Manufacturer survival One of the low carb diet’s greatest strengths is that it was initially driven by consumer demand, and is now being sustained by manufacturer interests. Indeed, one of the most important factors that will determine the longevity of the low carb trend is corporate interest in its survival. Unlike the low fat trend, a company, Atkins Nutritionals, initiated the low carb trend. The group has a stake in the viability of the low carb trend and its existence in its current form depends on the diet’s popularity.

Atkins Nutritionals has worked aggressively to gain control of the marketplace, from leveraging partnerships with other companies in order to increase brand awareness and distribution, to publishing a marketing campaign aimed at building an image of concern for consumers’ health. As controversy over the low carb diet wanes in the media, it is in Atkins’ interest to keep consumer interest alive by creating new controversy. Its current campaign expresses distress over “false” low carb products proliferating in the marketplace. It remains to be seen how successful the company’s efforts will prove to be.

Prevalence of flexible dieters In addition, as Dedicated Low Carb Lifestylers are more likely to adhere to a strict eating regimen consisting of mostly produce and meats, low carb packaged goods are more suited to a flexible dieter. This creates a wider potential audience for the low carb trend. The report consumer survey revealed that less than one percent of the entire consumer population are Dedicated Low Carb Lifestylers, while 14% are Flexible Low Carb Lifestylers. Ninety-five percent of all Low Carb Lifestylers follow a flexible eating regimen.

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Scientific findings do not refute low carb benefits While no long-term studies exist exploring the effectiveness of the low carb diet, studies are in progress. Regardless of their outcome, it will be years before the full effects – positive or negative – are fully understood by medical professionals. At present, all of the short-term, six-month studies have demonstrated only the positive effects of the low carb diet.

A new alternative In addition, the low carb diet offers new alternatives to weight loss, contradicting dictates of the past 40 years. This controversy has done a great deal to create conversation among consumers, a valuable way to gain awareness and market penetration.

…and the weaknesses Market saturation As major CPG manufacturers introduce and widely distribute low carb products, and the media continues to discuss in detail the pros and cons of a low carb diet, it is likely that market saturation will take place. This could itself destroy the “coolness factor” of the diet, and the diet’s cachet among a notoriously fickle consumer population.

Potential lack of scientific support While no long-term studies have been completed, it is possible that the studies in progress will uncover either neutral or negative results for low carb proponents. Indeed, the longest study to date, a one year study completed at the University of Pennsylvania, found no statistically significant weight loss between subjects following a low carb diet and those placed on a conventional diet.

Decrease in efficacy and/or success stories Consumers’ increased consumption of low carb products without regard to caloric content may well lead to weight gain instead of weight loss, and subsequent loss in 50

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confidence in the diet. This is particularly likely given the number of products that are marketed as low carb, but also have high calorie or fat content. Increased media coverage or word of mouth stories of such dieting results will lead to a serious credibility issue for the low carb industry.

Conclusions As the low carb trend continues to evolve, food and drink categories expect to see major growth and development. It is estimated that all areas of the low carb industry will grow by at least 25% over the next five years, with some categories such as bakery, emerging as industry leaders. While the market is driven by numerous strengths, such as consumer interest, increasing levels of flexible low carb dieters who will create a wider potential audience for low carb products, and positive findings in short-term studies, manufacturers need to be aware of the trend’s weaknesses as well.

The next chapter details the findings of the consumer survey, exploring and analyzing consumer preferences and dietary behaviors as they relate to low carb dieting.

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Chapter 3

The US Diet Consumer

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Chapter 3

The US Diet Consumer

Summary


By and large consumers are typically driven by two factors: price and taste;




The most difficult time of day for consumers to adhere to a diet is in the evening and late evening;




Two-thirds of all adult Americans are overweight or obese, and the number is expected to climb in the coming years. Also, the percentage of overweight children is increasing. This suggests the weight loss industry will continue to grow;




According to the consumer survey, only 37% of men are actively trying to lose weight, compared to 51% of women. This suggests that women, who are also more interested in weight-loss for cosmetic reasons than to maintain good health, are a stronger market for weight-loss products;




United States consumers’ dietary behaviors are strongly affected by their personal relationships with medical professionals, family and friends, as well as by previous personal dieting success;




Across all lifestyles and eating regimens, it seems that all consumer groups ranked doctor’s advice and previous personal dieting success as the most important factors in choosing a diet.

Introduction Findings of the consumer survey, detailed in this chapter, shed light on current consumer dietary habits and awareness of the low carb diet. Nearly all consumers are concerned with what they eat, and make a conscious effort to control their eating habits, albeit in different ways. The consumer segmentation serves to identify these different ways, although by and large consumers are typically driven by two factors: price and taste.

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The Consumer Focus chapter examines the preferences and dieting behaviors of four different segments of the consumer population, their awareness of the low carb trend and their main purchasing drivers.

Key findings


Consumers aged 45-54 are more likely than any other age group to attempt a low carb diet;




All consumer groups report that willpower diminishes throughout the day. By far, the most difficult time of day for consumers to adhere to a diet is in the evening and late evening;




Twenty-six percent of Low Carb Lifestylers also continue to cut back or eliminate fat when attempting to lose or maintain weight;




Though Low Carb Lifestylers as a group make up 15% of the population, dedicated Low Carb Lifestylers account for only 5% of this group;




Consumers are primarily driven by personal relationships and experiences when choosing a new diet or eating regimen.

Consumer profile Segmentation by weight Two-thirds of all adult Americans are overweight or obese, and the number is expected to climb in the coming years. In addition, the percentage of overweight children is increasing. Overweight youngsters will likely become overweight adults; a child with a BMI greater than 25 has an 80% of remaining overweight throughout adulthood. This suggests that the weight-loss industry will not shrink; rather, it will continue to grow as an increasing proportion of children and adults become larger and larger.

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Figure 3.1: US population by BMI category, by gender, %, 2002-2007 100% Percentage of population

90% Severely overweight

80% 70%

Overweight

60% Normal

50% 40%

Underweight

30% 20% 10% 0% Males Females Males Females 2002

2007

Business Insights Ltdd

Source: Business Insights

Weight crosses gender and ethnic lines, with 58% of females and 72% of males classified as overweight or obese. Though they are 21% less likely to be obese, males are 39% more likely to be overweight than females. It is predicted that by 2007, 60% of females and 76% of males will be overweight or obese.

According to the consumer survey, however, only 37% of men are actively trying to lose weight, compared to 51% of women. This suggests that women, who are also more interested in weight-loss for cosmetic reasons than to maintain good health, are a stronger market for weight-loss products.

Motivated to get thin Overwhelmingly, nutritionists agreed that the number one motivation for dieting was not health, but weight loss. Cosmetic concerns seem to be the main motivation for women, while men cite health. Likely as a result of this, dieters tend to stay on a specific eating regimen only for as long as they see results. According to nutritionists, the average duration of a diet tends to last anywhere from four weeks to six months.

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Table 3.19: Main reason for dieting, by gender, % respondents

Health concerns Cosmetic concerns Total Dieters

Female

Male

39% 61%

75% 25%

100%

100% Business Insights Ltdd

Source: Business Insights

Consumer survey In May 2004, an online survey of 1,005 nationally representative United States respondents was conducted. The survey results, coupled with government population statistics and economic trends, paint an intricate picture of today’s dieter, allowing manufacturers to identify future market drivers and to determine product strategy.

Presented here are the results, segmented by:


Dieting population profile;




Consumer behavior;




Consumer drivers.

Dieting population profile Dieting habits vary greatly according to age group and gender. On the whole, women are more likely to diet than men, and frequency of healthful eating increases with the age of the consumer. In our survey we identified four different consumer segments:


Low Carb Lifestylers – On an explicit diet and consciously following a low carb eating regimen. These dieters comprise 15% of respondents and make a concerted effort to limit carbohydrate intake and eat higher levels of protein with the goal of losing weight.

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Conventional Dieters – On an explicit diet, but not consciously following a low carb-eating regimen. These dieters comprise 29% of respondents and represent the proportion of respondents who noted that they are actively trying to lose weight, but are not seriously monitoring carbohydrate intake to do so.




Healthful Eaters – Not on an explicit diet, but making an effort to eat relatively healthy foods and achieve a balanced diet. This group, making up 17% of total respondents, is a lifestyle group that incorporates healthy eating into everyday choices, all year round, and represents the proportion of respondents who noted that they are actively trying to eat healthfully, but not trying to lose weight.




Non-Dieters – Not on an explicit diet, and not making a real effort to eat healthfully or live a healthy lifestyle. This is the largest consumer group, comprising 39% of respondents, and is the least likely to be interested in or affected by dieting trends.

As noted in Table 3.20, age is a factor in dietary lifestyle. A greater percentage of respondents aged 45-54 and 55-70 claim to eat healthfully than any other age group. On the whole, conventional dieting decreases with age. Interestingly, however, while consumers aged 45-54 are less likely to be Conventional Dieters, they are slightly more likely than any other age group to attempt a low carb diet.

Table 3.20: Consumer groups, by age, % respondents Low Carb Dieters

Conventional Dieters

Healthful Eaters

NonDieters

Total

9% 17% 15% 18% 14%

31% 33% 32% 24% 24%

14% 17% 14% 20% 24%

45% 33% 39% 38% 39%

100% 100% 100% 100% 100%

18-24 yrs 25-34 yrs 35-44 yrs 45-54 yrs 55-70 yrs

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Source: Business Insights

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Consumer behavior Willpower diminishes throughout the day Numerous meal and beverage opportunities present themselves to consumers during the day. From breakfast to the afternoon snack to dinnertime, consumers across all lifestyles have an average of six mealtime occasions and an array of food choices. Yet no matter the diet or lifestyle choice followed by the consumer, discipline decreases as the day wears on, as shown in Figure 3.2.

Beverage and food consumption closely mirror one another. Across the lifestyles and dieting types, consumers report similar difficulties with non-alcoholic beverage intake throughout the day. 69% of consumers rank breakfast as the easiest time of day with regards to consumption of drinks, while 54% report late night as the most difficult time of day. This may reflect the fact that exhaustion and stress are strong factors in food consumption choice; early in the morning before the day’s stresses and activities fills the consumer’s schedule, it is easier to make a disciplined food choice. With that in mind, dinnertime and late night snacking constitute the time when consumers across all lifestyles are more prone to eating too much or eating impulsively.

Figure 3.2: Ranked meal occasion by ease of diet adherence, by consumer group, % (where 1 = easiest and 6 = hardest) 1. Breakfast - Morning 2. Mid

3. Lunchtime - Afternoon 4. Mid

5. Dinner 6. Late Night 0% 10% 20% 30% 40% 50% Low Carb Lifestylers Conventional Dieters

60% 70% 80% 90% 100% Healthful Eaters Non- Dieters

Business Insights Ltdd

Source: Business Insights

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However, Low Carb Lifestylers are more sensitive to time of day in terms of willpower. They were more likely than other groups to find it easier to follow their diets earlier in the day, and much more likely to have difficulty in the evening than their non-low carb following counterparts. Dieters’ difficulty in adhering to a low carb diet later in the day has significant implications. The lack of suitable low carb afternoon, dinner and late night meal options presents an opportunity for manufacturers to provide food and drink alternatives that consumers can consume without guilt.

Only Low Carb Dieters interested in carbohydrate intake Low carb concerns seem to affect most consumers only marginally, on the whole altering only Low Carb Lifestylers’ food choices. By definition, carbohydrate and protein intake are Low Carb Lifestylers’ main drivers, but the consumer survey demonstrates that they are also concerned with a range of other food and supplement choices. Other consumption changes by lifestyle type are shown in Table 3.21 and Figure 3.3.

The fact that Low Carb Lifestylers are marginally more likely to exercise and much more likely to take vitamins and other supplements suggests that these dieters recognize that a lifestyle change is the key to long-term weight loss.

Table 3.21: Consumption changes made when attempting weight loss/maintenance, by consumer group, % respondents who answered “always”

Total Take a supplement Eat more vegetables Eat more fruits Exercise 30 x 3/week Eat more protein Cut back/eliminate sugar Cut back/eliminate fat Cut back/eliminate carbs Eat more complex carbs

Low Carb Conventional Lifestylers Dieters

38% 30% 25% 24% 17% 16% 14% 9% 5%

62% 50% 32% 35% 50% 44% 26% 46% 15%

41% 30% 28% 28% 13% 18% 18% 4% 6%

Healthful Eaters

Non Dieters

43% 47% 38% 29% 18% 15% 16% 3% 5%

24% 15% 13% 14% 8% 5% 6% 1% 1%

Business Insights Ltd

Source: Business Insights Consumer Survey, 2004

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However, Low Carb Lifestylers are more concerned with fat intake than other consumers. Twenty-six percent of Low Carb Lifestylers are likely to cut back on or eliminate fat from their diets when trying to lose weight, compared with 16% of Healthful Eaters and 18% of Conventional Dieters.

This could be due to any number of reasons. Most likely, Low Carb Lifestylers have internalized media and medical coverage of fat as an unhealthy part of any diet, and continue to limit its intake out of habit. Another possibility is that Low Carb Lifestylers are conscious that their eating regimen is one that is naturally much higher in fats than other diets, and are making a concerted effort to monitor their fat intake to prevent heart disease or elevated cholesterol. In either case, the implication for manufacturers is that many Low Carb Lifestylers are still savvy about fat intake, and might be wary of low carb products that are also high in fat.

Figure 3.3: Consumption changes made when attempting weight loss/maintenance, by consumer group, % respondents who answered “always” Exercise 30 min 3 times per week Weight loss/ maintenance

Take a supplement Eat more vegetables Eat more fruits Eat more complex carbs Eat more protein Cut back/eliminate fat Cut back/eliminate carbs Cut back/eliminate sugar 0% Healthful Eaters

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Non Dieters

Conventional Dieters

Low Carb Lifestylers

Business Insights Ltd

Source: Business Insights

Forty-six percent of Low Carb Lifestylers always cut back or eliminate their carbohydrate intake while trying to lose or maintain weight – constituting less than half

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of their population. In addition, only 50% of Low Carb Lifestylers always eat more protein when trying to lose or maintain weight. Perhaps most intriguing of all, only 15% of Low Carb Lifestylers reported always consuming high quantities of complex carbohydrates while trying to lose or maintain weight, despite the fact that Atkins, South Beach, Sugar Busters, and other low carb diets encourage a diet rich in complex carbohydrates.

Additionally, 32% of Low Carb Lifestylers actually consume fruit in larger quantities when trying to lose weight. High in fructose and other natural sugars, fruits are forbidden in the strict Atkins lifestyle, or only consumed in extremely small quantities in later phases of the program. This finding, in conjunction with the aforementioned finding that Low Carb Lifestylers do not consume higher amounts of complex carbohydrates, suggests that many Low Carb Lifestylers are not following a strict form of the Atkins diet, or are unaware of many of its guidelines.

True Low Carb Dieters are few and far between A Low Carb Lifestyler is defined as an individual who agrees with the following statements: “I am strictly or consciously monitoring my intake,” “I always or usually eat more protein when trying to lose or maintain my weight,” and “I always or usually cut back or eliminate carbohydrates when trying to lose or maintain weight.” A closer examination of consumers classified as Low Carb Lifestylers reveals that very few of them are following an extremely strict low carb diet, as defined by watching carbohydrate and sugar intake, eating more protein and complex carbohydrates and fewer fruits and vegetables, taking vitamins and supplements, and engaging in regular exercise. Less than 1% of total respondents to the survey followed all of those guidelines. As such, 95% of Low Carb Lifestylers are following a more flexible diet that allows for greater range of food choices.

Understanding consumers’ food choices As a whole, consumers understand the need to cut back on or avoid certain foods while dieting, and all groups agree that certain types of food should not be consumed while

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dieting or trying to maintain weight. For example, 28% of all consumers eliminate chocolate or candy from their diet while trying to lose or maintain weight.

Consumption changes of particular foods when attempting to lose/maintain weight are detailed in Table 3.22 and Figure 3.4. rather than give up snack foods completely, all consumers are more likely to cut back when trying to lose or maintain weight. This implies that consumers do not like to give up indulgences even when dieting. Low Carb Lifestylers tend to purchase more low/lite versions of packaged foods than other consumers and to cut out salty snacks, with 29% of Low Carb Lifestylers responding that they avoid pretzels, chips, and other snacks while trying to lose weight.

In addition, all consumers are more likely to eat low/lite versions of frozen entrees than any other type of low/lite food when trying to lose or maintain weight. As consumers work longer hours and have less time to prepare meals, they clearly look to prepared meals as an easy way to eat nutritious meals.

Table 3.22: Consumption changes when attempting to lose/maintain weight, by food category, % respondents

Candy Salty snacks Meal solutions Meal replacements Desserts

Skip altogether

Eat less

Eat more

Choose ‘Low/lite’ versions

28% 14% 14% 12% 19%

59% 65% 33% 11% 61%

4% 9% 18% 25% 6%

4% 8% 17% 6% 10%

Don’t eat these ever 5% 3% 19% 46% 5%

Business Insights Ltd

Source: Business Insights Consumer Survey, 2004

In addition, they are also more likely to consume low or light frozen meals, with 23% of Low Carb Lifestylers responding that they switch to dietetic frozen entrees while trying to lose weight, compared with 13% of Non Dieters, 20% of Conventional Dieters and 18% of Healthful Eaters. The implications are that Low Carb Lifestylers

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would embrace low carb frozen meals, an easy way to ensure that they are consuming a limited amount of carbohydrates.

Weight loss/ maintenance by food category

Figure 3.4: Consumption changes when attempting to lose/maintain weight, by food category, % respondents

Desserts

Meal replacements

Meal solutions

Salty snacks

Candy 0% Skip altogether

10%

Eat less

20%

30%

Eat more

40%

50%

60%

70%

Choose 'Low/lite'-versions

80%

90% 100%

Don’t eat these ever Business Insights Ltd

Source: Business Insights Consumer Survey, 2004

Understanding consumers’ drink choices Dairy drinks have received much attention lately for their high carbohydrate levels. Media attention has centered on carbs in milks and yogurts, and manufacturers such as General Mills have responded with low carb dairy products such as Yoplait Ultra and low carb 8th Continent Soymilk.

Despite the recent negative media coverage, consumers continue to see dairy drinks as a healthful part of a diet, as demonstrated by the consumer survey and shown in Table 3.23 and Figure 3.5. Thirty-four percent of consumers consume more milk when trying to lose or maintain weight, while 20% drink smoothies and yogurt beverages. Juices are also clearly perceived by consumers as a healthy drink category. Fifty-three percent of consumers drink more juice when trying to lose or maintain weight.

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Table 3.23: Consumption changes when attempting to lose/maintain weight, by drinks category, % respondents Skip altogether

Eat less

Eat more

10% 10% 8% 15% 17%

51% 27% 24% 14% 42%

15% 34% 53% 20% 6%

Carbonated beverages Milk Juices/Fruit drinks Smoothies/yogurt drinks Alcoholic beverages

Choose Don’t drink ‘Low/lite’ these ever versions 18% 15% 6% 8% 5%

7% 14% 9% 43% 30%

Business Insights Ltd

Source: Business Insights Consumer Survey, 2004

This suggests that the negative media attention surrounding milk, orange juice, and other beverages have not strongly impacted consumers’ opinions about the healthfulness of those products.

Weight loss/maintenance by drinks category

Figure 3.5: Consumption changes when attempting to lose/maintain weight, by drinks category, % respondents

Carbonated beverages

Milk

Juices/Fruit drinks

Smoothies/yogurt drinks

Alcoholic beverages 0% Skip altogether

Eat less

20% Eat more

40%

60%

Choose 'Low/lite'-versions

80%

100%

Don’t eat these ever Business Insights Ltd

Source: Business Insights Consumer Survey, 2004

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Interestingly, the survey revealed that Low Carb Lifestylers are marginally more likely to consume low/lite beverages while attempting to lose weight than consumers in any other category. Most significantly, 30% of Low Carb Lifestylers drink diet carbonated beverages, compared with just 21% of Conventional Dieters and 18% of Healthful Eaters.

Consumer drivers Personal relationships drive consumers’ diet choices Overall, United States consumers’ dietary behaviors are strongly affected by their personal relationships with medical professionals, family and friends, as well as by previous personal dieting success. While advertising and media coverage contribute to the consumer’s awareness of a new diet or a new product, ultimately it is the personal experiences in everyday life that convince individuals to give them a try.

Table 3.24: Ranked influencing factors in dieting choice, by consumer group, (where 1 = strongest and 8 = weakest) Rank

All respondents

Low carb Lifestylers

Conventional Dieters

Healthful eaters

1 2 3 4 5 6 7 8

Doctor's advice Previous Success Friend/family Endorsements Studies Media Marketing Celebrities

Previous Success Doctor's advice Friend/family Endorsements Studies Media Marketing Celebrities

Previous Success Doctor's advice Friend/family Studies Endorsements Media Marketing Celebrities

Doctor's advice Previous Success Endorsements Friend/family Studies Media Marketing Celebrities Business Insights Ltd

Source: Business Insights Consumer Survey 2004

Across all lifestyles and eating regimens, it seems that all consumer groups ranked doctor’s advice and previous personal dieting success as the most important factors in choosing a diet. Conventional Dieters and Low Carb Lifestylers ranked the advice of family and friends higher than did Non-Dieters and Healthy Eaters. Forty-six percent of all consumers ranked celebrity endorsements the lowest in terms of affecting their dieting choices. 66

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Over time, greater market penetration will depend on individual consumers and whether or not they find the diet effective and the food worthwhile. If consumers enjoy a low carb food product or find that the diet has been particularly effective, they will recommend it to friends, family and acquaintances – creating free marketing that is far more valuable than media attention and advertisements. In addition, as consumers are more responsive to the advice of doctors and nutritionists, increased partnerships with members of the medical profession may provide deeper market penetration.

Taste and price drive the consumer Twenty-five percent of all consumers ranked price as the most important factor in deciding whether or not to buy a product, followed by taste. Indeed, 45% of consumers ranked taste or price as their most important purchasing driver.

Healthful Eaters and Non-Dieters rated taste as the most important criteria in product choice, with 17% and 27%, respectively. As such, one of the major complaints about dietetic foods is their unpleasant taste and mouth feel, and it stands to reason that dieters who consume these products regularly rank their dietetic properties above their taste, and no longer use taste as the main driver for their product purchases.

In addition, while the low carb trend has received a great deal of media attention, it appears that carb counting, net carbs, and protein intake have been slow to catch on among most consumers. Just 6% of consumers ranked carbohydrates per serving as the most important driver compelling them to purchase a food or drink product, while 5% ranked net carbs as most important. Three percent of consumers ranked protein as most important. Only 5% of Low Carb Lifestylers ranked protein as the most important driver, while 9% ranked sugar as such – underscoring the fact that the majority of Low Carb Lifestylers are not following a strict low carb-eating regimen. They are more likely to eat flexible low carb meal plans.

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Table 3.25: Ranked purchasing priorities, by consumer group (where 1 = strongest and 10 = weakest) Rank All Respondents

Low Carb Lifestylers

Conventional Dieters

Healthful Eaters

Non-Dieters

1

Price

Price

Taste

Fat/ serving Price

Price

2 3

Fat/serving Calories/ serving Vitamins/ serving Sugar/ serving Protein/ serving

Taste serving Calories/ serving Vitamins/ serving Sugar/ serving Protein/

Vitamin/

4

Net carbs/ serving Carbs/ serving Sugar/ serving Calories/ serving Fat/serving

5 6 7 8 9 10

Carbs/ serving Net carbs/ serving Brand Name

Protein/ serving Taste

Fat/serving Taste Calories/serving Vitamins/serving Sugar/serving Protein/serving serving Carbs/serving

Vitamins/ serving Price

Net carbs/serving

Brand Name

Brand Name

Taste

Calories/ serving Protein/ serving Sugar/ serving Fat/serving

Carbs/ serving Net carbs/ serving Brand Name

Carbs/ serving Brand Name Net carbs/serving

Business Insights Ltd

Source: Business Insights Consumer Survey, 2004

Though Low Carb Lifestylers were the most likely of any group to rank net carbs as most important, even they do not appear as concerned with net carbs as expected. Twenty percent of Low Carb Lifestylers responded that this was the most important driver in product purchasing, compared with 21% of Low Carb Lifestylers who ranked carbohydrates per serving as most important.

Consumers’ relative concern with other factors besides carbohydrate, sugar and protein content has several implications for manufacturers. Firstly, the differing concerns of each consumer group means that they are looking for different characteristics from their food products. Manufacturers should think about changing marketing tactics for each segment, in order to broaden their audience within each group. Low Carb Lifestylers, more than 99% of whom are following a flexible low carb diet, are also likely to respond to marketing tactics highlighting the overall health benefits of a food product, in addition to its low carb advantages.

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Taste is a barrier for attracting new low carb consumers According to nutritionists interviewed for this report, consumers are savvier than ever about taste. Unanimously, the nutritionists reported that their patients complained of the awful taste of low carb products, noting that often those patients chose to abandon the new diet after only a few days because they did not like the taste or mouth feel of the food choices.

Similar product failures occurred during the low fat trend due to poor taste quality. Frito-Lay’s WOW chips, which used Olestra in place of other fats, dropped in sales from $330 million in 1998 to $100 million in 2003, mostly due to consumers’ complaints that the chips were oily, left a residue in the mouth, and created unpleasant digestive side effects. Early soy products faced a similar problem.

Low carb food manufacturers continually strive to develop better-tasting food and drink products, employing flour substitutes such as soy protein, egg protein and milk protein and sweeteners such as Splenda and maltitol. While taste and texture of current low carb foods may be relatively better than that of those previously introduced, 17% of Conventional Dieters, 18% of Healthful Eaters, and 27% of Non-Dieters ranked taste as the most important factor in choosing food and drink products. For those groups, “relatively better” may still not be enough to persuade them to purchase a product.

Conclusions Consumers across all dieting populations are largely driven by the same factors when making purchasing decisions, choosing a dietary regimen, or adhering to a diet. No matter what the diet or lifestyle, consumers look to price, taste, and personal relationships to influence their dietary and dietetic choices. However, despite the great deal of media attention centering on low carb dieting, it appears that carb counting, net carbs, and protein intake have been slow to catch on among most consumers. Rather,

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consumers seem driven by messages regarding the healthfulness of a product, and products that taste good.

Chapter Four examines the increasingly crowded and rapidly changing low carb marketplace, from the major CPG manufacturers just entering the landscape to the small, niche companies that have been there for some time.

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Chapter 4

Competitive Analysis of Major Low Carb Brands

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Chapter 4

Competitive Analysis of Major Low Carb Brands

Summary


The low carb market, once populated solely by small, niche companies, has changed drastically over the last two years;




Low carb NPD increased substantially between 1999 and 2003, growing from 0.4% of total new products introduced to 3.4% of new product roll-outs;




As larger corporations begin to introduce low carb products, smaller niche companies are finding it increasingly difficult to fight for shelf space at supermarkets, drugstores and other retail outlets, therefore many of the smaller low carb manufacturers are likely to be squeezed out of the market;




Thirty-one percent of manufacturers foresee the low carb trend lasting six to ten years, and 67% view the low carb trend as an opportunity to gain a larger audience;




95% of manufacturers believe that price will dictate future consumer interest in low carb products. Flavor and taste, the variety of options available to consumers, and the way in which those products are marketed will have the strongest effects on the longevity of the low carb trend.

Introduction The low carb market, once populated solely by small, niche companies, has changed drastically over the last two years. Major CPG manufacturers’ entry into the marketplace is altering the low carb landscape, providing consumers with a greater variety of product choices but creating an environment in which it is difficult for smaller companies to thrive. The increasingly crowded low carb industry shows no signs of slowing down. In fact, manufacturers interviewed for this report believe the low carb trend will remain strong for about six years. Sixty-seven percent of

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manufacturers surveyed view the low carb marketplace as an opportunity rather than a threat.

Key findings


Price premiums for low carb products are substantial, though major CPG manufacturers are offering lower prices than smaller, niche low carb companies;




Low carb NPD increased substantially between 1999 and 2003, growing from 0.4% of total new products introduced to 3.4% of new product roll-outs;




While manufacturers acknowledge that consumer tastes’ are fickle, 49% of respondents do not foresee another trend taking the place of low carb for three to five years. Thirty-one percent foresee the trend lasting six to ten years;




Manufacturers and consumers have differing opinions of important purchasing drivers.

Manufacturer identification Low carb manufacturers Until 2002, the United States Market for low carb products was a relatively small one. According to Productscan, 47 new low carb food products were introduced in 1999, compared with 633 in 2003. Rather than being dominated by large manufacturers such as Unilever and Kraft, the marketplace was populated by smaller companies such as Carbolite and Keto. The niche low carb market created a profitable environment for the small companies, many of whom saw sales of a few million dollars.

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Table 4.26: Low carb companies and respective product categories, 2003 Company

Category

Atkins Nutritionals

Mixes, food bars, shakes, supplements, bakery products, ice creams, drink mixes, prepared meals videos, books, and tapes Alcoholic drink mixes Pasta sauces Food bars, shakes, snack bars, snacks, mixes Mixes, pastas, cereals, and chips Sauces and drink mixes Food bars and snack bars Chips and snacks Sauces and condiments Cereals, mixes, ice creams, desserts, food bars, condiments, supplements, and sweeteners Confectionery bars and candies Confectionery bars and candies Meat snacks Sauces, sweeteners, spreads and fillings Food bars and snack bars Condiments, sauces and spreads

Baja Bob's Bella Vita Carbolite Carbsense DaVinci's Dr. Soy Glenny's Jok 'n Al Keto La Nouba Pure Delite Shelton’s Steel's Vitasoy Walden Farms

Business Insights Ltd

Source: Business Insights

The largest exclusively low carb manufacturers, Atkins Nutritionals, Inc and Keto Foods, Inc, each saw less than $200 million in sales in 2003. Atkins Nutritionals, however grew by 225%, while Keto Foods saw a 300% increase between 2002 and 2003. The number of low carb out-of-home food providers has also grown rapidly in the past two years. Fast-food restaurants such as Burger King and Blimpie have begun offering low carb foods. In early 2004 Subway introduced Atkins-approved wraps and salads. Food and beverage giants Unilever, Kraft, General Mills, Coca-Cola and Pepsi are also beginning to enter the low carb market, which will alter the landscape significantly over the course of 2004 and beyond.

Larger companies weigh in on the low carb trend During a presentation at Goldman Sachs’ Annual Global Consumer Products Conference in May 2004, Chairman and CEO Steve Sanger noted that General Mills was slowly introducing new low carb products into the marketplace. The company waited in order to determine the viability and growth of the low carb market before 74

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introducing its own low carb offerings. In March 2004, General Mills introduced Total Protein, its first low carb cereal. Yoplait Ultra, a low carb yogurt, followed in May 2004.

Unilever,

Kraft,

Kellogg,

PepsiCo,

ConAgra,

and

other

multibillion-dollar

manufacturers have also added their products to the market, ranging from cereals, breads and pastas to prepared meals, beverages and snacks.

Table 4.27: Multinational companies and respective new low carb product introductions, through June 2004 Manufacturer

Low carb product examples

Anheuser-Busch

Michelob Ultra, Bacardi Silver Low Carb Black Cherry

Cadbury-Schweppes

Snapple-A-Day Low Carb

Coca-Cola

Coca-Cola C2, Minute Maid Premium Light

Coors

Coors Aspen Edge

General Mills

8th Continent Light Soymilk, Betty Crocker Carb Monitor Baking Mixes, Betty Crocker Carb Monitor Roasted Garlic Mashed Potatoes, Hamburger Helper Carb Monitor Cheeseburger Macaroni, Momentum Bars, Pillsbury Carb Monitor Frozen Dinner Rolls, Progresso Carb Monitor Soups, Total Protein, Yoplait Ultra,

Kellogg

Smart Start Cereal with Soy Protein, Reduced-Carb Special K, Reduced Sugar Frosted Flakes and Fruit Loops, Reduced-Carb Chips Deluxe

Kraft

CarbWell Barbecue Sauce and Salad Dressings, Kool-Aid Jammers 10 (reduced sugar), CarbWell Cereal in Golden and Cinnamon Crunch Flavors

PepsiCo

Pepsi Edge, Tropicana Light ‘N Healthy, Doritos Edge,Tostitos Edge

Labatt’s United States

Rolling Rock Green Light

Sara Lee

Delightful Bread

Unilever

Carb Options™ Energy bars, Shakes, Pasta Sauces, Iced tea mixes, pasta side dishes, marinades and sauces, peanut spread, ketchup, instant soup, salad dressings, Slim-Fast For Use As Part of a Low Carb Diet bars and shakes, and Ben and Jerry's Carb Karma Ice Cream Business Insights Ltd

Source: Business Insights

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The entrance of the major food manufacturers into the low carb marketplace has had a tremendous effect, doubling low carb NPD between 2002 and 2003. Indeed, low carb NPD is expected to have tripled between 2003 and 2004.

Competition among low carb manufacturers The low carb beer One of the earliest entrants into the low carb marketplace, low carb beer has proven to be a surprisingly robust category. Michelob Ultra, introduced in the Fall of 2002 by Anheuser-Busch, was the first entrant into the low carb alcohol category. The beer was marketed alongside images of fit and athletic individuals, lifting weights at the gym or jogging on a track. The implicit message of the advertising was that low carb beer is a good addition to a healthy low carb lifestyle. Michelob Ultra proved successful, with sales of $263 million in 2003.

In response to slipping sales and cannibalization of its audience by the new low carb entrant, Bud Lite launched its own series of advertisements refuting the need for a low carb beer. Its slogan, “All light beers are low in carbs. Choose on taste,” has been widely seen throughout the United States.

However, the success of Michelob Ultra was undeniable, and other beer companies introduced their own low carb beverages to gain market share in a rapidly growing market. Coors developed a low carb beer entrant, Aspen Edge, in 2004, joining Rolling Rock’s Green Light in the increasingly crowded market.

Anheuser-Busch has also made efforts to capture female low carb consumers by developing low carb “malternative” drinks. Introduced in June 2004, its Bacardi Silver Low Carb Black Cherry competes directly with SABMiller’s SKYY Sport malternative beverage, which entered the market in early 2004.

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Figure 4.6: Low carb beer and malternative entrants, 2004

Business Insights Ltd

Source: www.skyy.com, www.michelob.com

While the low carb alcohol market is rapidly growing crowded, it is doubtful that the new low carb beer or malternative entrants will draw new consumers who would not have consumed alcoholic beverages otherwise. In fact, as Anheuser-Busch has already witnessed, low carb beers will cannibalize the light alcohol markets, attracting beer and malt drinkers who ordinarily drink the lower-calorie alternatives.

Low carb carbonated drinks In March 2004, Pepsi announced the introduction of a mid-calorie cola. Dubbed Pepsi Edge and scheduled to be released in July 2004, the soft drink is also being touted as a “mid-carb” carbonated beverage. Coca-Cola responded to the announcement in April 2004, announcing the introduction of its own “mid-carb” soda, C2. The soft drink was introduced a month earlier than Pepsi Edge, in June 2004.

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Figure 4.7: “Mid-carb” soda entrants, 2004

Business Insights Ltd

Source: www.cocacola.com, www.pepsi.com

While the two drinks mark the first major low carb carbonated beverages to be introduced, it is speculated that low carb dieters might not even be their core audience. Rather, it is thought that consumers who do not drink full-calorie sodas but also do not like the taste of their diet counterparts will be key. It is too early to tell whether CocaCola C2 and Pepsi Edge will cannibalize sales of regular carbonated beverages or diet colas, though it is likely both categories will be affected.

Juices Much attention has been paid to the fact that fresh orange juice sales have suffered badly as the low carb trend has gained in popularity, due to its high carbohydrate and sugar content. United States consumption of orange juice declined 11% between the 1999-2000 growing season and the 2002-2003 season. Faced with this drop in sales, Florida Department of Citrus performed a survey and discovered that 35% of consumers had stopped drinking orange juice due to a low carb diet.

In response, PepsiCo’s Tropicana introduced Light ‘N Healthy orange juice in January 2004, reducing calories and carbohydrates by a third. During its first 16 weeks on the

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market, it generated sales of $8 million. Coca-Cola’s Minute Maid also introduced a low carb orange juice alternative, reducing calories by half and carbohydrates by twothirds.

Figure 4.8: Reduced-carb orange juices, by brand, 2004

Business Insights Ltd

Source: www.tropicana.com, www.minutemaid.com

In a larger effort to combat slipping sales, the Florida Department of Citrus launched an advertising campaign at juice drinkers lured away by low carb diets. Started in June 2004, the campaign focuses on the health benefits of orange juice, from disease prevention to high vitamin content.

Originally, the Florida Department of Citrus intended to publish advertisements poking fun at the Atkins and South Beach diets, and presenting a negative image of low carb dieting. However, poor response from focus groups that viewed the advertisements in February 2004 forced the Florida Department of Citrus to alter its ads to convey a positive message about the healthfulness of the juice.

Critics of the campaign claim that orange juice consumption has been decreasing for some time, beginning long before the low carb trend. Sales of milk and orange juice have declined for years, in part due to consumers’ increasing preferences for sodas and other carbonated beverages. Despite poor sales, orange juice prices have not decreased,

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and sodas remain relatively less expensive. Although United States citrus growers received 28% less per carton of oranges, that savings has not been passed to consumers in the form of discounts.

It remains to be seen how the advertising campaign and low carb juices will affect the orange juice market. The success of the new low carb juices may be cannibalizing sales of their full-calorie counterparts, due to diet-conscious consumers who have never had the choice of a lower-calorie juice alternative before, rather than to popularity among low carb dieters.

Changing the landscape of the low carb market Despite Atkins Nutritionals and Keto Foods’ significant growth rates, their sales, $148 million and $100-$200 million, respectively, still constitute a fraction of those of the larger companies. Indeed, Anheuser Busch’s low carb beer, Michelob Ultra, alone had $263 million in sales in 2003. Based on first quarter 2004 sales, Sara Lee expects the sales of its low carb Delight Bakery bread product, introduced in December 2003, to reach $75 million in 2004 by itself.

The larger corporations can offer lower prices than smaller, low carb niche manufacturers. Sara Lee’s Delightful Bakery bread retails at $2.59, a 13% price premium over regular breads, while Atkins’ low carb bread sells for $4.99, a 117% price premium.

As larger corporations begin to introduce low carb products, smaller niche companies are finding it increasingly difficult to fight for shelf space at supermarkets, drugstores and other retail outlets. A backlash has already begun against small retail outlets specializing in low carb food products, some of which are finding themselves forced out of business as consumers gravitate towards the more convenient supermarkets and larger retail outlets such as Wal-Mart, where they can purchase conventional food products and low carb packaged foods in the same store.

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The name recognition of Kraft, Unilever, General Mills and other food manufacturers make them more accessible to consumers, and their ability to offer lower price premiums will allow for higher volume of sales, making them a more valuable asset to retail outlets. In addition, their strong partnerships with retail outlets, which stock their other, non-low carb food products, give larger food manufacturers an edge over their smaller, niche counterparts. Many of the smaller low carb companies are likely to eventually be squeezed out of the market.

Major CPGs manufacturers entering the market: a lesson from organics Organic farming and production have been practiced in the United States since the late 1940s and has since evolved from experimental gardening plots to an industry worth $11 billion in 2003.

Initially, the market’s rapid growth was driven by small to medium-sized niche businesses, but as consumer demand picked up, major CPG suppliers, processors and retailers began to enter the high-growth sector. According to a Nutrition Business Journal Study, more than three-quarters of manufacturers competing in the organic sector were sized at less than $10 million in 2002. Out of 1,183 organic companies, only 22 businesses were greater than $50 million.

Many of the major companies simply entered the market by purchasing smaller organic companies. Kraft acquired Boca Burgers and Balance Bar in early 2000, while ConAgra purchased Lightlife Foods that same year. Coca-Cola purchased the organic juice companies Fresh Samantha and Odwalla in 2001.

The involvement of the larger companies has actually contributed to the continued success of the organic market. They were better able to meet the high costs of gaining certification from the National Organic Program, while many smaller companies, unable to afford government approval for their products, have had to reposition their marketing in order to stay in the game.

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Low carb new product development: diversifying products According to Productscan, new low carb product introduction has increased significantly over the past five years, growing from 0.4% of all new food and beverage products introduced in 1999 to 3.4% of all new food and beverage products introduced in 2003.

Table 4.28: New product introductions, #, 1999-2003 1999

2000

2001

2002

2003

Low carb new products Overall new products

47 11,750

211 14,067

352 18,526

339 16,143

633 18,618

% Low carb of overall

0.4%

1.5%

1.9%

2.1%

3.4%

Business Insights Ltd

Source: Productscan

The Wall Street Journal stated that over 1,700 new low carb products were expected to be introduced in 2004. The products were increasingly diverse in nature, from premium ice creams such as Ben & Jerry’s Carb Karma ice cream to General Mills’ low carb 8th Continent Soy Milk to Brown-Forman’s new low carb One.6 and One.9 wines. Between August 2003 and August 2004, Atkins Nutritionals, launched 111 new products, while Nestle recently launched 11 frozen entrees under its Stouffer’s Lean Cuisine brand.

Low carb as a scapegoat News stories about declines in breads, pastas, and other high-carb packaged food sales have abounded recently. According to AC Nielsen, sales of fresh potatoes declined 10% between December 2002 and December 2003, while rice dropped 7% and orange juices and cereals each declined by 3%.

However, while dollar sales of fresh potatoes decreased by 10%, unit volume of sales only slipped 0.5%, suggesting that other factors are at work for monetary sales decreases, such as lower potato prices. In addition, while white bread sales dropped by

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almost 3%, sales of wheat bread increased by nearly 9%, suggesting that consumer’s tastes might be changing. The health benefits of wheat bread have been touted for years.

Food manufacturers have also been quick to blame the low carb trend for declines in sales. Interstate Bakeries Corp, the makers of Wonder Bread and Hostess desserts and cakes, blames the popularity of low carb products for its decreased sales and stock price, and has claimed that reduced consumption of breads drove its sales down for two years.

However, the company’s sales actually increased 1% between 2001 and 2002. Slight sales declines only amounted to a 0.2% decrease between 2002 and 2003, or $6 million. This negligible decrease is nowhere near the sharp sales declines one might expect to see in a company adversely affected by a new dieting trend. In addition, the reduced 2003 revenues seen by Interstate Bakeries Corp. might also be attributed to its sharply rising worker’s compensation costs, up $40 million that year.

Case Study: Atkins Nutritionals One of the leaders in the low carb industry, Atkins is arguably the company that started it all. Through sales of books, videos, supplements, and food, along with partnerships with larger companies, Atkins Nutritionals has grown at an extremely rapid pace, increasing 225% between 2002 and 2003 alone.

A history of Atkins Nutritionals Though Dr. Atkins developed his diet in 1963 and began advocating it in 1972, the actual formation of his company, Atkins Nutritionals, did not begin until much later. Initially, Dr. Atkins opened his own obesity clinic in Manhattan and wrote diet books and cooking guides for those who wished to follow his lifestyle diet.

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Launched in 1989 as Complementary Formulations, Atkins’ company initially sold only supplements designed to provide nutrients to strict Atkins followers. Money raised from sales of the supplements was used to fund ongoing dietary research. Complementary Formulations began selling supplements through a mail order catalog in 1996. In 1997, the company introduced its first controlled-carbohydrate packaged food product, the Atkins AdvantageTM bar.

The company changed its name to Atkins Nutritionals in 1998 and began offering more controlled-carbohydrate foods through retail outlets such as GNC and other health food stores. The rapid growth of the company continued as it added more food products, and in 2001 an updated version of the 1972 diet book, now entitled Dr. Atkins New Diet Revolution, was re-released. Atkins Nutritionals expanded to take on a management team, scientists, and nutritionists who could help meet growing consumer demand for information. They also launched an aggressive advertising campaign developed by advertising agency Mad Dogs and Englishmen.

Figure 4.9: Atkins food product examples, 2004

Business Insights Ltd

Source: www.Atkins.com

Atkins Nutritionals rode on a wave of success, garnering more and more publicity until February 2003, when Dr. Atkins died. Afterwards, a backlash began. New York magazine published a story in March 2004, alleging that Dr. Atkins was obese when he

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died, implying that heart disease and other illnesses were imminent and that his diet was to blame.ii

Nevertheless, value and brand awareness continued to grow, and in October 2003 Goldman Sachs Capital Partners, in partnership with Parthenon Capital, acquired the company. In December 2003, the company announced a partnership with TGI Fridays to provide Atkins-certified meals, a strategy it built upon in early 2004, by teaming with Subway Restaurants. In May 2004, it renewed a partnership with online dieting portal eDiets.

Atkins continually seeks to validate its diet through science, attempting to position itself as a legitimate and proven method for healthy weight loss and lifestyle. It also recently released its own food pyramid as part of that continuing effort.

Atkins food and drink products As of June 2004, Atkins Nutritionals offers 50 supplement products and over 100 different food products under seven brand names: Atkins Advantage, Atkins Bakery, Atkins Crunchers, Atkins Endulge, Atkins Kitchen, Atkins Morning Start, and Atkins Quick Quisine.

The company reached $148 million in sales in 2003. Recently, the company introduced a frozen pizza line under its Quick Quisine brand name, to be distributed by Sara Lee, and continues to look for new avenues to expand its audience, both through strategic partnerships and marketing. Its food products are witnessing larger distribution as well; Atkins Endulge and Atkins Advantage food bars and shakes are sold in major drug stores and through Wal-Mart. In addition, a major international push is underway as Atkins establishes market penetration in the UK.

ii

Steve Fishman, “The Diet Martyr,” New York, March 15, 2004.

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Partnerships and the pyramid Conscious of over-expanding and losing its cachet as a the “truest” low carb company, Atkins plans to leverage its strategic partnerships as a way to gain control within the rapidly developing industry, as well as keep itself above the fray of the smaller, niche low carb companies that now find themselves struggling for survival against the major CPG companies entering the market.

Its recent advertising campaign, introduced in early 2004, publicizes its own “Atkins” version of the food guide pyramid, lending the company an air of scientific credibility that its competitors do not possess.

In addition, Atkins Nutritionals continues to leverage its image as a low carb leader to forge partnerships with eDiets, Subway Restaurants, and Sara Lee Foods. This provides these companies with an instant entry into the low carb marketplace with minimal expenditure on new product development, and also allows Atkins to keep its name on the forefront of the trend and gain wider distribution.

Figure 4.10: Atkins-certified co-venture examples, 2004

Business Insights Ltd

Source: www.subway.com, www.tgifriday.com

The future for Atkins Atkins has focused its efforts on three areas: building partnerships with larger companies, teaching children about low carb diets, expanding its company overseas, and possibly executing an initial public offering of its stock.

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The Atkins Youth Initiative, currently active only in the United States, is an educational program directed at children of elementary and middle school age. Through lessons in school classrooms, gyms and cafeterias, Atkins Nutritionals teaches children to reduce refined carbohydrate intake and increase consumption of proteins.

Atkins entered the UK market in January 2004, and is concentrating on building brand awareness and a loyal audience there before expanding to other areas of Europe and Asia. The company has been careful to study the cultural differences between United States low carb dieters and its potential UK audience, and has invested a great deal in new product development to ensure that its flavors and textures will be palatable to other consumer groups.

Any foods sold in the UK are manufactured in Germany and Switzerland, allowing Atkins Nutritionals to gain a foothold and brand recognition in those countries as well before expanding sales of its products to those areas. In addition, rumors abound on Wall Street that Atkins Nutritionals is preparing to take itself public, executing an initial stock offering later this year.

Case Study: Keto Foods Similar to Atkins Nutritionals, Keto Foods began by selling supplements to low carb dieters. Founded in 1997, Keto expanded to include low carb food products in 1998, after its CEO attempted to follow a low carb diet and could not find alternatives to his favorite, high carbohydrate foods.

Arne Bey, chief executive officer of Keto Foods, cited a 280% growth in sales from 2002-2003, and although exact sales figures are not available, it is estimated that Keto Foods’ sales are in the $100-$200 million range.

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Reformulating favorite foods Its motto, ’Live low carb and eat your favorite foods!” perfectly encapsulates the brand’s mission. Indeed, Keto Foods made its niche by reformulating high carbohydrate foods that were traditionally forbidden in a strict low carb diet, such as pastas, breads, muffin mixes, mashed potatoes and chips.

Keto Foods changed its product line from supplements to packaged foods after its chief executive officer attempted a low carb diet in 1998. When he found a lack of products available to low carb dieters, he created a research and development team to examine and invent new methods of reformulating traditional foods to decrease carbohydrate levels.

Its product line has expanded to include over 140 products, including ice cream. The company aimed to add 87 new products later in 2004, including low carb milk. At the beginning of 2005, Keto Foods had 114 products listed in their catalogue. All products sold in health food stores and other retailers and are also available online.

Figure 4.11: Keto food product examples, 2004

Business Insights Ltd

Source: www.ketofoods.com

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Research and development are key business areas Priding itself on the taste of its products, Keto Foods has a robust research and development department and invests much of its time, manpower, and money in developing new products and formulating new flavors that are tasty and have a pleasant mouth feel and texture.

The main goal of the research and development team is to create low carbohydrate versions of regular foods that look, smell, taste, and feel identical to their regular counterparts. Their understanding of the fact that taste is very important to the consumer could prove a key method of gaining market share among non-low-carb dieters who are looking to limit carb intake in flexible and convenient ways without sacrificing taste.

Future growth Keto Foods is attempting to distribute its products through Wal-Mart stores, which account for about 25% of all retail food product sales in the United States This would provide immense gains in sales and a potential expansion of market share and brand awareness. However, the company is currently too small, and thus cannot manufacture enough products to meet the retail giant’s demand. It is attempting to increase production levels to meet Wal-Mart’s demand.

Following in Atkins’ footsteps, the company is looking to expand its distribution to the UK. It is currently exploring options to begin selling its products in UK supermarkets and other retail stores.

In the future, Keto Foods is looking to continue expanding its product offerings, as well as growing its manufacturing power in order to have the capabilities to distribute its products through retail giants such as Wal-Mart. It is also looking to expand market penetration overseas, where the low carb market is just beginning to gain in popularity and where it can hope to gain brand loyalty and market share before major CPG firms move to enter the market. 89

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Industry survey In May 2004, a telephone survey of 78 members of the CPG manufacturing industry was conducted to determine industry-wide opinion of the low carb trend and also to gauge whether companies are considering entering the marketplace. Respondents were primarily directors or managers of marketing and brand management for Fortune 500 companies.

The low carb market is an opportunity for growth The low carb trend is making manufacturers sit up and take notice. Though industry leaders are unsure of market worth, 70% claim that their companies viewed the low carb trend as highly important, and no manufacturers feel the low carb market is an unimportant one. In addition, 67% view the low carb trend as an opportunity to gain a larger audience. The implicit suggestion behind these responses is that CPG companies’ high levels of interest mean that they are working to develop significant amounts of low carb products to introduce within the marketplace.

Manufacturers were hard-pressed to place a value on the low carb market. Answers ranged from $1 billion to $50 billion, with more than half of respondents admitting that they do not know what the value of the market is. The implications of this are that it is difficult for industry leaders to gauge the size of the market, and, by extension, how much resource they should dedicate to the trend.

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Figure 4.12: Industry perception of low carb trend, by importance, % respondents 80% 71%

Respondents

70% 60% 50% 40% 27%

30% 20% 10%

3%

0%

0% Highly important

Average importance

Low importance

No importance

Business Insights Ltd

Source: Business Insights Industry Survey, 2004

Manufacturers’ forecasts for low carb diets It is well known that consumers are fickle. Tastes and trends change frequently, and are replaced by other short-lived fads. By and large, industry leaders do not view the low carb craze as anything other than yet another in a long line of trends, albeit one that will remain popular for the foreseeable future. Forty-nine percent of respondents foresee another trend taking the place of low carb within three to five years’ time, while 31% see it lasting six to ten years.

Forty-nine percent of respondents noted their belief that Dr. Atkins’ company has driven much of the hype surrounding the low carb trend, followed by 19% listing scientific findings as the driving force behind the trend. Many within the CPG industry link the popularity of the low carb diet to specific diets that have recently gained publicity. Indeed, 60% noted that the success of the low carb trend is either very closely or quite closely linked to specific diets, such as Atkins or South Beach.

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However, while industry leaders know that the low carb trend will not last forever, they are unsure of what or when the next trend will emerge. Opinions range widely, from a preoccupation with trans-fats to increased attention directed at sugar levels and the glycemic index.

On average, manufacturers believe the next diet trend will appear in about 6 years. However, a standard deviation of 4 years shows the diversity of opinion that still exists. It appears that consumers will largely decide the next dieting craze, and manufacturers will follow suit and develop products to suit changing preferences. Nevertheless, this identified a number of elements that need to be in place before the next trend emerges.

Comparison to the low fat trend Thirty-three percent of respondents surveyed for the report saw no difference between the low fat trend of the 1990’s and the current growth of the low carb industry. Of those that did see a difference between the two, 30% note the main difference is the fact that low carb foods taste better than low fat products, and the diet is an easier one to follow. An additional 17% believe that scientific studies of the low carb diet’s effectiveness set the two apart from each other.

These responses carry many of the same implicit suggestions as mentioned above: that dieting trends grip consumers and build up a frenzy with relative frequency, and that consumers are increasingly savvier about the taste of the dietetic products they consume.

The implications of the high levels of respondents noting the better taste of the low carb diet are several. Most notably, there is the notion that consumers want dietetic products that are tasty and healthful. Second, there is the idea that the trend is driven in part by the fact that consumers find it increasingly easy to purchase low carb foods that taste reasonably good and do not make them feel deprived.

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However, manufacturers also agree that in both dieting trends, there is and was a sizable audience among consumers who are not following a specific or strict version of the diet. Of those we spoke to, 36% believe that the low carb trend has influenced consumers who are not following a specific diet to a large extent, while 33% believe it has done so to a moderate extent. As such, it might well be exactly these dieters that sustain the spending on low carb products, as consumers who are not following a low fat diet drive the low fat market.

On average, manufacturers estimate that only about 43% of low fat products are purchased by those following a low fat diet, and that number is expected to decline to 37% in five years’ time. Indeed, if the mature low fat market is any indication, the low carb marketplace will not be driven solely by Low Carb Lifestylers, but by consumers who are not following a restrictive low carb diet.

Table 4.29: Manufacturer opinion of low fat and low carb consumers and purchases now and in five years, % respondents What percentage of food products that are labeled as “low or non-fat” do you think are actually bought by people closely flowing a specific “low fat diet? Estimated % 0-20% 21-40% 41-60% 61-80% 81-100%

What percentage of food products that are labeled as “low carb” do you think are actually bought by people following a specific “low carb” diet?

In 2004

In 5 years time

In 2004

In 5 years time

14% 39% 32% 10% 4%

25% 35% 30% 7% 3%

23% 19% 18% 23% 16%

33% 22% 16% 22% 6%

Business Insights Ltd

Source: Business Insights Industry Survey, 2004

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Figure 4.13: Manufacturer opinion of low fat and low carb consumers and purchases now and in five years, % respondents 100% 90%

Respondents

80%

81-100% 61-80% 41-60% 21-40% 0-20%

70% 60% 50% 40% 30% 20% 10% 0% In 2004

In 5 years time

What % of food products that are labeledas “low or non-fat” do you think are actuslly bought by people closely following a “low fat” diet?

In 2004

In 5 years time

What % of food products that are labeled as “low carb” do you think are actually bought by people closely following a specific “low carb” diet?

Business Insights Ltd

Source: Business Insights Industry Survey, 2004

Future market drivers Manufacturers believe that price will dictate future consumer interest in low carb products, but that Low Carb Lifestylers are not as swayed by high price premiums as other consumer groups. This belief is corroborated by the results of the consumer survey, which found that, although only 10% of Low Carb Lifestylers rank price as the most important factor in their purchasing decisions, 25% of total consumers believe price is the most important part of choosing a product.

One notion that many manufacturers agreed on was the fact that reduced prices would result in higher consumption across all categories of consumers, regardless of their preferences. This argument has merit; though a low carb dieter may not be as concerned with price premiums, a lower price point may spur that dieter to purchase more products, or may convince those thinking about trying a low carb product to do so.

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Table 4.30: Industry perceptions of low carb consumer drivers, by importance, % respondents Most important Taste or flavor Carbs per serving Net carbs per serving Sugar per serving Price Protein per serving Brand name Calories per serving Fat per serving Vitamins/minerals per serving

Somewhat Not particularly important important

61% 25% 24% 19% 18% 11% 10% 9% 6% 3%

35% 42% 37% 40% 50% 31% 57% 37% 47% 31%

Least important

3% 29% 31% 30% 24% 42% 25% 46% 39% 42%

1% 5% 8% 10% 8% 16% 8% 8% 8% 25% Business Insights Ltd

Source: Business Insights Industry Survey, 2004

95% of manufacturers believe that factors other than price will drive the low carb phenomenon. Flavor and taste, the varieties available, and the marketing of those products, will have the strongest effects on the longevity of the trend. Targeted marketing campaigns and tastier products may amount to a stronger driver than price.

Figure 4.14: Industry perceptions of low carb consumer drivers, by importance, % respondents Vitamins/minerals per serving

Low Carb consumer drivers

Fat per serving Calories per serving Brand name Protein per serving Price Sugar per serving Net Carbs per serving Carbs per serving Taste or flavor 0%

10%

20%

30%

40%

50%

60%

70%

80%

90% 100%

Respondents Most important

Somewhat important

Not particularly important

Least important

Business Insights Ltd

Source: Business Insights Industry Survey, 2004

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Endorsements and brand awareness Consumers and manufacturers agree on the importance of celebrity endorsements with regards to a product’s popularity. Consumers across all groups claim that celebrity endorsements are unimportant to them, while only 5% of industry respondents believe that celebrities are an important factor in driving brand awareness and popularity.

However, consumers and manufacturers disagree on the effects that an endorsement by a medical group such as the American Heart Association could have on a product’s popularity. By and large, consumers ranked the importance of such an endorsement as relatively low, while 40% of manufacturers believe that such an approval would be highly beneficial. Indeed, while such an endorsement would not hurt a brand’s image, it appears that manufacturers are overstating the importance of such a seal of approval.

As the Atkins brand continues to refine its image as the arbiter of legitimate scientific information regarding the low carb diet, 22% of industry leaders believe that partnerships with or use of the Atkins brand or other weight loss groups such as Weight Watchers could drive sales. Since Atkins considered the force behind the low carb trend, and continues to forge partnerships with larger corporations, the relationship benefits both parties, granting Atkins larger distribution and brand awareness, and the CPG manufacturer an immediate and legitimate presence in the low carb marketplace.

Drivers contributing to product success With most consumers increasingly focused on health, the image of a product as a dietconscious or beneficial food item often determines its popularity. However, while the survey reveals that an average of only 6% of non-low carb consumers are concerned with carbohydrate content, net carbs, or protein content, manufacturers believe that these food components are very important to the healthful image of a product.

Interestingly, consumers ranked the importance of most food components in the opposite order that the manufacturers did, suggesting that manufacturers have differing opinions of consumer drivers. Table 4.31 compares responses from both consumers and 96

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manufacturers. Needless to say, successful marketing of low carb products will depend on how well manufacturers can meet the needs and desires of consumers.

Table 4.31: Ranking of manufacturer vs. consumer preferences Rank

Manufacturers

Consumers

1 2 3 4 5 6 7 8 9 10

Taste or flavor Carbohydrates per serving Net carbs per serving Sugar per serving Price Protein per serving Brand name Calories per serving Fat per serving Vitamins/minerals per serving

Price Taste or flavor Fat per serving Calories Per serving Vitamins/Minerals per serving Sugar per serving Protein per serving Carbohydrates per serving Net carbs per serving Brand Name

Source: Business Insights Industry and Consumer Surveys, 2004

Business Insights Ltd

The low carb marketplace Price premiums are high On average, the prices of low carb products far exceed that of conventional foods. This is likely due to several factors. Firstly, small, niche low carb companies that have comprised the low carb market until recently must charge more in order to recover production costs. Second, in the absence of larger manufacturers, consumers looking to count carbs were left without many options and were thus forced to buy higher-priced goods. Finally, the ingredients for low carb foods are more expensive – replacing starches with soy proteins increases production costs. As a result, low carb prices are at a large premium. Atkins’ low carb bread retails for $4.99, 117% above the price for a conventional loaf of bread.

The larger corporations can also offer lower prices than smaller, low carb niche manufacturers. Sara Lee’s Delightful Bakery bread retails at $2.59, a 13% price

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premium over regular breads, while Atkins’ low carb bread sells for $4.99, a 117% price premium.

Table 4.32: Low carb price premium examples, 2004 Category

Product

Price

Beer

Michelob Michelob Ultra

$1.35 $1.75

Ketchup

Heinz Tomato Ketchup Heinz One Carb Ketchup

$1.59 $1.89

Orange Juice

Tropicana Pure Premium Tropicana Light 'N Healthy

$3.29 $3.29

Pasta

Mueller's Regular Spaghetti Mueller's Reduced Carb Spaghetti

$0.99 $1.99

Ice Cream

Klondike Big Bear Sandwiches Klondike Carbsmart Sandwiches

$3.99 $3.99

Bread

Sara Lee Classic White Bread Sara Lee Delightful White Bread

$2.34 $2.57 Business Insights Ltd

Source: Time Magazine, May 3, 2004

The high expense of low carb products may prove prohibitively expensive for many consumers. While larger corporations can introduce low carb products at a lower price premium, they also must contend with higher costs for ingredients such as soy protein, a cost that will undoubtedly be passed on to the consumer.

A recent study by Opinion Dynamics concluded that individuals with incomes greater than $50,000 were 50% more likely to be following a low carb diet. Much of this can be attributed to high price premiums that consumers with lesser incomes cannot afford. Indeed, it was found in its consumer survey that Low Carb Lifestylers are more likely to be Baby Boomers, who command the highest incomes in the United States.

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Price premiums as a barrier to market growth One of the most important elements to a successful organic transition from niche sector to mainstream industry was manufacturers’ ability to lower price premiums. “Certified organic” produce qualified for higher prices than non-organic products. In 2002 price premiums for organic foods often ranged from 50% to as high as 100%.

The organics market differs from the low carb market in that the market was highly dependent on farmers and agricultural laborers to produce organic foods, and also depended upon use of certified land, which comprise a tiny minority of all United States farmland and pastureland. Thus, higher prices were necessary to offset the higher production costs of management, labor, and lower farm yields. In addition, requirements from the National Organic Program increased management and labor costs.

As a result, many small and mid-scale farmers were forced out of the organics market, unable to meet increasing costs for certification and increasing demand for product. The increases in production costs were also passed on to consumers, making it difficult for those with lower income levels to afford an organic diet.

While price premiums have not decreased completely, the presence of larger companies in the marketplace have allowed them to decline, as the major CPG manufacturers are better able to afford lower profit margins.

Low carb ingredients and product formulation Much of the high cost associated with purchasing low carb products can be attributed to the increased manufacturer costs incurred by using more expensive ingredients and investing in new product development. In order to lower carbohydrate levels in products such as breads, cakes, and cereals, manufacturers must replace flour and other grains with costlier powdered protein formulations, such as soy protein powder, which supply a reasonably similar texture. Egg protein and milk protein can be substituted as well, though egg protein is much more expensive. According to “Low Carb Going 99

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Mainstream,” a February 2004 article in Food Product Design, soy protein is the least expensive low carb flour substitute. However, it still amounts to higher production costs – and none of the substitutes have the same texture or taste as traditional flour. A developing area for low carb ingredients is dietary fiber, which provides a feeling of fullness after consumption, but is not absorbed during digestion and thus does not constitute a “net carb.” This ingredient is also preferable for use in low carb breads and pastas because it provides the familiar texture of regular breads products.

Sweeteners such as high-fructose corn syrup and sugar are considered too high in carbs by strict Atkins followers, who note that such ingredients also raise blood sugar. In place of these sweetening products, low carb foods and beverages are reformulated to contain sugar alcohols such as maltitol or sorbitol, which cannot be absorbed by the body and thus are not counted as “true” carbs. Though sugar alcohols are not absorbed by the body, they still contain a significant calorie load. The calories are absorbed into the body through the large intestine through fermentation, and can also contribute to unpleasant digestive side effects.

Table 4.33: Sweetener substitute glossary Sweetener Substitute Aspartame Erythritol Glycerol Isomalt Lactitol Maltitol Saccharin Sorbitol Sucralose

Description An artificial sweetener about 180 to 200 times sweeter. Than sugar, it provides 4 calories per gram. A polyol that is rapidly absorbed, though more than 90% is excreted. Very low in calories compared to other polyol sweeteners. A polyol that is completely absorbed and metabolized. Medical professionals consider this equivalent to carbohydrates in terms of caloric and metabolic effects. A sugar alcohol that is low in calories, but provides some calories through fermentation in the digestive system. A sugar alcohol that is absorbed by the body in very small amounts, but can cause unpleasant digestive side effects. A sugar alcohol that has a higher calorie content than many other sugar alcohol sweeteners. It’s effects on blood sugar are 25% that of glucose. An artificial sweeteners that is about 300 to 400 times as sweet as sugar. A sugar alcohol with unpleasant digestive side effects on up to 75% of individuals when in increments of more than 20 grams. An artificial sugar, it has virtually zero calories and is 600 times sweeter than sugar. It is heat stable. Business Insights Ltd

Source: Food Product Design

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Marketing a low carb product Increasingly, low carb manufacturers are turning to images of fitness and health or science and research to convey their images as healthful and legitimate food manufacturers.

Anheuser-Busch launched its low carb beer, Michelob Ultra, with a marketing campaign depicting athletically inclined individuals lifting weights, riding bikes, or jogging. The implication is that the low carb beer can be enjoyed by fit individuals, and even, perhaps, directly contributes to their “healthy living” success.

Atkins Nutritionals, however, has taken a different road in marketing its food products. Its two-pronged approach includes “warning” consumers about the ill effects of other low carb foods, which are not truly low carb and are thus detrimental to overall health. It also presented its own Food Pyramid, detailing which foods it considers contributors to good health and long-term weight maintenance.

By warning consumers as to the ill effects of “false” low carb food and presenting them with its own scientific recommendations for healthy living, Atkins has tried to position itself as a brand that truly cares about consumers’ health.

Conclusions The low carb marketplace has exploded in popularity over the last two years, increasing both competition within the industry and variety for consumers. While price premiums are still quite high in some categories, the entry of major CPG manufacturers into the low carb market, with their ability to underprice their smaller competitors, has forced some prices down. In addition, the increasing availability of stable and tasty ingredient substitutes has improved product taste and NPD opportunity. Smaller companies such as Atkins Nutritionals and Keto Foods are looking to expand their businesses overseas to capture market share, particularly where the low carb trend is

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just beginning. Major CPG manufacturers in the United States will be reshaping the competitive landscape over the next few years.

Chapter Five analyzes the forthcoming changes within the medical and regulatory environment and their potential effects on the low carb industry.

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Chapter 5

Medical & Regulatory Environment

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Chapter 5

Medical & Regulatory Environment

Summary


The Obesity Working Group (OWG), is currently considering changes to nutrition labels to reflect changing attitudes about serving size, calories per serving and is beginning to explore the possibility of adding carbohydrate count to nutrition labels as well;




Glycemic index testing is being developed to determine the effects of different foods on blood sugar;




Only about four percent of the public eats a diet that conforms to the recommendations of the USDA and the Food Guide Pyramid;




The FDA is working to better define serving sizes and encourage consumers to eat according to caloric content, rather fat or carbohydrate content;




Nutritionists speculate that, in the very long term, dieters adhering to a strict low carb diet such as Atkins will find their cholesterol and triglyceride levels skyrocket, and their insulin levels increase;




Plans to change the Food Pyramid Guidelines and nutritional labels might moderately impact the marketplace, but the potential regulation of low carb claims on food packaging will have the most effect on the trend’s future.

Introduction The rapid change in the low carb industry is mirrored by an equally substantial series of overhauls within the medical and regulatory communities. Forthcoming new regulations and guidelines can potentially impact the low carb market in significant ways. Firstly, the USDA is currently planning to update the Food Guide Pyramid, and there is a great deal of speculation as to what the new guidelines will recommend. 104

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While no long-term studies have been completed to determine the effects of the low carb diet on future health, most short-term studies report positive weight changes while on a low carb diet. In addition, the Obesity Working Group (OWG), a subset of the FDA, is currently considering changes to nutrition labels to reflect changing attitudes about serving size and calories per serving. The group is also examining the possibility of regulating low carb claims on food packaging. This chapter examines current and planned studies and regulations, and their effect on the future of the low carb market.

Key findings


To date, the longest-term dieting study examined the effects of a low carb diet vs. those of a conventional diet over a 12 month period, and found no significant weight loss differences between dieters following either eating regimen;




Glycemic index testing is being developed to determine the effects of different foods on blood sugar;




Only about four percent of the public eats a diet that conforms to the recommendations of the USDA and the Food Guide Pyramid;




The FDA is working to better define serving sizes and encourage consumers to eat according to caloric content, rather fat or carbohydrate content.

The science behind dieting Fewer than one in ten dieters who lose weight manage to keep it off for more than a year. Weight-loss has been linked to lowering cholesterol, reducing blood pressure and hypertension, and in some cases, reducing or ending bouts of diabetes.

Metabolism is defined as the number of calories a body burns for energy while in a resting state. This is the energy needed to keep the heart pumping, the brain

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functioning, and the body’s temperature maintained. From a metabolic standpoint, dieters lose weight because they are taking in fewer calories than they burn.

However, when dieting is not done in conjunction with exercise or weight training, dieters often lose muscle along with fat. Since muscle tissue burns more calories at a resting rate than fat tissue, the loss of muscle means a lower rate of metabolism – the body cannot burn as many calories on its own. With each successive diet, dieters’ metabolism becomes lower and lower, making it easier for a dieter to regain the lost weight.

Overwhelmingly, the nutritionists interviewed for this report state that the only effective weight-loss tool is healthy eating and exercise. They also suggest consuming a minimal amount of packaged foods and higher quantities of vegetables and whole grains.

Since over 90% of dieters gain back lost weight within a year, the only successful dieters are those who make lifestyle changes and continue with those changes in the long-term. Many dieters who have given up on a strict eating regimen continue to follow a more flexible version in the long-term, continuing to purchase dietetic versions of everyday packaged goods in an effort to maintain some level of healthfulness in their diets. According to the consumer survey, 84% of consumers who are trying to eat healthfully continue to cut back on fat intake.

The low fat and low carb theories The low fat theory Dr. Dean Ornish, a physician specializing in cardiovascular health, developed the Ornish Diet, an extremely low fat eating regimen. He posits that eating fewer calories from fat means lowering cholesterol and keeping the heart healthy. His Ornish Diet, also known as the Prevention Diet, is followed by sufferers of heart disease and high cholesterol levels. Dr. Ornish advocates eating foods with lower levels of saturated fat, claiming that the higher fat foods lead to heart disease. Followers of his diet do lose 106

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weight, though nutritionists speculate that it is mostly due to the fact that they consume fewer calories.

A gram of fat contains nine calories, compared to four calories for a gram of carbohydrates. For this reason, foods higher in fat tend to contain more calories than their low fat counterparts.

Dieters who follow a strict low fat diet such as the Ornish Diet or the Pritikin Diet consume more complex carbohydrates such as vegetables and whole grains—foods much lower in calories – and eschew all foods with high levels of fat. As a result, strict low fat dieters eat many fewer calories each day.

The low carb theory The Atkins Diet posits that a low carb diet leads to faster weight-loss through a severely restricted intake of carbohydrates and a diet heavy in proteins and fats. The theory behind this type of diet concerns the way the body burns fats, proteins and carbohydrates. According to Atkins, carbohydrate molecules are the easiest for a body to burn, and less satiating than fats and proteins. As a result, dieters with a high carbohydrate intake often find themselves hungrier than dieters who eat higher levels of protein and fewer carbohydrates.

In contrast, fat and protein molecules are more difficult for the body to break down, and take more energy to burn. Consequently, more calories are expended on digestion, and the body stays fuller, longer, leading to a lower overall caloric intake as the body needs less food to stay satiated. Dr. Atkins also claimed that the low carbohydrate diet contributed to lower insulin levels and lower glycemic loads, aiding diabetics in maintaining blood sugar.

The Atkins Diet also forces the body into a stake of ketosis, wherein the body excretes fat particles known as ketones in an effort to maintain the body’s PH balance. Atkins refers to this as the “metabolic advantage” because ketones contain five calories per

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gram, but many doctors and nutritionists deny that this is a healthy state for a body. Nutritionists point to the fact that ketosis is also present in victims of starvation.

The diet also points to “net carbs” as an important part of carbohydrate intake. Net carbs are calculated by removing calories from fiber and sugar alcohols from the total measurement of carbohydrates. Fiber and sugar alcohols, such as maltitol and sorbitol, cannot be digested by the body or absorbed in the small intestine, and thus pass through the body without affecting the body’s carbohydrate count.

The low fat and low carb trends The low fat trend The low fat trend of the 1990’s differed from the strict low fat diet. Food manufacturers responded to the low fat trend by creating low fat versions of higher-fat foods. During the peak of the dietary trend in 1996, one-third of all households were purchasing low fat foods. According to Productscan, 26% of new food products introduced into the marketplace in 1996 made low fat, no-fat, or reduced-fat claims, compared to about 13% today.

Many consumers complained that the first versions of these foods did not have the same taste or mouth feel, and were often drier and less savory than their higher-fat counterparts. For example, consumers often complained about the taste of Nabisco’s SnackWells cookie, the symbol for the low fat phenomenon.

Manufacturers responded by loading the low fat products with sugar and other additives to maintain taste and mouth feel. The result was sugar-laden products with as many calories as the higher-fat versions. Consumers ate the low fat foods with abandon, believing the low fat label was a license to eat larger quantities of the food products. Nutritionists agree that dieters believed that low fat foods were a panacea for all weight gain ills. Undoubtedly, this was one of the many factors contributing to increased weight gain, in conjunction with other lifestyle changes such as decreased levels of exercise. 108

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Though the low fat trend has declined in popularity and the low fat food and drinks market has matured, many consumers still continue to watch their fat intake. In fact, 66% of consumers surveyed say that they cut back or eliminate fat as part of their efforts to lose weight.

The low carb trend The low carb trend differs from strict low carb diets in much the same way that the low fat trend differed from the stricter low fat diets. Already, the media has begun to report that many consumers who claim to be counting their carbs or watching their carbohydrate intake are consuming far more calories and carbs than they realize.

The glycemic index Put simply, the glycemic index is a ranking of each food based on its effects on blood sugar after consumption. Simple carbohydrates that break down easily, such as potatoes, pasta and white bread, have a much higher effect on blood sugar than harderto-digest complex carbohydrates such as leafy green vegetables and whole grains, fats and proteins.

Some doctors within the medical community believe that lower glycemic index levels can lead to a decreased sensitivity to insulin, as well as prolonging endurance, keeping the body fuller for longer, and helping to lose weight. Diabetics are encouraged to monitor their glycemic load, or the response of blood sugar to a full meal, as a method of controlling the disease.

The Atkins Diet, Sugar Busters, and Nutri-System also assert that a lower glycemic index aids in weight loss. By eating a diet that has a negligible effect on blood sugar, a dieter can thus burn fats and proteins with more alacrity.

Australia has recently begun including low-glycemic index certifications on food packages. The certifications, administered by an independent glycemic index council,

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are intended to aid diabetics and dieters counting their glycemic loads. There are no plans scheduled to introduce similar measure in the United States.

Figure 5.15: Glycemic index certification symbol

Business Insights Ltd

Source: www.glycemicindex.com

While a great deal of publicity has surrounded the glycemic index as of late, nutritionists dispute its effectiveness, pointing out that, under the glycemic index, a potato is less preferable to a serving of high-fat ice cream.

Another challenge facing the glycemic index is that, while scientists can calculate the index of a single food item, they cannot calculate the total glycemic load of an entire meal, because they are still unsure of how foods interact with each other to affect blood sugar. Therefore the glycemic index is only useful in calculating the effects of a single item of food.

Low carbohydrate studies While few long-term studies have been completed examining the effects of low carb dieting, a number of short-term studies have taken place. These studies, lasting from 90 days to six months, do not necessarily portray low carb dieting as more effective than low fat dieting in terms of weight loss. However, many news stories portray the studies as proof that low carb diets are more effective than other diets.

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Short-term studies A randomized trial published in the April 2003 issue of the Journal of Clinical Endocrinology and Metabolism iii examined the effects of low carb dieting versus conventional methods of weight loss. In the trial, 53 obese women were placed on either an ad-lib very low carbohydrate diet or a calorie-restricted low fat diet. At the end of the six-month-long study, the low carb dieters had lost an average of 8.5 pounds, compared with four pounds for low fat dieters. They were also found to have lost more body fat during that time period – five percent as compared to two percent for their low fat counterparts. The study was careful to note that longer studies are needed to determine long-term effectiveness of the diet.

A review published in the Journal of the American Medical Associationiv examines the effects of cutting carbohydrates from the diet. Dr. Dena Bravata of the Stanford University School of Medicine, researched studies of low carbohydrate diets published between 1966 and 2003. The 107 articles she discovered examined over 3,200 study participants, 660 of which adhered to low carbohydrate diets. What she discovered was that weight loss was not associated with low carb diets, but rather with the duration of the diet and the caloric intake of the subjects. The study also found no significant effects on glucose levels, insulin levels, or blood pressure – three areas the Atkins diet claims to affect.

In addition, Dr. Michael Dansinger of Tufts University recently completed a study examining dieters adhering to Ornish, Weight Watchers, the Zone, and Atkins. Dieters following the Ornish diet lost six percent of their body weight, while Weight Watchers and Zone followers lost five percent and Atkins dieters lost four percent.

iii

Journal of Clinical Endocrinology and Metabolism, 2003; 88:1617-1623

iv

Journal of the American Medical Association, 2003; 289:1837-1850, 1853-1855

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Table 5.34: Average reduction in weight and heart disease, and dropout rate, by specific diet, % Diet Type

% Reduction in Weight

Reduction in Heart Disease Risk

Dropout Rate

6% 5% 5% 4%

7% 11% 15% 12%

50% 35% 35% 48%

Ornish Zone Weight Watchers Atkins

Business Insights Ltd

Source: Morgan Stanley

However, the most interesting part of the study was the fact that, after two months, Dr. Dansinger left the 160 test subjects to follow the diets on their own. Nearly one quarter of the participants quit their diets immediately, and after a year 50% had quit the Atkins diet, compared to 35% for Weight Watchers and the Zone.

Short-term significant weight loss A six-month long study was published in the May 2003 New England Journal of Medicine examining the effects of a low fat diet versus a low carb diet on obese men and women. It was found that after six months, the group following the Atkins-style low carb diet had lost 13 pounds, compared to four pounds for the low fat dieting group. The low carb dieters also found that their cholesterol levels and lipid counts decreased, as did insulin levels. The study stirred up a great deal of controversy, as dieters who had been led to believe that high-fat diets would lead to weight gain and significant health problems. Studies such as this have been much touted in the media as evidence that doctors, the FDA and the USDA have had it wrong all along.

The most highly publicized studies all follow the same theme, explaining the markedly increased weight-loss enjoyed by low carb dieters without examining the long-term effects of the diet. Nutritionist Carla Wolper also blames the media’s coverage of the six months studies for dieters’ misconceptions of the low carb regimen, asserting that journalists have misconstrued the findings or underreported the complications associated with the Atkins. 112

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Doubtless many dieters have now begun watching carbs with the expectation that they too will lose a significant amount of weight; however, it is important to note that doctors closely supervised the participants in the study and they adhered to a strict, Atkins-style diet. Advertising and media attention have led consumers to view the Atkins diet and a low carb diet interchangeably, leading many to believe that just counting carbs on a flexible basis will lead to the same weight loss enjoyed by participants in the short-term study.

Long term studies At present, there have been no long-term studies examining the effects of the low carb diet. The longest-term study to date was a yearlong study led by Dr. Gary Foster of the University of Pennsylvania’s School of Medicine, completed in May 2003. It compared obese participants adhering to the Atkins diet against obese participants placed on a low-calorie, high-carbohydrate diet.

Although at six months, he found that the Atkins dieters had lost 15 pounds and the low fat dieters had lost seven pounds, by the end of the year, he found no significant difference in weight loss. In fact, the Atkins dieters actually gained back, on average, six of the pounds initially lost, while the conventional dieters, though they lost fewer pounds, did not regain any weight. Dr. Foster also found no significant difference between cholesterol levels, insulin levels, or glycemic index levels.

Table 5.35: Pounds lost, by time on diet, low carb vs. conventional dieting, 2003 3 months

6 months

12 months

14.7 5.8

15.2 6.9

9.5 5.4

Low Carb group weight loss (total) Conventional Diet group weight loss (total)

Source: "A Randomized Trial of a Low-Carbohydrate Diet for Obesity", University of Pennsylvania, May 2003 Business Insights Ltd

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Nutritionists speculate that, in the very long term, dieters adhering to a strict low carb diet such as Atkins will find their cholesterol and triglyceride levels skyrocket, and their insulin levels increase. Dr. Wolper also speculates that the increased levels of protein and fat will lead to higher levels of cancer, most notably colon cancer, due to the high levels of constipation associated with the low-vegetable, high protein diet. Low carb studies have only recently begun, so the diet’s long-term effects are still unknown. It may take years before scientists have gathered enough data to fully understand its implications. Future illnesses or complications associated with the highprotein, low carbohydrate diet may take years to manifest themselves within the body.

Government The Food Guide Pyramid With the publication of the New York Times Magazine article, “What If It’s All Been a Big Fat Lie?” by Gary Taubes, July 7, 2002, the Food Guide Pyramid came under increasing scrutiny for its confusing and misleading information. Some critics of the pyramid assert that it has contributed to the obesity epidemic with its rigid, one-sizefits-all list of guidelines meant to apply to all body types, lifestyles and genders and heavy emphasis on breads and grains. Indeed, the pyramid makes recommendations such as “6-11 daily servings of grains and breads,” with no explanation as to what a “serving” refers to.

In early 2003, a technical research team within the United States Department of Agriculture began researching and developing revisions to the national food guidelines. In September 2003, the USDA issued a call for public comment on the nutrient recommendations contained within the Food Guide Pyramid. With that notice, the USDA announced its intentions to reconfigure the entire pyramid, in place since 1992. A new list of guidelines and recommendations is currently being designed.

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The new list of guidelines, to be known as the “Food Guidance System,” will be a much more flexible plan for nutrition and daily food intake, allowing for different body types, lifestyles, nutritional needs, genders and ethnicities. Less emphasis will be placed on simple carbohydrates such as breads, pastas, and rice, and will instead shift to complex carbohydrates such as vegetables and whole grains. Though the United States FDA is planning to make the food guide more interactive and user-friendly, with plans to post programs and calculators online for consumers to calculate their own daily needs, the impact of the pyramid – or any government-issued food guide – is negligible.

“Indications are that only about four percent of the public eats a diet that conforms to the recommendations of the food pyramid,” says John Webster, the Director of Public Information and Governmental Affairs and the USDA Center for Nutrition Policy and Promotion. Nutritionists agree, overwhelmingly stating that the majority of consumers and dieters do not pay attention to the pyramid – many do not even know it exists.

Atkins and the Food Pyramid In contrast to the USDA’s forthcoming dietary guidelines, Atkins Nutritionals, Inc recently released its own Food Guide Pyramid, published as advertisements in magazines and newspapers. Atkins Nutritionals’ sophisticated advertising has increased consumer awareness in a way that the USDA Food Guide Pyramid has not. Some nutritionists feel that the USDA has stepped up efforts to rush the completion of its Food Guide Pyramid in order to compete with the Atkins Pyramid.

The FDA and nutrition labels Current labeling laws put into place by the FDA in 1994, list calories per serving and nutritional information, along with the serving size as a percentage of daily caloric and vitamin intake. Changes are now being made to the label; in 2006 all packaged foods will require a listing of trans-fats on their nutrition labels.

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Table 5.36: FDA guidelines Nutrient

“Free”

“Low”

“Reduced/Less”

Total Fat