The US Diet Market Outlook

CONSUMER
The US Diet Market Outlook To 2008

Future profit opportunities for low carb and other fast
growth diets
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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 20
Overview 20
Ever more homogeneous dietary habits and lifestyles 20
Consumer weight profile 21
Consumer health profile 22
Metabolic syndrome 22
Diabetes 22
The cyclical nature of dieting 25
Popular diets by type 25
Low carb diets 26
Low fat diets 27
Other diets 27
Diet support groups 28
Individual Dieting 29
The weight-loss industry 29
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Low carb dieting 30
The original low carb diet 31
The Atkins Advantage 31
Consumer segmentations 32
Consumer dietary habits by type 32
Dedicated low carb lifestylers 33
Flexible low carb lifestylers 34
Consumer perception of the low carb lifestyle 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
Snacks 40
Soft Drinks 42
Dairy 43
Bakery 45
Confectionery 46
Prepared meals 47
Strengths and weaknesses of the low carb trend 49
The strengths… 49
Manufacturer survival 49
Prevalence of flexible dieters 49
Scientific findings do not refute low carb benefits 50
A new alternative 50
…and the weaknesses 50
Market saturation 50
Potential lack of scientific support 50
Decrease in efficacy and/or success stories 50
Conclusions 51
Chapter 3 The US Diet Consumer 54

Summary 54
Introduction 54
Key findings 55
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Consumer profile 55
Segmentation by weight 55
Motivated to get thin 56
Consumer survey 57
Dieting population profile 57
Consumer behavior 59
Willpower diminishes throughout the day 59
Only Low Carb Dieters interested in carbohydrate intake 60
True Low Carb Dieters are few and far between 62
Understanding consumers’ food choices 62
Understanding consumers’ drink choices 64
Consumer drivers 66
Personal relationships drive consumers’ diet choices 66
Taste and price drive the consumer 67
Taste is a barrier for attracting new low carb consumers 69
Conclusions 69
Chapter 4 Competitive Analysis of Major

Low Carb Brands 72
Summary 72
Introduction 72
Key findings 73
Manufacturer identification 73
Low carb manufacturers 73
Larger companies weigh in on the low carb trend 74
Competition among low carb manufacturers 76
Changing the landscape of the low carb market 80
Major CPGs manufacturers entering the market: a lesson from
organics 81
Low carb new product development: diversifying products 82
Low carb as a scapegoat 82
Case Study: Atkins Nutritionals 83
A history of Atkins Nutritionals 83
Atkins food and drink products 85
Partnerships and the pyramid 86
The future for Atkins 86
Case Study: Keto Foods 87
Reformulating favorite foods 88
Research and development are key business areas 89
Future growth 89
Industry survey 90
The low carb market is an opportunity for growth 90
Manufacturers’ forecasts for low carb diets 91
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Comparison to the low fat trend 92
Future market drivers 94
Endorsements and brand awareness 96
Drivers contributing to product success 96
The low carb marketplace 97
Price premiums are high 97
Price premiums as a barrier to market growth 99
Low carb ingredients and product formulation 99
Marketing a low carb product 101
Conclusions 101
Chapter 5 Medical & Regulatory

Environment 104
Summary 104
Introduction 104
Key findings 105
The science behind dieting 105
The low fat and low carb theories 106
The low fat theory 106
The low carb theory 107
The low fat and low carb trends 108
The low fat trend 108
The low carb trend 109
The glycemic index 109
Low carbohydrate studies 110
Short-term studies 111
Long term studies 113
Government 114
The Food Guide Pyramid 114
Atkins and the Food Pyramid 115
The FDA and nutrition labels 115
Low Carb Claims and Nutrition Labels 118
Regulating organics 119
Conclusions 120
Chapter 6 The Future of Low Carb Dieting

and Beyond 122
Summary 122
Introduction 122
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Key findings 123
Rapid growth of low carb bakery, snacks and prepared meals 123
The rapid growth of the bakery category 124
Guilt-free snacking 125
Low carb frozen meals will appeal to busy consumers 126
Increased market consolidation 126
Distribution and shelf space 127
Market consolidation 127
The importance of “Buy-in” of Healthful Eaters and healthcare referrals 128
Internalizing the low carb message 128
Medical factors 129
The next “big thing” - five years away 129
Industry and consumer components necessary for significant trends 130
Increased media coverage of low carb weight loss 131
High levels of controversy 132
A charismatic spokesman 134
Development of ingredients and improved product taste 135
A mature food and beverage industry 136
The “coolness” factor 137
The promise of a quick fix 139
Scientific logic that makes sense to the layman 140
Chapter 7 Low Carb Diet Growth Strategies 142

Summary 142
Introduction 142
Key findings 143
Improve the taste, competitiveness and appeal 143
Product formulation and taste 143
Reducing price premiums 144
Target evening eating occasions 145
Brand building and preparation for strategic alliances and acquisitions 145
Small, niche low carb companies 145
Large CPG manufacturers 146
Education through marketing partnerships 146
Create wider appeal through marketing campaigns 146
Partner with healthcare professionals 147
Develop community outreach programs 148
Conclusions 149
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List of Figures
Figure 3.1: US population by BMI category, by gender, %, 2002-2007 56
Figure 3.2: Ranked meal occasion by ease of diet adherence, by consumer group, % (where 1 =
easiest and 6 = hardest) 59
Figure 3.3: Consumption changes made when attempting weight loss/maintenance, by consumer
group, % respondents who answered “always” 61
Figure 3.4: Consumption changes when attempting to lose/maintain weight, by food category, %
respondents 64
Figure 3.5: Consumption changes when attempting to lose/maintain weight, by drinks category, %
respondents 65
Figure 4.6: Low carb beer and malternative entrants, 2004 77
Figure 4.7: “Mid-carb” soda entrants, 2004 78
Figure 4.8: Reduced-carb orange juices, by brand, 2004 79
Figure 4.9: Atkins food product examples, 2004 84
Figure 4.10: Atkins-certified co-venture examples, 2004 86
Figure 4.11: Keto food product examples, 2004 88
Figure 4.12: Industry perception of low carb trend, by importance, % respondents 91
Figure 4.13: Manufacturer opinion of low fat and low carb consumers and purchases now and in
five years, % respondents 94
Figure 4.14: Industry perceptions of low carb consumer drivers, by importance, % respondents 95
Figure 5.15: Glycemic index certification symbol 110
Figure 5.16: Proposed changes to nutrition labels, 2004 118
Figure 6.17: Market size, by category, $bn, 2003-2008 125
Figure 6.18: USDA Food Guide Pyramid, 2003 132
Figure 6.19: Atkins Food Guide Pyramid, 2004 134
Figure 6.20: Consumer groups and product attributes, by degrees of “coolness” 138
List of Tables
Table 1.1: Prevalence of overweight and obesity, 2002-2007 21
Table 1.2: Prevalence of diabetes, by type, (million), 2003-2009 24
Table 1.3: Risk factors associated with being overweight and obese 24
Table 1.4: Breakdown of the weight-loss industry, by category 30
Table 1.5: Consumer segmentation, by dieting/lifestyle type 33
Table 1.6: Consumer perception of the low carb diet, by “agree completely” and “agree
somewhat,” by consumer group (% respondents) 35
Table 2.7: U.S. low carb food and beverage market value, by category, ($m), 1998-2008 40
Table 2.8: Growth of low carb snacks market, ($m), 1998-2008 40
Table 2.9: Low carb product introductions, snacks category 42
Table 2.10: Growth of low carb soft drinks market, ($m), 1998-2008 42
Table 2.11: Growth of low carb dairy market, ($m), 1998-2008 43
Table 2.12: Low carb product introductions, dairy category 44
Table 2.13: Growth of low carb bakery market, ($m), 1998-2008 45
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Table 2.14: Low carb product introductions, bakery category 46
Table 2.15: Growth of low carb confectionery market, ($m), 1998-2008 46
Table 2.16: Low carb product introductions, confectionery category 47
Table 2.17: Growth of low carb prepared meals market, ($m), 1998-2008 47
Table 2.18: Low carb product introductions, prepared meals category 48
Table 3.19: Main reason for dieting, by gender, % respondents 57
Table 3.20: Consumer groups, by age, % respondents 58
Table 3.21: Consumption changes made when attempting weight loss/maintenance, by consumer
group, % respondents who answered “always” 60
Table 3.22: Consumption changes when attempting to lose/maintain weight, by food category, %
respondents 63
Table 3.23: Consumption changes when attempting to lose/maintain weight, by drinks category, %
respondents 65
Table 3.24: Ranked influencing factors in dieting choice, by consumer group, (where 1 = strongest
and 8 = weakest) 66
Table 3.25: Ranked purchasing priorities, by consumer group (where 1 = strongest and 10 =
weakest) 68
Table 4.26: Low carb companies and respective product categories, 2003 74
Table 4.27: Multinational companies and respective new low carb product introductions, through
June 2004 75
Table 4.28: New product introductions, #, 1999-2003 82
Table 4.29: Manufacturer opinion of low fat and low carb consumers and purchases now and in
five years, % respondents 93
Table 4.30: Industry perceptions of low carb consumer drivers, by importance, % respondents 95
Table 4.31: Ranking of manufacturer vs. consumer preferences 97
Table 4.32: Low carb price premium examples, 2004 98
Table 4.33: Sweetener substitute glossary 100
Table 5.34: Average reduction in weight and heart disease, and dropout rate, by specific diet, %
112
Table 5.35: Pounds lost, by time on diet, low carb vs. conventional dieting, 2003 113
Table 5.36: 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 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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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
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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;
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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 ever-
growing 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) 113 129

% of population 40% 43%
Obese No. people (million) 67 75
Total Overweight/Obese No. people (million) 180 204

Source: Business Insights Business Insights Ltd
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 adult-

onset 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 African-
Americans. 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 0.8 0.9 0.9 2.0%

Type 2 diabetes 16.2 17.3 18.6 20 3.6%
Overall diabetes 17.0 18.1 19.5 20.9 3.5%

% of population 6.1% 6.5% 7.0% 7.5%
Source: Business Insights Business Insights Ltdd
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 Obesity is associated with:

risk factor for:
· Diabetes · High blood cholesterol

· Heart disease · Complications of pregnancy
· Stroke · Menstrual irregularities
· Hypertension · Increased surgical risk
· Gallbladder disease · Psychological disorders such
· Osteoarthritis (degeneration of cartilage as depression
and bone of joints) · Stress incontinence (urine leakage
· Sleep apnea and other breathing problems caused by weak pelvic-floor muscles)
· Some forms of cancer (uterine, breast, · Hirsutism (presence of excess body
colorectal kidney, and gallbladder) and facial hair)
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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
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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 Slim-
Fast, 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 Nature’s Science Vitamins

enhance nutrition; can be One-A-Day Multivitamin
purchased at supermarkets,
drug stores, and retail outlets.
Food Products Food products range from energy SmartOnes Frozen

bars to low fat, low calorie or meals and entrees
low carb versions of regular food
products.––
Meal Replacements Including shakes, meal replacements Slim-Fast Shakes

are meant to be consumed instead of MetRX Protein Plus
powdered a regular meal. shake mixes
Books Dieting books made up about 9% Dr. Atkin's New Diet

of all book sales in 2003, or $2.1 Revolution
billion. The South Beach Diet
Programs Organized plans that dieters can Weight Watchers

follow, usually within a group or Nutri-System
with a counselor/leader. Ediets
Videos Exercise or fitness tapes to be Gym In a Box

followed at home. Tae-Bo
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 15%

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.
Conventional Dieters On an explicit diet, but not following 29%

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.
Healthful Eaters Not on an explicit diet, but making an effort 17%

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.
Non-Dieters Not on an explicit diet, and not making a 39%

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.
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 high-
fat 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 Low Carb Conventional Healthful Non

Lifestylers Dieters Eaters Dieters
Increased exercise is a more
effective weight loss method 67% 57% 74% 72% 62%
The low carb diet works well 45% 83% 43% 35% 37%
The low carb diet is a healthy
diet 39% 79% 37% 33% 27%
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 short-
term 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.
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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
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
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
CAGR CAGR
Category 1998 2003 2008 1998-2003 2003-2008
Snacks 42 498 1,505 64% 25%

Soft Drinks 5 282 1,283 120% 35%
Dairy 13 250 922 81% 30%
Bakery 12 545 3,237 116% 43%
Confectionery 44 652 2,319 72% 29%
Prepared Meals 7 194 860 97% 35%
Other 63 1,170 4,779 79% 33%
Overall 185 3,591 14,904 81% 33%
* Note: Numbers may not add due to rounding

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
CAGR CAGR
Category 1998 2003 2008 1998-2003 2003-2008
Snacks 42 498 1,505 64% 25%

% of overall low carb market 23% 14% 10%
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
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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 Product Date of introduction
Atkins Nutritionals Atkins Flatbread Crackers February 2004

Frito-Lay Doritos Edge 6g Net Carbs Tortilla Chips February 2004
Unilever Bestfoods Carb Options Snack Bar February 2004
Trader Joe's Joe's Lows Reduced Carb Snack Twists January 2004
Carbsense Foods Carbsense Soy Pretzels September 2003
Source: Productscan Business Insights Ltdd
Soft Drinks
Table 2.10: Growth of low carb soft drinks market, ($m), 1998-2008
CAGR CAGR
Category 1998 2003 2008 1998-2003 2003-2008
Soft Drinks 5 282 1,283 120% 35%

Source: Business Insight Business Insights Ltdd
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
CAGR CAGR
Category 1998 2003 2008 1998-2003 2003-2008
Dairy 13 250 922 81% 30%

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
Unilever Bestfoods Carb Options Skippy Peanut Spread April 2004

Atkins Nutritionals Atkins Endulge Premium Ice Cream Cups March 2004
Marigold Foods Kemps Carb Promise Premium Low-Carb March 2004
Ice Cream
Atkins Nutritionals Atkins Carb Counters Sunny Butter February 2004
Good Humor-Breyers Breyers CarbSmart Ice Cream November 2003
Ice Cream
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Bakery
Table 2.13: Growth of low carb bakery market, ($m), 1998-2008
CAGR CAGR
Category 1998 2003 2008 1998-2003 2003-2008
Bakery 12 545 3,237 116% 43%

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
General Mills General Mills Total Protein Cereal March 2004

Arnold Foods Arnold Carb Counting Multi Grain Bread March 2004
Unilever Bestfoods Carb Options Ragu Pasta Sauce February 2004
Atkins Nutritionals Atkins Celebration Cake January 2004
Confectionery
Table 2.15: Growth of low carb confectionery market, ($m), 1998-2008
CAGR CAGR
Category 1998 2003 2008 1998-2003 2003-2008
Confectionery 44 652 2,319 72% 29%

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
Carb Solutions Carb Solutions Candy Bar February 2004

Russell Stover Candies Russell Stover Low Carb Assorted January 2004
Chocolates
Russell Stover Candies Whitman's Net Carb Assorted January 2004
Chocolates Sampler Box
Ketogenics Ketogenics Low Carb Chocolate Bar November 2003
Carbolite Carbolite Original Chocolate Bar April 2003
Prepared meals
Table 2.17: Growth of low carb prepared meals market, ($m), 1998-2008
CAGR CAGR
Category 1998 2003 2008 1998-2003 2003-2008
Prepared Meals 7 194 860 97% 35%

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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
ConAgra Foods LifeChoice Frozen Meal March 2004

Low Carb Creations Bella Carb Frozen Gourmet Pizza March 2004
Atkins Nutritionals Atkins Frozen Entrees February 2004
Nestle United StatesA Stouffer's Lean Cuisine Cafe Classics February 2004
Frozen Entrees
Monterey Pasta Company Carb-Smart Frozen Prepared Entrees January 2004
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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
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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%
90%
Severely overweight
Percentage of population
80%
70%
Overweight
60%
50% Normal
40%
Underweight
30%
20%
10%
0%
Males Females Males Females
2002 2007
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
Female Male
Health concerns 39% 75%

Cosmetic concerns 61% 25%
Total Dieters 100% 100%

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 Conventional Healthful Non-

Dieters Dieters Eaters Dieters Total
18-24 yrs 9% 31% 14% 45% 100%

25-34 yrs 17% 33% 17% 33% 100%
35-44 yrs 15% 32% 14% 39% 100%
45-54 yrs 18% 24% 20% 38% 100%
55-70 yrs 14% 24% 24% 39% 100%
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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% 60% 70% 80% 90% 100%
Low Carb Lifestylers Conventional Dieters Healthful Eaters Non- Dieters
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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 Low Carb Conventional Healthful Non

Lifestylers Dieters Eaters Dieters
Take a supplement 38% 62% 41% 43% 24%

Eat more vegetables 30% 50% 30% 47% 15%
Eat more fruits 25% 32% 28% 38% 13%
Exercise 30 x 3/week 24% 35% 28% 29% 14%
Eat more protein 17% 50% 13% 18% 8%
Cut back/eliminate sugar 16% 44% 18% 15% 5%
Cut back/eliminate fat 14% 26% 18% 16% 6%
Cut back/eliminate carbs 9% 46% 4% 3% 1%
Eat more complex carbs 5% 15% 6% 5% 1%
Source: Business Insights Consumer Survey, 2004 Business Insights Ltd
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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

Take a supplement
Weight loss/ maintenance
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% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Healthful Eaters Non Dieters Conventional Dieters Low Carb Lifestylers
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
Skip Eat less Eat more Choose Don’t eat

altogether ‘Low/lite’ these ever
versions
Candy 28% 59% 4% 4% 5%

Salty snacks 14% 65% 9% 8% 3%
Meal solutions 14% 33% 18% 17% 19%
Meal replacements 12% 11% 25% 6% 46%
Desserts 19% 61% 6% 10% 5%
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.
Figure 3.4: Consumption changes when attempting to lose/maintain weight,

by food category, % respondents
Weight loss/ maintenance by food category
Desserts
Meal replacements
Meal solutions
Salty snacks
Candy
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Skip altogether Eat less Eat more Choose 'Low/lite'-versions Don’t eat these ever
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 Eat less Eat more Choose Don’t drink

altogether ‘Low/lite’ these ever
versions
Carbonated beverages 10% 51% 15% 18% 7%

Milk 10% 27% 34% 15% 14%
Juices/Fruit drinks 8% 24% 53% 6% 9%
Smoothies/yogurt drinks 15% 14% 20% 8% 43%
Alcoholic beverages 17% 42% 6% 5% 30%
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.
Figure 3.5: Consumption changes when attempting to lose/maintain weight,

by drinks category, % respondents
Weight loss/maintenance by drinks category
Carbonated beverages
Milk
Juices/Fruit drinks
Smoothies/yogurt drinks
Alcoholic beverages
0% 20% 40% 60% 80% 100%
Skip altogether Eat less Eat more Choose 'Low/lite'-versions Don’t eat these ever
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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 Conventional Healthful eaters

Lifestylers Dieters
1 Doctor's advice Previous Success Previous Success Doctor's advice

2 Previous Success Doctor's advice Doctor's advice Previous Success
3 Friend/family Friend/family Friend/family Endorsements
4 Endorsements Endorsements Studies Friend/family
5 Studies Studies Endorsements Studies
6 Media Media Media Media
7 Marketing Marketing Marketing Marketing
8 Celebrities Celebrities Celebrities Celebrities
Source: Business Insights Consumer Survey 2004 Business Insights Ltd
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.
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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 Low Carb Conventional Healthful Non-Dieters
Respondents Lifestylers Dieters Eaters
1 Price Net carbs/ Price Fat/ Price

serving serving
2 Taste Carbs/ Fat/serving Price Taste
serving
3 Fat/serving Sugar/ Taste Taste Vitamin/
serving serving
4 Calories/ Calories/ Calories/serving Calories/ Calories/
serving serving serving serving
5 Vitamins/ Fat/serving Vitamins/serving Vitamins/ Protein/
serving serving serving
6 Sugar/ Protein/ Sugar/serving Sugar/ Sugar/
7 Protein/ serving Taste Protein/serving Protein/ Fat/serving
serving
8 Carbs/ Vitamins/ Carbs/serving Carbs/ Carbs/
9 Net carbs/ Price Net carbs/serving Net carbs/ Brand Name
serving serving
10 Brand Name Brand Name Brand Name Brand Name Net carbs/serving
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
Baja Bob's Alcoholic drink mixes
Bella Vita Pasta sauces
Carbolite Food bars, shakes, snack bars, snacks, mixes
Carbsense Mixes, pastas, cereals, and chips
DaVinci's Sauces and drink mixes
Dr. Soy Food bars and snack bars
Glenny's Chips and snacks
Jok 'n Al Sauces and condiments
Keto Cereals, mixes, ice creams, desserts, food bars,
condiments, supplements, and sweeteners
La Nouba Confectionery bars and candies
Pure Delite Confectionery bars and candies
Shelton’s Meat snacks
Steel's Sauces, sweeteners, spreads and fillings
Vitasoy Food bars and snack bars
Walden Farms Condiments, sauces and spreads
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
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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
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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
Source: www.skyy.com, www.michelob.com Business Insights Ltd
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
Source: www.cocacola.com, www.pepsi.com Business Insights Ltd
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 Coca-
Cola 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 two-
thirds.
Figure 4.8: Reduced-carb orange juices, by brand, 2004
Source: www.tropicana.com, www.minutemaid.com Business Insights Ltd
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 47 211 352 339 633

Overall new products 11,750 14,067 18,526 16,143 18,618
% Low carb of overall 0.4% 1.5% 1.9% 2.1% 3.4%
Source: Productscan Business Insights Ltd
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
Source: www.Atkins.com Business Insights Ltd
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
Source: www.subway.com, www.tgifriday.com Business Insights Ltd
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
Source: www.ketofoods.com Business Insights Ltd
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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.
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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%
70%
60%
Respondents
50%
40%
30% 27%
20%
10%
3%
0%
0%
Highly important Average Low importance No importance
importance
Source: Business Insights Industry Survey, 2004 Business Insights Ltd
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 What percentage of food products

that are labeled as “low or non-fat” that are labeled as “low carb” do
do you think are actually bought by you think are actually bought by
people closely flowing a specific “low people following a specific “low
fat diet? carb” diet?
Estimated % In 2004 In 5 years time In 2004 In 5 years time
0-20% 14% 25% 23% 33%

21-40% 39% 35% 19% 22%
41-60% 32% 30% 18% 16%
61-80% 10% 7% 23% 22%
81-100% 4% 3% 16% 6%
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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%
80%
81-100%
70% 61-80%
Respondents
60% 41-60%
21-40%
50% 0-20%
40%
30%
20%
10%
0%
In 2004 In 5 years time In 2004 In 5 years time
What % of food products that are What % of food products that are labeled
labeledas “low or non-fat” do you think as “low carb” do you think are actually
are actuslly bought by people closely bought by people closely following a
following a “low fat” diet? specific “low carb” diet?
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 Somewhat Not particularly Least

important important important important
Taste or flavor 61% 35% 3% 1%

Carbs per serving 25% 42% 29% 5%
Net carbs per serving 24% 37% 31% 8%
Sugar per serving 19% 40% 30% 10%
Price 18% 50% 24% 8%
Protein per serving 11% 31% 42% 16%
Brand name 10% 57% 25% 8%
Calories per serving 9% 37% 46% 8%
Fat per serving 6% 47% 39% 8%
Vitamins/minerals per serving 3% 31% 42% 25%
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

Fat per serving
Low Carb consumer drivers
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
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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 diet-
conscious 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
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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 Taste or flavor Price

2 Carbohydrates per serving Taste or flavor
3 Net carbs per serving Fat per serving
4 Sugar per serving Calories Per serving
5 Price Vitamins/Minerals per serving
6 Protein per serving Sugar per serving
7 Brand name Protein per serving
8 Calories per serving Carbohydrates per serving
9 Fat per serving Net carbs per serving
10 Vitamins/minerals 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 $1.35

Michelob Ultra $1.75
Ketchup Heinz Tomato Ketchup $1.59

Heinz One Carb Ketchup $1.89
Orange Juice Tropicana Pure Premium $3.29

Tropicana Light 'N Healthy $3.29
Pasta Mueller's Regular Spaghetti $0.99

Mueller's Reduced Carb Spaghetti $1.99
Ice Cream Klondike Big Bear Sandwiches $3.99

Klondike Carbsmart Sandwiches $3.99
Bread Sara Lee Classic White Bread $2.34

Sara Lee Delightful White Bread $2.57
Source: Time Magazine, May 3, 2004 Business Insights Ltd
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
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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 Description
Substitute
Aspartame An artificial sweetener about 180 to 200 times sweeter. Than sugar, it provides 4
calories per gram.
Erythritol A polyol that is rapidly absorbed, though more than 90% is excreted. Very low in
calories compared to other polyol sweeteners.
Glycerol A polyol that is completely absorbed and metabolized. Medical professionals
consider this equivalent to carbohydrates in terms of caloric and metabolic effects.
Isomalt A sugar alcohol that is low in calories, but provides some calories through
fermentation in the digestive system.
Lactitol A sugar alcohol that is absorbed by the body in very small amounts, but can cause
unpleasant digestive side effects.
Maltitol 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.
Saccharin An artificial sweeteners that is about 300 to 400 times as sweet as sugar.
Sorbitol A sugar alcohol with unpleasant digestive side effects on up to 75% of individuals
when in increments of more than 20 grams.
Sucralose An artificial sugar, it has virtually zero calories and is 600 times sweeter than sugar.
It is heat stable.
Source: Food Product Design Business Insights Ltd
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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;

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.
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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;

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
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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.
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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 harder-
to-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
Source: www.glycemicindex.com Business Insights Ltd
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 Reduction in Heart Dropout Rate

Weight Disease Risk
Ornish 6% 7% 50%
Zone 5% 11% 35%
Weight Watchers 5% 15% 35%
Atkins 4% 12% 48%
Source: Morgan Stanley Business Insights Ltd
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.
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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
Low Carb group weight loss (total) 14.7 15.2 9.5

Conventional Diet group weight loss (total) 5.8 6.9 5.4
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 high-
protein, 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-size-
fits-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 <0.5 g per reference amount and 3 g or less per reference At least 25% less
per labeled serving (or for meals amount (and per 50 g if fat per reference
and main dishes, <0.5 g per reference amount is amount than an
labeled serving), Not defined for small). Meals and main appropriate
meals or main dishes. dishes: 3 g or less per 100 reference food.
g and not more than 30% Reference food
of calories from fat. may not be "Low
Fat."
Sodium < 5 mg per reference amount and 140 mg or less per At least 25% less
per labeled serving (or for meals reference amount (and per sodium per
and main dishes, <5 mg per 50 g if reference amount reference amount
labeled serving). No ingredient is small). Meals and main than an appropriate
that is sodium chloride or dishes: 140 mg or less per reference food.
generally understood to contain 100g. Reference food
sodium. may not be "Low
Sodium."
Saturated Fat <0.5 g saturated fat and <0.5 g 1 g or less per reference At least 25% less
trans fatty acids per reference amount and 15% or less saturated fat per
amount and per labeled serving of calories from saturated reference amount
(or for meals and main dishes, fat. Meals and main than an appropriate
less than 0.5 g saturated fat and dishes: 1 g or less per 100 reference food.
less than 0.5 g trans fatty acids g and less than 10% of Reference food
per labeled serving). No calories from saturated may not be "Low
ingredient that is understood to fat. Saturated Fat".
contain saturated fat.
Cholesterol <2 mg per reference amount and 20 mg or less per At least 25% less
per labeled serving (or for meals reference amount (and per cholesterol per
and main dishes, <2 mg per 50 g of food if reference reference amount
labeled serving). No ingredient amount is small). Meals than an appropriate
that contains cholesterol. and main dishes: 20 mg or reference food.
less per 100 g. Reference food
may not be "Low
Cholesterol".
Sugar <0.5 g sugars per reference Not Defined. No basis for At least 25% less
amount and per labeled serving recommended intake. sugars per
(or for meals and main dishes, < reference amount
0.5 g per labeled serving). No than an appropriate
ingredient that is a sugar or reference food.
generally understood to contain May not use this
sugars. Disclose calorie profile claim on dietary
(e.g., "Low Calorie"). supplements of
vitamins and
minerals.
Source: Business Insights, FDA Business Insights Ltd
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With the advent of the low fat craze in the 1990’s, many packaged goods were claiming
to be lower in fat in order to attract new customers. As a result, the FDA created
regulations to standardize the claims for “low fat,” “reduced-fat,” and “no-fat.” The
same was done for claims of reduced levels of sodium. Food manufacturers cannot
place low fat or low sodium claims on food packages without satisfying very specific
guidelines.
A sub-group within the FDA, the Obesity Working Group, is exploring ways to adjust
the nutrition labels to reflect consumers’ new eating styles and habits. The OWG
recommends changing the serving size section of the label to accurately reflect all
calories for a multi-serving packet of food that might reasonably be consumed in one
sitting.
The OWG’s new program, “Calories Count,” urges food labeling to move away from
focusing on fat or carbohydrate content, and concentrate on the number of calories
contained in each type of food. According to a spokesman for the OWG, consumers
often do not realize that high caloric intake, and not fat or carbohydrates, are the reason
behind weight gain. More emphasis on caloric intake might change the consumers’
perceptions and educate them as to the causes to weight gain. The Center for Science
and the Public Interest has been pressing the FDA to define the different forms of
carbohydrates sooner, rather than later.
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Figure 5.16: Proposed changes to nutrition labels, 2004
Source: www.cfsan.fda.gov Business Insights Ltd
Low Carb Claims and Nutrition Labels
The OWG is beginning to explore the possibility of adding carbohydrate count to

nutrition labels as well. Though the process has not come far and the group has only
released an advance request for proposals, a spokesman for the OWG expects that
guidelines for low carb claims will be similar to those of low fat, with designations for
“low carb,” “reduced-carb,” and “no-carb.” As of June 2004, there are no plans to
include a “net carb” entry on neither nutrition labels, nor are there plans to regulate net
carb claims by manufacturers.
While nutritionists fear that the new labeling designations will legitimize the low carb
trend, it will also allow consumers to better understand what they are purchasing, and
reduce the inconsistency and misleading claims. The expected impact will be similar to
that of the low fat and organics labeling adjustments.
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Regulating organics
The passing of the National Organic Program in 2000 and its final implementation on
October 21, 2002 gave organic food and beverage suppliers, manufacturers and
retailers the official recognition and national standards they needed to become a
legitimate force in the food manufacturing industry. Government regulations created
processes and standards to ensure that only foods that were truly organic receive the
full certification. The result was to legitimize the organics category, elevating it into an
official industry recognized by the government as a separate entity to the conventional
food and beverage sector.
These certification guidelines provide assurance to the public that a product marked
with a certified-organic label is truly an organic product. The result was a robustly
growing food category, worth $11.6 billion in 2002 and expected to climb to $30.7
billion by 2007.
However, one of the pitfalls discovered by the certification of organic products was the
fact that while two-thirds of the marketplace did not purchase organic products, only
3% of those consumers intended to do so after the labeling regulations took effect.
Much of this was due to the fact that consumers were ignorant of or confused by the
products and the labeling. In addition, 35% of consumers did not know the
prerequisites required to certify a product as organic. Marketing campaigns were put
into place to educate the public about the benefits of organic products.
While government regulations legitimize specific types of food labeling and create
consumer confidence in the products that they buy, education is also necessary to
increase consumer awareness. Consumers will not be driven to purchase certified and
labeled foods if they do not understand what those certifications signify.
Manufacturers must not rely on the forthcoming government overhaul of the Food
Guide Pyramid and any subsequent education campaign, but rather become involved in
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their own consumers’ education at the local levels. Sponsored programs are a method
of associating a company name to consumers’ perceptions of healthy lifestyles.
Conclusions
Within the medical and regulatory community, substantial changes are taking place that
can potentially affect the low carb industry. 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. In addition, short-term studies have presented positive findings about
low carb weight loss and impact on overall health. However, long-term studies, while
still a few years away, may show different outcomes.
The next chapter discusses the future of the low carb market – what it holds for
manufacturers, and how they can best position themselves for lasting success.
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CHAPTER 6
The Future of Low Carb

Dieting and Beyond
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Chapter 6 The Future of Low Carb
Dieting and Beyond
Summary
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;
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.
Introduction
This chapter explores the future of low carb developments and analyzes the main
factors driving each one. The low carb market will continue to grow over the next five
years, and certain categories such as bakery, snacks and prepared meals, will emerge as
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areas of sustained growth and consumer interest. The rapid growth will also 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. As the low carb landscape changes and matures, it will be sustained by a
different group of consumers than the Low Carb Lifestylers currently driving the
marketplace. Healthful Eaters, influenced strongly by healthcare professionals, will
internalize the low carb message in a continued evolution toward an overall healthy
lifestyle.
In addition, this chapter examines the elements that led up to the low carb trend,
providing a detailed analysis of the eight key ingredients necessary to create the next
“big thing.”
Key findings
The bakery, snacks, and prepared meal categories will comprise 38% of the low
carb marketplace in 2008;
Increased participation by major CPG companies will drive market consolidation;
“Buy-in” of Healthful Eaters and healthcare referrals will be vital to the

sustainability of low carb products;
The next “big thing” is likely to be at least five years away.
Rapid growth of low carb bakery, snacks and prepared meals
The bakery, snacks, and prepared meal categories will comprise 38% of the low carb
marketplace in 2008
The low carb trend, by definition, counts all carb-rich items as forbidden for any
dedicated dieter. As a result, most companies having anything to do with bakery and
snacks have cited the low carb trend as the reason for a lack of growth or even decline
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from 2002-2004 – from Krispy Kreme to New World Pasta and the Interstate Bakery
Corporation. However, it is these very categories that offer the most opportunity for
growth, since consumers will look to purchase dietetic alternatives to their snack time
indulgences, such as chips, pretzels, cookies and cakes.
Nutritionists agree that consumers are by and large reluctant to give up their treats and
“pleasure foods” while dieting, and the popularity of previous low or light snacks and
bakery foods such as baked potato chips and fat free cookies and cakes serve as
testament to the fact that there will indeed be a sustained market for low carb snack
foods.
The rapid growth of the bakery category
As the category is comprised almost entirely of high carb foods, the bakery industry
has found that it must invest in low carb NPD if it hopes to compete within the low
carb market. Unlike other industries, bakery companies could not simply repackage
certain products as low carb by publicizing their previously unmentioned low carb
benefits, as was seen in the snack food industry with pork rinds and meat snacks.
Since 2002, the low carb bakery category has grown significantly through entries such
as Sara Lee’s Delightful Bread and General Mills’ Total Protein. Sales are estimated to
have increased 205% from $179 million in 2002, to $545 million in 2003. Sales are
expected to climb from $545 million in 2003 to $3.2 billion by 2008, at a CAGR of
43%. 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.
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Figure 6.17: Market size, by category, $bn, 2003-2008
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Guilt-free snacking
In addition, snacks will be a major area for continued growth as consumers continue to
seek alternatives to high carb indulgences rather than having to give them up, growing
from $498 million in 2003 to $1.5 billion in 2008 at a CAGR of 25%. While its growth
will not be as rapid as that of the bakery category, the low carb snacks category has
been a major part of the low carb marketplace since 1998, and thus did not have to
catch up on lost ground. It will continue to see steady growth over the next five years.
Another factor that will contribute to the growth of low carb snacks is consumers’
diminishing daily willpower. The majority of consumers cite late at night as the most
difficult time to adhere to a diet and the worst time of day for controlling eating
impulses. As a result, they may be more inclined to purchase low carb snacks to eat late
at night, so as to feel less guilty about late night snacking or loss of willpower.
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Low carb frozen meals will appeal to busy consumers
Low carb frozen meals will also grow steadily, growing from $194 million in 2003 to
$860 million in 2008 at a CAGR of 35%. One of the attractions of these products is the
simplification they provide consumers. Longer work hours than ever before and the
rising number of dual-income families mean that consumers have less time to cook
meals in the evening. As a result, they have increasingly been reaching for prepared
meals and entrees to save time and effort. Without the time to cook or calculate calories
or carbs, busy consumers will be looking to food manufacturers to do it for them.
Another example of simplification increasing sales is the new strategy by online grocer
Peapod. The company saw sales of ordinary vegetables increase over 90% after they
were placed in the low carb food section of the Web site, carrying the Atkins low carb
seal of approval. It seems that consumers are more likely to buy a product that has
already been pre-classified as low carb, saving themselves the time of thinking through
all the implications themselves. For this reason, low carb frozen entrees will see
success, as consumers will be saved the job of calculating the carbohydrate contents of
entire meals.
The consumer survey found that 17% of consumers purchase low fat and dietetic
frozen meals while trying to lose or maintain weight, demonstrating the potential for
growth within low carb frozen meals. Low carb dieters will be more inclined to reach
for ready-made meals that will ensure they do not miscalculate carbohydrate intake or
eat more than they should. The low carb frozen meals section will gain in popularity,
probably cannibalizing the low fat frozen meals market to some extent.
Increased market consolidation
Increased participation by major CPG companies will drive market consolidation As

more of the larger CPG companies launch new low carb products, many of the smaller
niche low carb companies will likely find themselves pushed out, forced out of
business, or acquired by larger companies. As seen within organics, major CPG
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companies will likely purchase these smaller companies in order to gain instant entry
into the low carb marketplace.
Distribution and shelf space
The larger companies’ strong partnerships with supermarket and retail giants such as
Wal-Mart, which accounts for approximately 25% of regular retail sales, will enable
them to gain wider distribution and increased shelf space. Their ability to offer lower
price premiums will allow for higher volume of sales, making them a more valuable
asset to retail outlets.
Smaller low carb companies, whose products are mostly sold online or through health
food stores, will not be able to reach the same audience or manufacture enough product
to meet the tremendous demand of Wal-Mart or supermarkets. As consumers tend to
gravitate towards the more convenient supermarkets and larger retail outlets where they
can satisfy all their grocery needs in the same store, these new purchasing opportunities
for consumers will present a significant challenge for the smaller companies.
Market consolidation
As is being seen within the development of the organics industry, major CPG
companies can be expected to acquire low carb manufacturers. The benefits of such
ventures will be immediate for the larger companies, providing instant entry into the
low carb market with minimal lag time needed to formulate products or build consumer
loyalty and brand awareness. For example, Coca-Cola purchased Odwalla in 2001, thus
controlling an already-developed line of successful organic juices with strong
reputations and loyal audiences. Similarly, Dean Foods acquired White Wave, a line of
organic soymilks, in order stay competitive in the organic drinks market.
Of course, not all small companies will, by definition, fail or be acquired. Stonyfield
Farms is an example of a non-multibillion-dollar company succeeding in the organics
space. In addition, Hain Celestial, a $466 million company, is growing by acquiring
competitors themselves, from Health Valley and Celestial Seasonings in the organics
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sector to CarbFit in the low carb industry. Its CarbFit line, comprised of 33 products, is
currently worth $25 million.
Atkins is also likely to be one of the survivors, given its track record and current
strategy of leveraging its reputation as the first and “truest” low carb diet to build
financial and distributional partnerships with larger companies. It is gaining a measure
of control over the marketplace and ensuring its survival, even after other smaller niche
companies are forced out or acquired.
The importance of “Buy-in” of Healthful Eaters and healthcare referrals
By and large, the largest consumer groups sustaining the low carb market will be
Healthful Eaters and type 2 diabetics. While diabetics will need to follow a low carb
lifestyle out of medical necessity, however, Healthful Eaters will gravitate towards low
carb products out of a general desire for healthful living.
Internalizing the low carb message
The onslaught of low fat advertising became a subconscious driver for Healthful Eaters
in the past, as they internalized the media’s message that low fat foods were healthier
alternatives to regular goods. As a result, these consumers continued to buy those
products as a force of habit long after other groups had stopped doing so, and are now a
core audience in the low fat industry. At the peak of the low fat trend in 1996, one-third
of all households were purchasing low fat foods.
While the number of consumers purchasing low fat products is no longer as high as it
was eight years ago, the consumer survey noted that 15% of all consumers surveyed
rank fat per serving as the most important driver for purchasing a food product.
Healthful Eaters are the group that remains the most driven by that criterion, as 23%
continue to look for fat per serving on product labels. Ultimately, low carb product
purchasing will likely follow a similar pattern, as Healthful Eaters internalize the
regimen’s message and continue to purchase low carb alternatives to certain foods.
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Medical factors
A market for low fat foods also still exists among those with heart disease and high
cholesterol, as well as diabetics, who must purchase dietetic products in adherence to a
medically prescribed diet. The low carb trend has the potential to develop similar niche
audiences among diabetics that could prolong and sustain it.
Statistics published by the National Institutes of Health estimate diabetics comprise

about 6% of the total United States population. That percentage is expected to grow by
1.9% each year, reaching 7.5% of the population by 2009. In addition, the Center for
Disease Control estimates that 47 million additional Americans, or 17% of the total
United States population, suffer from metabolic syndrome. This condition can also be
controlled by a low carb diet that limits elevated blood sugar. As consumers who are
likely to be overweight or obese and at an increased risk for cardiovascular diseases
and elevated blood sugar, they potentially create a lifelong low carb audience who must
adhere to such a diet in order to stay alive.
Healthful Eaters are strongly driven by the advice of doctors and other medical
professionals, with 55% ranking the recommendation of a physician or nutritionist as
the most important driver in choosing a diet. In comparison, 40% of all consumers
relied on medical advice as strongly. Therefore, in addition to driving diabetics’ dietary
choices, medical referrals can be expected to strongly affect Healthful Eaters’
propensity to buy specific dietetic products. Both groups constitute significant
segments of the consumer population, and are apt to be more conscientious of the
relative benefits of their daily food and beverage intake than other consumer groups.
The next “big thing” - five years away
Though the newness of the low carb trend makes it difficult to determine its lifespan,
industry leaders surveyed believe that the low carb market will last an average of six
years. Past dieting trends such as the low fat diet of the 1990s, the low cholesterol fad
of the 1980s and the low salt trend of the 1970s have proven that dieting is cyclical in
nature, and dieting trends last several years.
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However, nutritionists believe the trend will disappear once consumers do not see the
results they hoped for, and will be replaced by another dieting craze. We have already
seen the beginning of a low carb backlash in the media, publicizing the fact that many
low carb foods contain just as many calories as their non-dietetic counterparts, yet
dieters are consuming larger quantities of those foods. The increasing negative
coverage of the diet may pave the way for a new trend to emerge among consumers.
The absence of long-term studies mean that many dieters have no idea what the effects
of such an eating regimen will be in the future. Nutritionists speculate that eventually
higher levels of cholesterol, triglycerides, heart disease and cancer will emerge as side
effects of the low carb diet. Increased media coverage of those findings, coupled with
the start of a new diet trend, and the failure of low carb dieters to see long-term results,
would steadily decrease the number of low carb dieters. However, such conclusive
studies are still a few years away.
Industry and consumer components necessary for significant trends
“People who have no idea how to lose weight – and that’s most of the population of the
United States – will follow something that they think is going to cause them to lose
weight and also not be hungry and also satisfy their need for self-indulgence...This
idea, that you can eat with as much negligence as you always have, but you don’t have
to feel guilty about it, because you’re doing something good for yourself, that’s what
drives people.” – Dr. Judith Wurtman, director of the Women’s Health Program at MIT
and the Adara Weight Loss Center
The explosion of the low carb trend among consumers can be explained by several
factors, including:
Widespread media coverage, in part driven by;
High levels of controversy;
A charismatic low carb spokesman;
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Development of ingredients making mass production of improved, viable products;
A mature food and beverage industry searching for ways to grow;
The “coolness” factor;
The promise of a quick fix to a specific consumer need;
Scientific logic that makes sense to the layman.
Other trends in the food industry, such as organics, nutraceuticals, or even exotically
colored or flavored foods have all had some of these elements driving them. What
made the low carb trend such a phenomenon was the presence of all of them. The next
big thing will certainly require the majority of these elements.
Increased media coverage of low carb weight loss
Though the low carb diet has been a slowly growing lifestyle trend since 1972, when
Dr. Atkins released his book Dr. Atkins’ Diet Revolution, widespread public awareness
did not begin to grow until about 2001, when an updated version of his book was re-
released. Since then, the media has covered the low carb diet in countless stories and
television news special reports. The Atkins Web site boasts 2.5 billion media mentions
in the last three years.
Increasing media coverage began with a July 2002 article in The New York Times
Magazine. “What If It’s All Been A Big Fat Lie?,” by Gary Taubes, explored low carb
diets and was accompanied by full-color images of large steaks covered with butter. In
the first paragraph, Taubes posited that the current low fat, high carbohydrate dietary
recommendations published by the United States government and medical community
directly caused the current obesity epidemic, and Dr. Atkins’ diet had been right all
along: high fat, low carbohydrate diets were the key to permanent weight loss.
Since then, countless news stories have discussed everything from short-term medical
studies to the barrage of new products on the marketplace. One such study, published
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in the New England Journal of Medicine, followed severely obese test subjects with
high levels of diabetes and heart disease for six months. At the end of the study, the
low carb dieters lost an average of 13 pounds, compared to four pounds for the
conventional dieters. The media touted this and other studies as proof that the low carb
diet was a miracle weight loss program, ignoring the fact that the long-term effects of
such a diet are still unknown.
High levels of controversy
One of the factors linked to the media’s increased coverage of low carb dieting is its
controversial nature. Since 1941, when the USDA first released its Recommended
Daily Allowances for dietary intake, Americans have been encouraged to consume
most of their daily diet from the breads and grains group. Indeed, the most recent Food
Guide Pyramid, released in 1992, recommends six to 11 servings of breads and grains
and only 2 to 3 servings of meats, poultry, and eggs. The government has never
recommended high amounts of fat be included in the average consumer’s daily diet.
Figure 6.18: USDA Food Guide Pyramid, 2003
Source: USDA Business Insights Ltd
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Nutritionists have also continued to recommend a low fat diet, high in fruits, vegetables
and complex carbohydrates as the key to long-term weight loss. Previous diet trends,
such as the low fat craze of the 1990’s, have also built on the theory that fat is an
unhealthy component of foods, and should be consumed in moderation.
Controversy over the new trend stems from the fact Atkins-style low carb diets
advocate completely opposite dietary guidelines, calling for high levels of meats,
proteins, and cheese, and low levels of breads, grains and fruits. The media has
portrayed the low carb diet as an eating regimen through which dieters can consume
any high fat food they wish, without limiting food intake – in effect, portraying the low
carb diet as a high fat bonanza – and reported that the government had had it wrong all
along.
Coupled with this was the United States Department of Agriculture’s decision in 2003
to reconfigure the Food Guide Pyramid. Due out in the near future, there is much
speculation that the new pyramid will contain fewer daily recommendations of
carbohydrates.
Though the timing of their announcement came when low carb dieting was reaching
peak levels of publicity, John Webster, USDA Director of Public Information and
Governmental Affairs at the Center for Nutrition Policy and Promotion, denies that the
low carb trend had anything to do with their decision to alter dietary guidelines.
However, many consumers and media outlets saw the USDA’s move as admitting they
were wrong.
Atkins Nutritionals added to the controversy by beating the USDA to the punch,
publishing their own version of the Food Guide Pyramid in early 2004 – along with an
article refuting the FDA and USDA’s nutritional claims. Consumers were being
bombarded with the idea that the government and medical communities were not only
wrong, but had actually been making them fatter.
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Figure 6.19: Atkins Food Guide Pyramid, 2004
Source: Atkins Nutritionals, Inc Business Insights Ltd
In addition, while the media continues to report on short-term studies proving the
efficacy of low carb dieting, nutritionists and the medical community have not
responded with any persuasive counterclaims, other than the fact that it is too early to
tell what the long-term effects may be. While this is a reasonable statement, it does not
carry the same color and excitement as sweeping claims of rapid weight loss while
eating traditionally forbidden foods in abundance.
A charismatic spokesman
Dr. Robert Atkins spent much of his career serving as a lightning rod for controversy.
He combined his medical claims of weight loss with high levels of personal celebrity,
even appearing as one of People Magazine’ s 25 Most Intriguing People in 1999 and
profiled by Barbara Walters in 2002 as one of the ten most fascinating people of that
year. By the time of his death in February 2003, Dr. Atkins had spent 40 years
promoting his low carbohydrate, high fat diet. His increasing cachet as a celebrity,
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coupled with his strong personality and personal lifetime weight maintenance, provided
for colorful and interesting news stories that captured consumer interest.
Dr. Atkins only grew more controversial in death, when the New York City medical
examiner issued a report on February 10, 2003 that he had suffered a heart attack,
congestive heart failure and hypertension before his death and, at 6 feet tall and 258
lbs, qualified as obese. His wife disputed the reports, saying his heart problems had
been well publicized in the past and were unrelated to his diet. Dr. Stuart Trager, a
spokesman for Atkins Nutritionals, issued a statement that Dr. Atkins’ heart problems
were the result of a past infection and his heavy weight was due to fluid retention that
had occurred only after he had entered the hospital.
While media outlets such as the Wall Street Journal and New York Magazine portrayed
Atkins in a negative light, his death only served to increase controversy and consumer
awareness of the low carb diet. Interestingly, it has not affected the diet’s popularity.
The fact that Dr. Atkins was so visible to the public and such a dedicated believer in his
own diet stood in strong contrast to the FDA and USDA, monolithic governmental
organizations without a famous and exciting face to identify with consumers.
Development of ingredients and improved product taste
For decades, the lack of adequate ingredient substitutes made it quite difficult to
produce low carb foods that were tasty and had a pleasant texture. Throughout the
1970s, 1980s and much of the 1990s, no low carb versions of traditional foods existed.
The lack of adequate food choices or flavorful products prevented the low carb diet
from gaining in popularity, as most consumers did not enjoy the taste of the products or
found them too limiting.
Keto Foods, founded in 1997, was the first low carb company to develop reformulated
versions of traditional foods. Through heavy spending in research and development, the
company tested and introduced low carb bread and muffin mixes, cereals, cakes,
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cookies, and pastas. They continue to focus on developing better-tasting versions of
these products. Original versions of breads and mixes were thought to be too dry and
grainy, and often carried a strange aftertaste, but subsequent versions have improved.
The most common grain and flour substitutes are soy protein, egg protein and milk
protein. Used in breads, mixes, cereals, and pastas, they most closely resemble the
texture and flavor of wheat flour and provide low carb foods with a reasonably similar
look and feel to their non-dietetic counterparts. The availability of reasonably tasty low
carb staple foods created a wider appeal among mainstream consumers.
Development of stable artificial sweeteners such as Splenda has also been a key driver
in the development of tasty desserts and treats. Also known as sucralose, Splenda has
proven to be a popular low carb sweetening ingredient, as it does not contain any
calories. Six hundred times sweeter than sugar, it can be used in smaller quantities
without replacing carbs. The introduction of Splenda allowed food and drink
manufacturers to produce better-tasting versions of low carb sweets and light sodas and
juices. With a greater variety of reasonably tasty and pleasantly textured foods and
drinks to choose from, consumers began to try low carb products.
A mature food and beverage industry
Food manufacturers, confronted with low growth in traditional food markets, have been
searching for new trends to increase sales and consumer audience. Over the past few
decades, Americans have dedicated a declining share of their household budgets to
purchasing at-home food. According to the Economic Research Service (ERS) at the
USDA, per capita share of total income spent on food and beverage products has
declined from 11.4% to 10.1% over the last 13 years.
Coupled with this is the fact that food purchases for at-home use have been steadily
eclipsed by away-from-home food expenditures. The ERS expects food-away-from
home expenditure to increase by 10% per capita between 2000 and 2020, while
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spending for at-home food is expected to increase only 3% for the same time period.
The need for innovation within the food industry has never been greater.
Manufacturers are beginning to see the low carb trend as a way to achieve significant
growth in many of the same ways as the low fat trend, though cannibalization of other
food product lines is a concern. Although many waited as long as possible before
entering the market – to determine whether it is a fad or trend, most agree it is here to
stay for a few years, at least. Indeed, 67% of manufacturers look to the low carb trend
as an opportunity to expand business and build market share among a new consumer
audience, while only 8% believe it is a threat to their business.
As such, there has been a dramatic increase in the number of new low carb products
introduced each year. According to Productscan, in 1999, 47 new low carb products
were introduced, constituting 0.4% of all NPD for that year. In 2003, the number of
low carb NPD was thirteen times greater than that amount – 633 new low carb products
were introduced, 3.4% of total NPD.
Implicit in these rapidly growing NPD numbers is the possibility that, while consumers
initially drove the low carb craze with their demand for new products, the direction has
shifted, and manufacturers are now driving the low carb trend with a wide variety of
products that consumers looking for a quick fix are eager to try.
The “coolness” factor
“Coolness” is an elusive quality that defines the success of a trend. A new lifestyle or
custom cannot make the leap into full-fledged trend without gaining popularity among
consumers. Very often a trend’s popularity is based on consumers’ perception that it is
a “cool” thing to try.
The significant and measurable effects of coolness on a brand is well known and those
brands with the highest cachet among consumers’ stand to be the most profitable
because consumers are willing to pay extra for products associated with that trend, as
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well as increasingly use their perception of cool to choose specific trends to follow.
Indeed, the coolness of a product or trend often emanates from the consumer's view of
the other people who are consuming it – a relevant factor in the low carb trend, which
initially stemmed from increased consumer awareness of a single low carb
spokesperson.
The levels of coolness are detailed below in Figure 6.20, and are relevant to the low
carb dieting trend, which has moved through each level as it has evolved into a
mainstream movement.
Figure 6.20: Consumer groups and product attributes, by degrees of

“coolness”
EXCLUSIVE COOL
• Authentic and different
• Expensive
Opinion • Exclusive distribution
Formers • Understated marketing
• Product Example: Asahi Beer
Product diffusion MASSTIGE COOL
Adopters • Appeal to the Wanna B’s
• A balance of exclusivity, yet desirable
and obtainable for non opinion formers
• Often celebrity endorsed
• Product Example: FCUK Personal Care
Product diffusion
Regulars MAINSTREAM COOL

• Accessible through lower price
• Readily available
• Broad acceptability
• Product Example: Coca-Cola
Source: Business Insights analysis, Coolness in Consumer Packaged Goods 2003 Business Insights Ltd
In its exclusive cool phase, which began with the Atkins diet’s entry into the public eye
in 1972, the low carb diet was followed strictly by serious low carb lifestyle adherents
and, by the mid-to-late 1990’s, a small group of celebrities such as Jennifer Aniston.
During this time, it was a niche dieting style running counter to most other eating
regimens. Little or no marketing contributed to the diet being followed only by those
“in the know.”
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It was not until 2001 that the low carb diet began to diffuse into a wider audience.
During this time, marketing of low carb products was still virtually non-existent,
though the diet was slowly gaining in popularity. Other celebrities such as Brad Pitt
and Britney Spears adopted a low carb eating regimen, and 352 new products were
introduced, compared with 211 the year before.
The low carb diet reached mainstream cool in 2003. During that year the low carb diet
was mentioned in print media more than 4,000 times and low carb products began to
proliferate at an accelerated pace – increasing to 3.4% of total NPD for 2003. Low carb
foods also expanded into more mainstream food choices, such as pastas and breads.
Average consumers could now attempt the low carb lifestyle without sacrificing
familiar foods or spending too much free time preparing homemade meals, as was
initially necessary for followers of the Atkins diet. In addition, due to the increased
media hype and celebrity endorsement, new followers of the low carb trend felt as if
they belonged to a fashionable group. The convenience and accessibility of the diet,
coupled with increased media coverage and celebrity endorsements, tipped the low
carb trend into a full, mainstream movement.
The promise of a quick fix
Consumer demand for any weight-loss product – in this case, low carb packaged foods
– is motivated by the desire to lose weight, and to do so in a quick and easy way that
requires little commitment or hard work. As the incidence of overweight and obesity
continues to increase, the desire for an easy way to lose weight has grown stronger.
In conjunction with this need for weight loss is the fact that potential dieters are
bombarded with information from many sources: manufacturers, the medical
community, and the media. Media coverage of svelte celebrities and the promotion of
high aesthetic standards have created a culture that places a high premium on thinness,
even if two-thirds of the United States population is not actually thin.
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According to nutritionists interviewed, many consumers are fixated on slimming
products, eating any foods they believe will make them thinner without impinging on
their desire for indulgence – often consuming larger quantities than their non-dietetic
counterparts.
The media has responded by heavily publicizing the low carb trend, reporting on short-
term weight-loss studies and the popularity of new products. They have also created a
great deal of hype regarding the low carb controversy, publicizing the idea that with a
low carb eating regimen, dieters can indulge in large quantities of meats and other
high-fat foods without limiting intake or worrying about calories.
Proponents of the diets have also promoted a quick fix, as in the South Beach diet,
which touts itself as “painless,” forcing food cravings to “virtually disappear during the
first week,“ and allowing dieters to eat “normal foods, in normal-size portions.” With
the promise of minimal work and maximum weight loss, low carb diets have been
positioned as the perfect quick fix solution to consumers’ weight problems.
Scientific logic that makes sense to the layman
One of the strongest aspects of the Atkins Diet is its ability to place the scientific logic
surrounding its diet in a context that is understandable to consumers. Through use of
non-technical language and strong imagery, the Atkins Diet explained medical theories
behind the success of its eating regimen and detailed comprehensive eating plans,
making it clear to dieters how and why the program worked and encouraging them to
learn the science themselves. As a result, low carb dieters felt more informed about
how their diet worked, and potential dieters have been able to learn why the diet might
be beneficial for them. As such, sound scientific logic that is understandable to
consumers will be key to determining future dieting trends.
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CHAPTER 7
Low Carb Diet Growth

Strategies
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Chapter 7 Low Carb Diet Growth
Strategies
Summary

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.
Introduction
The rapid evolution of the low carb market provides a wealth of opportunities for
manufacturers. Through continued development of ingredient substitutes and gradually
decreasing price premiums, CPG manufacturers can grow market share and provide
consumers with healthful alternatives to high carb foods. As consumers continue to
move towards healthier eating practices, emphasizing the benefits the low carb lifestyle
will create wider appeal that can further be leveraged through educational outreach
programs and partnerships with healthcare professionals.
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This chapter outlines actionable points to help manufacturers determine how to proceed
within the increasingly crowded low carb marketplace, with emphasis on creating a
healthful impression on consumers.
Key findings

acquisitions;
Educate consumers by emphasizing the healthfulness of a low carb lifestyle through

marketing campaigns, partnerships with healthcare professionals, and community
outreach programs.
Improve the taste, competitiveness and appeal
Product formulation and taste
Taste will serve as critical factor determining the longevity of the low carb market. The
groups that will drive future growth in the low carb industry care strongly about the
palatability of their food and beverage choices.
Consumers’ reactions to reformulated products released during low fat trend illustrate
the high value placed on product taste. A major complaint of consumers was that, while
food companies removed the fat from their products, the reformulated results did not
taste good and did not have the same mouth feel as their regular-fat counterparts.
The same has been true thus far for low carb dieters. Nutritionists note that their
patients complain about the poor taste of reformulated low carb food and beverage
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products. It is vital that new products brought to the low carb market satisfy
consumers’ demands for pleasant taste and texture.
Some CPG categories, such as soft drinks and confectionery, can remove carbohydrates
with relative ease, replacing sugar with stable and tasty sweetener substitutes such as
Splenda while minimally affecting taste and texture. Other areas, such as the bakery
and snack categories, tend to rely heavily on product texture such as moistness,
sponginess, crunchiness, and chewiness to remain palatable to consumers.
Reformulating such products is a more intricate process, and involves substituting
ingredients for flour and wheat as well – the very ingredients that give bakery and
snack products their taste and texture.
Though achieving relatively high taste and texture in these categories will be more
difficult, they will be key drivers to sustaining the low carb market. Continued
refinement of flour substitutes such as soy proteins, egg proteins, and milk proteins will
help to create tastier low carb foods with improved textures. In addition, development
of new ingredient substitutes with a more authentic flavor and texture is key to
sustaining the trend.
Improved technology with regard to sweetener substitutes is an area that provides

opportunity for low carb bakery products as well as to the confectionery, dairy and soft
drink categories. Splenda, one such sweetener substitute, is 600-times sweeter than
regular sugar. This and other sweeteners such as maltitol and sorbitol have made it
more feasible to develop and produce low carb juices, ice creams, chocolates, cookies
and cakes. Newly developed low carb substitutes are heat-stable, making them ideal for
use in baking and pasteurizing and facilitating the further growth of the low carb
bakery and snacks categories.
Reducing price premiums
Of the critical factors that might sustain the low carb trend, 25% of consumers rank
price as the most important factor in choosing which products to buy. Due to the cost of
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product development and ingredient substitutions, low carb products usually cost more
than non-dietetic foods. Low carb energy bars and candy can cost as much as four
times than that of a regular chocolate bar. The ability for and desire of non-low-carb
dieters to purchase low carb products is a key factor in sustaining the trend. As such, it
will usually be in manufacturers’ best interest to keep price premiums at a minimum.
Target evening eating occasions
As the consumer survey revealed, consumers across all dieting categories

overwhelmingly noted that late night was the worst time for maintaining willpower and
avoiding overeating. As such, portraying low carb products as guilt-free or associating
them with evening activities is an actionable way to compel consumers to substitute
low carb foods for their typical evening snacks.
Brand building and preparation for strategic alliances and acquisitions
The increasingly crowded low carb landscape has created an unpredictable

environment for both small, niche low carb companies and major CPG manufacturers.
While the smaller companies have the advantage of years of experience within the low
carb industry, they do not posses the strong relationships with retailers, wide
distribution channels, or production capabilities of the larger companies. As a result,
smaller companies are finding it difficult to compete in the new low carb marketplace.
Larger companies, by contrast, will need time to formulate products and improve upon
recipes that smaller, niche low carb manufacturers have had years to develop their
products. Through partnerships or acquisition, there are several methods for growing
market share or readying for acquisition.
Small, niche low carb companies
In order to stay competitive in an industry expected to grow from $3.6 billion in 2003
to $14.9 billion in 2008, small low carb companies will need to decide which route to
take: acquisition or going it alone. While acquisition has its benefits, from wider
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distribution to increased ability to research and develop new products, it can also mean
relinquishing control.
In either case, building a strong, recognizable brand is key to surviving the increasingly
crowded low carb marketplace. A reputation for quality and a loyal audience, along
with robust financials, make a smaller company attractive for acquisition as well as aid
its survival.
LowCarbiz, a low carb industry newsletter and information center, organized a summit
in March 2004, where small low carb companies came together to discuss new
developments within the industry and learn how to better compete to maintain market
share in the rapidly developing industry. Increased communication and cooperation
between smaller firms that find themselves pushed out of the marketplace by larger
CPG manufacturers will be a key way to ensure survival. Smaller companies can
leverage each other’s products and capabilities through partnerships, thus increasing
product development and product volume.
Large CPG manufacturers
For major CPG companies, an intimate knowledge of the low carb landscape is a key
factor in making strategic alliances and acquisitions that will profit them most. For
example, General Mills, a leader in the bakery and cereals category, acquired the
organic companies Cascadian Farm and Muir Glen in 2000. It used these two
companies to build a line of organic cereals and breads that would complement its
strong bakery product line. Sales for those divisions totaled over $66 million in 2002.
Education through marketing partnerships
Create wider appeal through marketing campaigns
Marketing and advertising will strongly influence the success of the low carb trend.
Packaged food manufacturers can appeal to each of the consumer groups by
emphasizing different nutritional aspects of low carb products in separate marketing
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campaigns targeted to each group. Failure to “educate” each group of consumers as to
how the low carb phenomenon relates to them could leave major audiences untapped.
In response to consumer preferences, marketing campaigns should emphasize not only

the low carb aspects of their products, but the health benefits as well. Atkins
Nutritionals’ repeated emphasis on the healthfulness of its diet and products, coupled
with its scientifically geared advertisements, have created the image of products that
will enhance the healthfulness of their consumers. By emphasizing positive low carb
dieting as part of a healthy lifestyle, manufacturers will ensure longevity of this trend
and exposure to a wider audience.
Partner with healthcare professionals
A strong deference is clear among consumers to the advice of medical professionals,

most specifically among Healthful Eaters. This provides an interesting opportunity for
CPG manufacturers. By working with healthcare professionals to educate consumers
about the healthful aspects of the low carb diet, companies can gain a new audience
among individuals looking to improve well-being and lead a healthful lifestyle. Studies
showing the long-term effects of low carb dieting would provide some influence as
well, as consumers would learn about the healthful effects in the long run.
As healthcare professionals and nutritionists work closely with diabetics and other
consumers with serious medical complications such as heart disease, gaining their trust
will also be vital in capturing the attention of consumers who must diet for medical
reasons. Such consumers will remain low carb dieters throughout their lifetimes out of
necessity rather than choice, and constitute a growing segment of the population. The
most effective way to gain their interest will be through scientific evidence. It is vital
that manufacturers participate and support the scientific studies to further
understanding within the scientific community.
Manufacturers can also seek to grow their audience among Healthful Eaters, diabetics,
and metabolic syndrome sufferers, and other consumers by gaining endorsements from
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medical associations. Healthful Eaters ranked such endorsements third among
influences to trying a new diet, behind medical advice and previous personal success,
while all consumers ranked such endorsements fourth. Thus, such partnerships could
prove useful in gaining a long-term low carb audience.
Develop community outreach programs
It is doubtful that government regulation in the form of nutrition labels or the Food
Guide Pyramid will affect consumer preferences in a substantial way. Consumers do
not rank nutritional information high on their list of product purchasing drivers; only
five to six percent of respondents to the consumer survey list sugar content,
carbohydrate content, vitamin content, or net carbs as extremely important factors for
choosing a food or drink product.
Nutritionists also note that most consumers are not educated as to how to interpret a
nutrition label, and John Webster, the Director of Public Information and
Governmental Affairs and the USDA Center for Nutrition Policy and Promotion,
admits that only four percent of United States consumers follow a diet that conforms to
government recommendations.
As a result, manufacturers must not rely on the forthcoming government overhaul of

the Food Guide Pyramid and any subsequent education campaign, but rather become
involved in their own consumers’ education at the local levels. For example, Atkins
Nutritionals has implemented a school program, the Atkins Youth Initiative, to teach
elementary and middle school children about the benefits of low carb living. Similarly
sponsored programs are a method of associating a company name to consumers’
perceptions of healthy lifestyles.
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Conclusions
The low carb market has grown from dieting books in the 1970’s into an increasingly
diverse and growing industry of low carb foods and drinks. Through the development
of new sweeteners and ingredient substitutes, low carb foods have in turn evolved from
simple products such as drink mixes and chocolates to reformulated pastas, breads and
ice creams that offer improved taste, texture and mouth feel. 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.
Future growth in the low carb industry lies in formulating better-tasting, lower-priced
products that appeal to Healthful Eaters and diabetic consumers. As part of a
continuing trend towards healthful eating, consumers are increasingly demanding
products that will enhance their overall well-being. As such, educating such Healthful
Eaters as to the benefits of the low carb diet, and partnering with healthcare
professionals to encourage a health low carb lifestyle will be key to growing and
sustaining the low carb market.
Improved product formulation and better ingredient substitutes will also play a
significant role in the future low carb marketplace. Success of low carb products will
depend not only on development of improved ingredient substitutes such as soy protein
and milk protein, but on better taste and closer approximation to non-low-carb
products. As consumers grow increasingly savvier about the taste of their dietetic
products, quality flavor will drive their continued purchasing of low carb foods.
Clearly, the low carb market is very young compared to conventional foods and drinks.
Lessons from past trends such as organics and low fat products may shed some light on
the pitfalls and potential successes of the low carb market, and may aid manufacturers
in their understanding of how to proceed in the rapidly growing industry. Consumers
have consistently shown a strong desire to move toward healthier eating, and the low
carb trend is one more step in that direction.
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Index
Atkins, 12, 15, 18, 20, 26, 28, 29, 30, 31, 32, Hain-Celestial, 41
33, 34, 35, 36, 41, 42, 43, 44, 45, 46, 47, 48,
49, 62, 74, 79, 80, 82, 83, 84, 85, 86, 87, 89, Healthy Eaters, 12, 18, 19, 66
91, 96, 97, 98, 100, 101, 104, 107, 109, 111,
112, 113, 114, 115, 126, 128, 131, 133, 134, Ingredient substitutes, 16, 101, 135, 142, 143,
135, 138, 139, 140, 147, 148 144, 149
Bakery, 15, 39, 45, 46, 51, 74, 122, 123, 124, Kellogg, 41, 45, 75
125, 144, 146
Keto, 42, 43, 44, 46, 73, 74, 80, 87, 88, 89,
Ben & Jerry’s, 44, 82 101, 135
BMI, 21 Kraft, 73, 74, 75, 81
Calorie Control Council, 25 Labeling, 115, 117, 118, 119
Carb Sense, 42, 46 Low Carb Lifestylers, 32, 33, 34, 35, 49, 55,
57, 60, 61, 62, 63, 66, 67, 68, 93, 94, 98,
Carbolite, 44, 46, 47, 73, 74 123
Coca-Cola, 43, 74, 75, 77, 78, 79, 81, 127 Maltitol, 69, 100, 108, 144
Conventional Dieters, 12, 18, 32, 33, 35, 58, Michelob Ultra, 75, 76, 80, 98, 101
61, 63, 66, 69
Minute Maid, 43, 75, 79
Dairy, 27, 43, 44, 64, 144
National Institutes of Health, 19, 21, 129
Dannon (Danone), 44
National Organic Program, 81, 99, 119
Diabetes, 19, 22, 23, 24, 34, 105, 132
Nestle, 48, 82
Do-It-Yourself Dieting, 29
New Product Development, 14, 40, 42, 43, 45,
Dr. Phil’s Diet, 27 46, 48, 72, 73, 76, 101, 124, 137, 139
eDiets, 25, 29, 32, 85, 86 Non Dieters, 12, 18, 35, 63
FDA, 15, 27, 34, 104, 105, 112, 115, 116, 117, Nutri-System, 28, 29, 30, 109
133, 135
Nutritionists, 15, 22, 25, 104, 108, 114, 115,
Food Guide Pyramid, 15, 31, 104, 105, 114, 124, 130, 133, 143, 148
115, 119, 132, 133, 134, 148
Obesity, 12, 18, 22, 24, 105, 113, 117
Frito-Lay, 41, 42, 69
Obesity Research Center, 22
Frozen meals, 15, 63, 122, 126
Olestra, 69
General Mills, 32, 41, 44, 45, 46, 64, 74, 75,
81, 82, 124, 146 Pepsi, 43, 74, 75, 77, 78
Glycemic index, 15, 104, 105, 110 Prepared Meals, 13, 38, 39, 40, 47
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Product-driven low fat, 27 The National Institute of Diabetes, Digestive
and Kidney Disease (NIDDK), 22
Russell Stover, 46, 47
The Obesity Working Group (OWG),, 14, 104
Salty snacks, 13, 38, 41, 63
The Ornish Diet, 27
Sara Lee Foods, 32, 45, 48, 86
The Pritikin Diet, 27
SnackWells, 27, 108
The South Beach Diet, 12, 18, 26, 30, 36
Sorbitol, 100, 108, 144
The Zone Diet, 28
Splenda, 69, 136, 144
Tropicana, 43, 75, 78, 98
Subway Restaurants, 32, 85, 86
Unilever, 32, 42, 43, 44, 46, 48, 73, 74, 75, 81
Sugar Busters, 12, 18, 27, 30, 36, 62, 109
USDA, 15, 31, 104, 105, 112, 114, 115, 132,
Syndrome X, 22 133, 135, 136, 148
Weight Watchers, 25, 28, 30, 96, 111, 112
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The US Diet Market Outlook

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CONSUMER

The US Diet Market Outlook To 2008

While information, advice or comment is believed to be correct at the time of

Chapter 1 The US Diet Market Landscape 18

Chapter 2 Drivers and Dynamics of The Diet

Chapter 3 The US Diet Consumer 54

Chapter 4 Competitive Analysis of Major

Chapter 5 Medical & Regulatory

Chapter 6 The Future of Low Carb Dieting

Chapter 7 Low Carb Diet Growth Strategies 142

The US Diet Market Landscape

The US Diet Consumer

Competitive Analysis of Major Low Carb Brands

As larger corporations begin to introduce low carb products, smaller niche

Medical & Regulatory Environment

Glycemic index testing is being developed to determine the effects of different

The Future of Low Carb Dieting and Beyond

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

Low Carb Diet Growth Strategies

Ensure a thorough understanding of the low carb landscape in order to build a

Educate consumers by emphasizing the healthfulness of a low carb lifestyle through

The US Diet Market Landscape

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

Dieting in the United States

Ever more homogeneous dietary habits and lifestyles

Consumer weight profile

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

BMI Classification Units 2002 2007

Overweight No. people (million) 113 129

Total Overweight/Obese No. people (million) 180 204

Consumer health profile

Nutritionists define metabolic syndrome as a concatenation of illnesses caused by

According to nutritionists interviewed for this report, metabolic syndrome is caused

Type 1 diabetes, previously known as insulin-dependent diabetes mellitus, occurs most

Type 2 diabetes, previously called non-insulin-dependent diabetes mellitus or adult-

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

2003 2005 2007 2009 CAGR 2003-2009

Type 1 diabetes 0.8 0.9 0.9 2.0%

Overall diabetes 17.0 18.1 19.5 20.9 3.5%

Other risks of overweight and obesity

Being overweight or obese is a known Obesity is associated with:

· Diabetes · High blood cholesterol

Popular diets by type

Low fat diets;

Diet support groups;

Low carb diets

Low fat diets

Diet support groups

The weight-loss industry

The weight-loss industry as a whole contains a number of distinct categories, each

Category Description Example

Supplements Pills and powders used to Nature’s Science Vitamins

Food Products Food products range from energy SmartOnes Frozen

Meal Replacements Including shakes, meal replacements Slim-Fast Shakes

Books Dieting books made up about 9% Dr. Atkin's New Diet

Programs Organized plans that dieters can Weight Watchers

Videos Exercise or fitness tapes to be Gym In a Box

Low carb dieting

The Atkins Advantage

In May 2004, an online consumer survey of 1,005 nationally representative respondents

Low Carb Lifestylers;

Consumer dietary habits by type

Dieting/lifestyle type Definition % of survey respondents

Low Carb Lifestylers Actively trying to lose weight 15%