Food oligopoly goes low-carb
The current craze for low-carb diets has led to the rise of a set of niche products produced by start-up companies. Sales have grown steadily, not only for the segment leader, Atkins Nutritionals, but also for a variety of lesser-known companies with names like Keto Foods, CarbSense, Carbolite, and LeCarb. These products have started to steal shelf space from other diet foods and are now encroaching on "regular" foods as well.
It's not taken long for the food oligopoly to respond. Unilever's Breyers has started sell low-carb ice cream; George Weston, the bakery giant that owns brands like Entenmann's, Boboli, and Thomas', now has a low-card version of Arnold's bread; Heinz sells low-carb ketchup; Anheuser-Busch now makes a low-carb version of Michelob beer; and FritoLay (a division of Pepsico) is about to release lower-carb versions of Doritos and Tostitos.
The big companies are worried, according to an article in Fortune magazine ("Atkins World", 12/23/2003):
[New low-carb brands] are bumping up against iconic American brands made by food giants like Kraft, ConAgra, and Nestle, which are scrambling to figure out whether low-carb is a fad or a trend. If this is all going to fizzle in two years, should they even bother to introduce new products? They've been burned before. (Remember Kellogg's high-fiber Ensemble brand, made from hearty psyllium-seed husk? Of course not.) If demand stays strong, can they craft new products to meet it? Or will they simply gobble up firms like Carbolite, which has hired Morgan Stanley to field buyout offers? (Atkins Nutritionals has already been snatched up.)
But the big offensive started with Unilever's announcement of an extensive line of low-carb foods. According to a Wall Street Journal article ("Unilever's Skippy, Wishbone and Ragu Go Low-Carb", 1/14/2004), the international food and household products company, will release a line of 18 low-carb products bearing the company's well-known brand names. These products will also be designated with the "Carb Options" label.
Among the products included are lower carb versions of Skippy (peanut butter), Ragu (Spaghetti Sauce), Lawry's (steak sauce), Lipton (iced tea mix) and Wishbone (salad dressing), along with diet bars and shakes, barbecue sauce and marinades.
These new diet foods will supplement Unilever's declining line of Slim-Fast products, based on low-fat dieting. Unilever's power on the shelf and its marketing muscle can't be approached by small competitors. For one thing, they can charge a lot less for their products, as the WSJ article points out.
Unilever is pricing its Carb Options products at a premium of 20% to 25% above the existing brands. But the company notes they will be far less expensive than rival products from the niche marketers. A jar of Skippy Carb Options peanut spread, for example, has a suggested retail price of $2.89, while a comparable jar of regular Skippy costs $2.49. But both are a steal compared to Carb Not Beanit Butter, a soy-based spread costing $6.99.
Why is Unilever, along with other major food companies getting involved? It's the financial success that has hammered the market. Not only are egg, cheese, and meat producers seeing a big reversal of consumption trends, producers of packaged foods are feeding on the trend. According the Fortune article, the growth is remarkable:
Meanwhile, at food-science labs across the country, researchers are figuring out how to take the carbs out of just about every product we eat. It's anybody's guess how big this market is, but LowCarbiz, an industry newsletter that hatched last July, estimates that it could hit $20 billion (including diet books) this year.
As the WSJ article points out, this is all a risk for Unilever. Diet fads are notoriously fickle. But as other big food oligopolies follow suit, the real damage will be to the small, innovative companies that proved the concept of making edible food with reduced carbohydrates. The food oligopolies have the ability and the smarts to respond to every new trend and mainstream it (as they have with organic and "natural" food). Even McDonald's and Subway are now offering low-carb meals. Its adaptability means that the food oligopoly will not suffer being outflanked by new trends.
