Companies have healthy interest in diet craze

When you dine at an American restaurant these days, it may seem as though the low-carbohydrate diet has become our national religion. There are big red circles or bold black asterisks all over the menu denoting "your low-carb choices."

In grocery stores, low-carb food is displayed in the most advantageous central locations, stealing shelf space from foods now deemed less acceptable.


The Atkins and South Beach diets may not be lauded by the medical field, but they've certainly left their mark on restaurant, food and weight loss companies.

Whether such change lasts or is simply a fad will affect the stock performance of these firms.


"More people are going out to eat and taking their diets with them, something investment analysts didn't have to consider before," said Michael Smith, restaurant analyst with Oppenheimer & Co. in Kansas City, Mo. "Three years ago, people stayed on their diet at home but forgot about it whenever they dined out."

Deals are being cut. For example, Applebee's International now offers Weight Watchers menu items, while Kraft Foods puts the South Beach Diet trademark on some products.

"Don't let what happened to Krispy Kreme Doughnuts happen to us," American business seems to be crying out. Krispy Kreme, a rapidly growing company famous for its high-fat, high-calorie pastry, said its earnings and stock price were walloped by the Atkins diet.

After its restaurant and grocery sales declined, management rushed out a low-sugar doughnut. American Italian Pasta and Interstate Bakers similarly rolled out new products.

But the stock prices of meat processors Tyson, Smithfield, Pilgrim's Pride and Hormel have risen dramatically because meat is a centerpiece of low-carb diets.

Traditional weight loss companies have been reeling. After sales of private company Slim-Fast Foods Co. declined, it began promoting its products "for use as part of a low-carb diet."

Stock of Weight Watchers International, the largest weight loss firm, has been erratic, bouncing between the $30 and $40. Fewer people have signed up because its longtime philosophy of a well-balanced diet and exercise to lose weight began to seem less trendy.

"I'm a believer in the company and think attendance will come back because Weight Watchers is rarely someone's first choice," said Kathleen Heaney, analyst with Maxim Group in New York. "People try a diet or other methods on their own, then ultimately end up at Weight Watchers."


She recommends stock of Weight Watchers (WTW), which operates and franchises weight-loss programs through classroom-type meetings in the United States, Canada, Mexico, Britain, Europe, Australia, New Zealand, South Africa and Brazil.

"A lot of food stocks were really hurt by the low-carb trend, prompting companies to put out new products," noted Erin Smith, consumer staples analyst with Argus Research in New York. "However, they're taking action behind a trend that I believe -- and most analysts believe -- is starting to decline."

PepsiEdge and Coca-Cola's C2 are new low-carb sodas. Aspen Edge from Coors is one of a half-dozen low-carb beers. PepsiCo's Frito-Lay introduced low-carb Doritos Edge and Tostitos Edge.

Burger King offers a bunless burger, while McDonald's diet-conscious Go Active! meal includes a pedometer.

General Mills launched low-carb products that include Hamburger Helper and Progresso soups. Hershey's has a lower-calorie candy bar.

Initial sales should be impressive as consumers try them out. Summer is also when people are most concerned about their weight.


"However, I don't believe products such as Heinz low-carb ketchup will do as well because, except for die-hard carb counters, people aren't concerned about the carbs in their ketchup," said Erin Smith. "A bread product, cookie or indulgent snack that's high in carbs to begin with prompts much more concern."

The overhyped current diets are a passing fancy, she contends. Investors should realize the longer-term emphasis is on healthy eating and trying to balance one's diet.

Stock of PepsiCo. Inc. (PEP), the global snack and beverage company, and Kraft (KFT), maker of branded foods and beverages, are both recommended by Argus Research. Besides healthy new products, each has a solid line that has withstood the test of time.

"The biggest factor behind the dismal performance of restaurant stocks is the Krispy Kreme breakdown, since it removed confidence from the sector," observed Michael Smith. "But there have also been commodity price pressures from beef, dairy and shrimp that have hurt companies' profit margins."

Panera Bread Co., hit hard because its primary product is bread, has added a variety of low-carb menu items. Olive Garden, owned by Darden Restaurants, continued last year's upward trend in sales, an indication it sells more than pasta.

Included in Oppenheimer restaurant stock recommendations are Panera (PNRA), operating nearly 200 company-owned bakery cafes and franchising another 400, and Darden (DR), which operates 1,200 restaurants that include Olive Garden and Red Lobster.


California Pizza Kitchen Inc. (CPKI), a premium pizza establishment that owns or franchises 168 restaurants in the U.S. and five other countries, and The Cheesecake Factory Inc., which operates 61 restaurants in 20 states and District of Columbia, are other Oppenheimer selections.

Even restaurants that don't adopt the diet trends should prosper because demand remains strong. Customers can always "order steak, avoid bread or baked potatoes and select an appropriate salad dressing," Michael Smith said.

Andrew Leckey is a Tribune Media Services columnist.