From the May 2004 issue of Entrepreneur

Fighting for headline space right along with the presidential election and celebrity woes, low-carb has become one of the most talked about topics at home, at work and with friends and acquaintances. The low-carb buzz, spearheaded by the Atkins diet and a handful of similar weight-loss plans, has boosted sales in traditional food industries such as meats, eggs and nuts. And it has turned a once-quiet specialty market into a burgeoning empire of low-carb products and services that has businesses cashing in on carb-conscious dieters.

The timing is still ripe for entrepreneurial newcomers--as The Valen Group, a strategy consulting firm for Fortune 500 companies, discovered in a recent study. According to the survey, 59 million U.S. adults are controlling their intake of carbohydrates, and more than 40 million others said they were considering a low-carb diet in the next 12 months. Collectively, those figures are fast approaching half of all U.S. adults.

While competition in the low-carb industry has indeed increased in the past year, especially with major companies jumping on the bandwagon, there are plenty of opportunities to get in and start a business catering to the picky palettes and pocketbooks of these watchful consumers. Carbolite Foods Inc., for one, is a once-small operation that has rocketed to a projected $150 million in 2004 sales, thanks to its Carborite line of low-carb candy and assorted goodies. (For more on Carbolite, see last month's "Carb Your Enthusiasm.") Clearly, low-carb dieters are gobbling up products that allow them to taste low-carb versions of what would otherwise be off-limits, and Gus Valen, CEO of The Valen Group in Cincinnati, says demand is outstripping supply.

For low-carbers, it's not just a diet, it's a full-blown lifestyle. For entrepreneurs, it's an industry rife with possibilities. For those who've already taken the plunge, it's clear there's a hunger to be satisfied. Dean Rotbart began the first industry newsletter, LowCarbiz, in July 2003 and has seen the number of subscribers soar to more than 1,400 since he started requiring paid subscriptions in September. And when Rotbart held the first low-carb industry summit in Denver in January 2004, more than 500 attendees--ranging from the likes of Frito-Lay Inc., Kraft Foods Inc. and Wal-Mart Stores Inc. to entrepreneurs--turned up to discuss issues and opportunities surrounding the growing industry. With so many restaurants and food manufacturers joining the ranks of smaller operations in offering low-carb options, Rotbart thinks the stir among Fortune 500 companies to take action won't endanger the opportunities out there for entrepreneurs, but will actually reinforce and authenticate the market. "It's good news for the entrepreneur that Fortune 500 [companies are] validating [that] it will be an industry for years to come and not just a flash in the pan," says Rotbart. "Their very movement into this creates a self-fulfilling prophecy."

Healthy Returns

Philip Goglia, Ph.D., knew about low-carb long before the recent craze. An All-American wrestler for Duke University in Durham, North Carolina, and former Mr. North America, Goglia points out, "To the bodybuilding, Olympic and professional athletic community, low-carb dieting was always a primary aspect of food programming." His passion for fitness and health propelled him to earn a doctorate in nutrition and start Performance Fitness Concepts (PFC), a nutrition and wellness firm in Santa Monica, California, in 1981. The company helps clients worldwide set up and manage their nutrition and exercise programs, and has helped celebs like Owen Wilson and Brendan Frasier shape up for physically challenging roles.

With low-carb attracting the mainstream, PFC estimates that between 74 and 84 percent of its clients are now on a low-carb diet. In fact, PFC's revenues will increase from $1.2 million in 2003 to a projected $2.5 million in 2004, due in part to its low-carb books, nutritional programs, support groups and other products. PFC's corporate wellness program--which aids companies in helping their employees reach health goals using a nutritionist and workouts if an onsite gym is available--has signed on its first corporation, with 7,000 employees. PFC also recently created an entertainment division that caters to busy agents and actors. The company's latest venture is a pharmaceutical-grade supplement line, sold through retail stores, that enhances the low-carb or no-carb food program.

Goglia, 44, maintains that, unlike most other nutrition firms, PFC's approach is metabolically based. The company assesses clients' blood chemistries and uses lipid profiles, which determine how much fat and protein an individual can manage based on readings like HDL, LDL, triglycerides, total cholesterol and glucose, and the ratios between them. Though multitudes start low-carb diets on the fly, the Atkins diet recommends that dieters obtain tests such as these; and those dieters serious about monitoring their health do. If clients' metabolic types don't fit with the low-carb diet, Goglia will find an appropriate food program to help them stay fit.

Valen feels that conscientious businesses like these will help reinforce the validity of the low-carb lifestyle. "If you have a bunch of fringe players that come in and promote the wrong things, or if the media picks up just that side of it," he says, "that could be detrimental to the long-term growth of the marketplace." Validity is a major issue in the industry, and Rotbart is spearheading a nonprofit association that will establish and adopt scientifically based nutritional, manufacturing, testing and marketing standards. Called the Low Carb Consumers League, it will offer a seal of approval for products. Efforts have been made to create other industry trade associations, but the industry has grown so quickly that it's playing catch-up. In fact, no resources specific to the low-carb industry are available for startups, other than LowCarbiz, but Rotbart is already working on an industry conference to be held May 5 and 6 in Washington, DC, and another in January 2005. (Visit www.lowcarbiz.com for more information.)

A Second Wind
You don't necessarily have to create a new product to take advantage of the low-carb craze. Sometimes you just have to market an existing product in a new way to point out its relevancy.

Consider Asher's Chocolates Inc. in Philadelphia. Since Chester Asher started the company in 1892, times have changed, including the types of chocolate we eat. Sugar-free chocolates were introduced to Asher's Chocolates line in the 1970s to offer diabetics a substitute for the forbidden real thing, but a few years ago, the company had noticed the public's interest in Atkins-style diets. Though they knew their sugar-free chocolate had only 0.7 to 1.5 net carbs, carb-conscious consumers didn't. After changing the packaging in late 2002 to include bright-yellow lettering specifying its low-carb grade, Asher's Chocolates experienced a triple-digit increase in sales.

"We may be 112 years old," quips Chester's great-grandson Jeff Asher, 41, vice president of sales and marketing, "but we're able to react in a timely manner. We weren't burdened [like major companies] with the same five-year, locked-in-stone plan." The fourth-generation, family-owned enterprise will produce up to 3.5 million pounds of the sugar-free, low-carb chocolate in 2004.

Finding Your Niche

Opportunity in this industry is all about giving low-carbers more choices, and that's exactly what Pure Foods LLC is doing with the first-ever low-carb restaurant in the United States, in addition to its retail stores, food product line and catering divisions. The company projects $10 million in combined sales for 2004.

While vacationing in Europe in September 2003, friends Stephen Bikoff, 35, and Brad Saltzman, 36, talked about going on a low-carb diet when they returned to the States to lose some of the weight the rich European food had added. When Bikoff, who had already tried low-carb dieting, lamented about how long it took to receive low-carb products ordered online and the lack of variety and availability elsewhere, they decided to start their own low-carb retail store. Saltzman shared the idea with Romina Kiryakous, 40, and Linda Mihka, 37--he was already running a valet parking business with the two--and they wanted in.

In December 2003, Pure Foods Low Carb Market launched, with three stores open and another seven in the works for this year. While planning the retail store, the partners realized that there was still a lack of variety and good-tasting low-carb food on the market; so they created a line of food products (including frozen meals) that's carried not only in their own stores, but also in other specialty and grocery stores. Pure Foods, which is based in Beverly Hills, California, and does catering in the local Los Angeles area, has discussed wholesaling some of its cheesecakes to a restaurant chain and has been approached by several others. Pure Foods Low Carb Cafe is now open in Beverly Hills, offering low-carb treats like BBQ chicken pizza and an ice cream and hot fudge-topped brownie. They hope to open eight or nine more locations before the end of the year and plan to franchise their cafe and low-carb market concepts.

To succeed as well as these entrepreneurs have, Rotbart says the way to go is to veer off from the Fortune 500 radar. "To create a product that competes head-to-head with [big companies] is folly for the entrepreneur," he advises.

Valen concurs and offers an "if you can't beat 'em, join 'em" alternative: "If entrepreneurs are willing to invest in the capital, plants, R&D and manufacturing, they could help a larger brand," revealing that many of the Fortune 500 companies are simply scared or hesitant to enter the market themselves.

If you want to go it alone, Valen says another area ripe with opportunity is the many ancillary services surrounding the industry, like business development, financing, and consulting firms such as his that have benefited from low-carb businesses. And Rotbart says the ethnic low-carb food niche-like Asian, Spanish, or even kosher or organic low-carb fare-is still an open area. Finally, he says, ultra low-carb (0 to 2 grams of carbs) and gourmet items will give entrepreneurs who can outpace slower-moving corporations an edge.

The Next Wave
Low-carb food regimes could be the new standard of dieting, but looking back at history, there's always something new coming along.

Just ask Jay Robb, who's quite possibly paving the way for other entrepreneurs to benefit from a potential low-carb backlash and burnout. The certified clinical nutritionist, fitness trainer and founder of Jay Robb Enterprises Inc. in Carlsbad, California, contends that the secret to real weight loss lies not in low-carb eating, but in a combination of low- and higher-carb intake. His book, The Fat Burning Diet: Accessing Unlimited Energy for a Lifetime (Loving Health Publications), details his program, which relies on glycogen management rather than net carbs. He predicts low-carb dieters will soon look to diets like his when they give up on the restrictive lifestyle.

Robb may represent the evolution of low-carb businesses. Offering workshops, information and supplements that promise dieters weight loss without the constant limitations, Robb projects 2004 sales of $4 million.

Permitted Pasta

Pastry chef John Muscarello found his niche with low-carb Italian food. As the owner of Jean Marie Patisserie in Garden City, New York--a business Muscarello no longer owns--he concocted a zero-carb wrap for his diabetic mother. Stuffing it with grilled vegetables or chicken salad and offering it alongside his sweets, he saw it ring up more sales than his pastries. Being Italian, Muscarello, 42, decided to try making low-carb versions of favorites such as ravioli, manicotti and stromboli using the wrap. He boasts, "People don't even realize it's not pasta."

Struggling with weight loss himself, Muscarello ate his creations for six weeks, exercised and ended up losing 33 pounds. He soon added a Philly steak wrap, chicken parmigiana and several other items and decided to go all low-carb, launching the West Babylon, New York-based Carbs a Weigh--a company providing low-carb meals, snacks, desserts and appetizers--in October 2003. Selling his frozen meals through wholesale, retail, mail order and his Web site, Muscarello has had pizza parlors order pasta items from him, and QVC featured his line in March. Sales for 2004 are projected at more than $1.5 million, and Muscarello is rolling out Carbs a Weigh parties, where guests can sample and purchase food from the host. Muscarello is thrilled, but stresses his mission: "I just wanted to give people an opportunity to really enjoy food. That's why I say, 'Losing weight has never tasted this good!'"

While the environment is a prosperous one, entrepreneurs who still want to open retail stores or enter other quickly saturating areas may want to consider becoming franchisees. "If you're set on being an independent, you're going to face a lot of competition from your neighborhood supermarket," warns Rotbart.

One such franchise is Castus Low Carb Superstores, based in the San Francisco Bay area. These low-carb retail stores already have 48 franchisees on board, and founders Paul Chalupsky and Rick Schott plan to span the United States and Canada, and are working on entering Australia and the United Kingdom. With plans to open 200 locations this year, Chalupsky, 47, and Schott, 50, realize the low-carb retail store wars have already begun. "If you don't have additional players, it's not a game. I wish them well," Schott says good-naturedly. While he welcomes the competition, Schott worries about those who are entering the industry just for the money.

Schott travels and offers low-carb workshops to help inform and educate others on the low-carb lifestyle. Both founders are serious low-carbers and require all their employees to follow a low-carb lifestyle. With projected 2004 sales at $10 million, their retail model is "We don't sell low-carb products; [we sell] our customer doing well on a low-carb lifestyle."

Like the Internet boom, the low-carb craze has created a feeding frenzy among businesses that are ready to serve the needs of the mushrooming low-carb community. "A lot of people are going to have success if they have some originality. It's easier to succeed [now because of its popularity], but the time to get it right will be truncated," says Rotbart. With everyone racing to be the biggest, best and especially the first, he predicts that many will enter the marketplace in 2004, but only a few will survive. Watch out, though--Rotbart predicts that a second wave of entrepreneurs will enter the market in the following two years, after watching and learning from the current successes.

Valen acknowledges the risks entrepreneurs must take, but he still stresses the advantage they have over the corporate powers in this arena: "Entrepreneurs can get products done and on the market in about half the time."