Go With the Low Hear everyone talking about the low-carb revolution, but think it's too late to get in the game? Don't worry--there's still plenty of opportunity to profit from America's newest obsession.
Opinions expressed by Entrepreneur contributors are their own.
Fighting for headline space right along with the presidentialelection and celebrity woes, low-carb has become one of the mosttalked about topics at home, at work and with friends andacquaintances. The low-carb buzz, spearheaded by the Atkins dietand a handful of similar weight-loss plans, has boosted sales intraditional food industries such as meats, eggs and nuts. And ithas turned a once-quiet specialty market into a burgeoning empireof low-carb products and services that has businesses cashing in oncarb-conscious dieters.
The timing is still ripe for entrepreneurial newcomers--asThe ValenGroup, a strategy consulting firm for Fortune 500 companies,discovered in a recent study. According to the survey, 59 millionU.S. adults are controlling their intake of carbohydrates, and morethan 40 million others said they were considering a low-carb dietin the next 12 months. Collectively, those figures are fastapproaching half of all U.S. adults.
While competition in the low-carb industry has indeed increasedin the past year, especially with major companies jumping on thebandwagon, there are plenty of opportunities to get in and start abusiness catering to the picky palettes and pocketbooks of thesewatchful consumers. Carbolite Foods Inc., for one, is a once-smalloperation that has rocketed to a projected $150 million in 2004sales, thanks to its Carborite line of low-carb candy and assortedgoodies. (For more on Carbolite, see last month's"Carb YourEnthusiasm.") Clearly, low-carb dieters are gobbling upproducts that allow them to taste low-carb versions of what wouldotherwise be off-limits, and Gus Valen, CEO of The Valen Group inCincinnati, says demand is outstripping supply.
For low-carbers, it's not just a diet, it's a full-blownlifestyle. For entrepreneurs, it's an industry rife withpossibilities. For those who've already taken the plunge,it's clear there's a hunger to be satisfied. Dean Rotbartbegan the first industry newsletter, LowCarbiz, in July 2003and has seen the number of subscribers soar to more than 1,400since he started requiring paid subscriptions in September. Andwhen Rotbart held the first low-carb industry summit in Denver inJanuary 2004, more than 500 attendees--ranging from the likes ofFrito-Lay Inc., Kraft Foods Inc. and Wal-Mart Stores Inc. toentrepreneurs--turned up to discuss issues and opportunitiessurrounding the growing industry. With so many restaurants and foodmanufacturers joining the ranks of smaller operations in offeringlow-carb options, Rotbart thinks the stir among Fortune 500companies to take action won't endanger the opportunities outthere for entrepreneurs, but will actually reinforce andauthenticate the market. "It's good news for theentrepreneur that Fortune 500 [companies are] validating [that] itwill be an industry for years to come and not just a flash in thepan," says Rotbart. "Their very movement into thiscreates a self-fulfilling prophecy."
Healthy Returns
Philip Goglia, Ph.D., knew about low-carb long before the recentcraze. 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 athleticcommunity, low-carb dieting was always a primary aspect of foodprogramming." His passion for fitness and health propelled himto earn a doctorate in nutrition and start Performance FitnessConcepts (PFC), a nutrition and wellness firm in Santa Monica,California, in 1981. The company helps clients worldwide set up andmanage their nutrition and exercise programs, and has helped celebslike Owen Wilson and Brendan Frasier shape up for physicallychallenging roles.
With low-carb attracting the mainstream, PFC estimates thatbetween 74 and 84 percent of its clients are now on a low-carbdiet. In fact, PFC's revenues will increase from $1.2 millionin 2003 to a projected $2.5 million in 2004, due in part to itslow-carb books, nutritional programs, support groups and otherproducts. PFC's corporate wellness program--which aidscompanies in helping their employees reach health goals using anutritionist and workouts if an onsite gym is available--has signedon its first corporation, with 7,000 employees. PFC also recentlycreated an entertainment division that caters to busy agents andactors. The company's latest venture is a pharmaceutical-gradesupplement line, sold through retail stores, that enhances thelow-carb or no-carb food program.
Goglia, 44, maintains that, unlike most other nutrition firms,PFC's approach is metabolically based. The company assessesclients' blood chemistries and uses lipid profiles, whichdetermine how much fat and protein an individual can manage basedon readings like HDL, LDL, triglycerides, total cholesterol andglucose, and the ratios between them. Though multitudes startlow-carb diets on the fly, the Atkins diet recommends that dietersobtain tests such as these; and those dieters serious aboutmonitoring their health do. If clients' metabolic typesdon't fit with the low-carb diet, Goglia will find anappropriate food program to help them stay fit.
Valen feels that conscientious businesses like these will helpreinforce the validity of the low-carb lifestyle. "If you havea bunch of fringe players that come in and promote the wrongthings, or if the media picks up just that side of it," hesays, "that could be detrimental to the long-term growth ofthe marketplace." Validity is a major issue in the industry,and Rotbart is spearheading a nonprofit association that willestablish and adopt scientifically based nutritional,manufacturing, testing and marketing standards. Called the Low CarbConsumers 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 playingcatch-up. In fact, no resources specific to the low-carb industryare available for startups, other than LowCarbiz, butRotbart is already working on an industry conference to be held May5 and 6 in Washington, DC, and another in January 2005. (Visitwww.lowcarbiz.com for more information.)
Consider Asher's Chocolates Inc. inPhiladelphia. 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 Chocolatesline in the 1970s to offer diabetics a substitute for the forbiddenreal thing, but a few years ago, the company had noticed thepublic's interest in Atkins-style diets. Though they knew theirsugar-free chocolate had only 0.7 to 1.5 net carbs, carb-consciousconsumers didn't. After changing the packaging in late 2002 toinclude bright-yellow lettering specifying its low-carb grade,Asher's Chocolates experienced a triple-digit increase insales.
"We may be 112 years old," quips Chester'sgreat-grandson Jeff Asher, 41, vice president of sales andmarketing, "but we're able to react in a timely manner. Weweren't burdened [like major companies] with the samefive-year, locked-in-stone plan." The fourth-generation,family-owned enterprise will produce up to 3.5 million pounds ofthe sugar-free, low-carb chocolate in 2004.
Finding Your Niche
Opportunity in this industry is all about giving low-carbersmore choices, and that's exactly what Pure Foods LLC isdoing with the first-ever low-carb restaurant in the United States,in addition to its retail stores, food product line and cateringdivisions. The company projects $10 million in combined sales for2004.
While vacationing in Europe in September 2003, friends StephenBikoff, 35, and Brad Saltzman, 36, talked about going on a low-carbdiet when they returned to the States to lose some of the weightthe rich European food had added. When Bikoff, who had alreadytried low-carb dieting, lamented about how long it took to receivelow-carb products ordered online and the lack of variety andavailability elsewhere, they decided to start their own low-carbretail store. Saltzman shared the idea with Romina Kiryakous, 40,and Linda Mihka, 37--he was already running a valet parkingbusiness with the two--and they wanted in.
In December 2003, Pure Foods Low Carb Market launched, withthree stores open and another seven in the works for this year.While planning the retail store, the partners realized that therewas still a lack of variety and good-tasting low-carb food on themarket; so they created a line of food products (including frozenmeals) that's carried not only in their own stores, but also inother specialty and grocery stores. Pure Foods, which is based inBeverly Hills, California, and does catering in the local LosAngeles area, has discussed wholesaling some of its cheesecakes toa restaurant chain and has been approached by several others. PureFoods Low Carb Cafe is now open in Beverly Hills, offering low-carbtreats like BBQ chicken pizza and an ice cream and hot fudge-toppedbrownie. They hope to open eight or nine more locations before theend of the year and plan to franchise their cafe and low-carbmarket concepts.
To succeed as well as these entrepreneurs have, Rotbart says theway to go is to veer off from the Fortune 500 radar. "Tocreate a product that competes head-to-head with [big companies] isfolly for the entrepreneur," he advises.
Valen concurs and offers an "if you can't beat 'em,join 'em" alternative: "If entrepreneurs are willingto invest in the capital, plants, R&D and manufacturing, theycould help a larger brand," revealing that many of the Fortune500 companies are simply scared or hesitant to enter the marketthemselves.
If you want to go it alone, Valen says another area ripe withopportunity is the many ancillary services surrounding theindustry, like business development, financing, and consultingfirms such as his that have benefited from low-carb businesses. AndRotbart says the ethnic low-carb food niche-like Asian, Spanish, oreven kosher or organic low-carb fare-is still an open area.Finally, he says, ultra low-carb (0 to 2 grams of carbs) andgourmet items will give entrepreneurs who can outpace slower-movingcorporations an edge.
Just ask Jay Robb, who's quite possibly paving the way forother entrepreneurs to benefit from a potential low-carb backlashand burnout. The certified clinical nutritionist, fitness trainerand founder of Jay Robb Enterprises Inc. in Carlsbad,California, contends that the secret to real weight loss lies notin low-carb eating, but in a combination of low- and higher-carbintake. His book, The Fat Burning Diet:Accessing Unlimited Energy for a Lifetime (Loving HealthPublications), details his program, which relies on glycogenmanagement rather than net carbs. He predicts low-carb dieters willsoon look to diets like his when they give up on the restrictivelifestyle.
Robb may represent the evolution of low-carb businesses.Offering workshops, information and supplements that promisedieters weight loss without the constant limitations, Robb projects2004 sales of $4 million.
Permitted Pasta
Pastry chef John Muscarello found his niche with low-carbItalian food. As the owner of Jean Marie Patisserie in Garden City,New York--a business Muscarello no longer owns--he concocted azero-carb wrap for his diabetic mother. Stuffing it with grilledvegetables 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 offavorites such as ravioli, manicotti and stromboli using the wrap.He boasts, "People don't even realize it's notpasta."
Struggling with weight loss himself, Muscarello ate hiscreations for six weeks, exercised and ended up losing 33 pounds.He soon added a Philly steak wrap, chicken parmigiana and severalother items and decided to go all low-carb, launching the WestBabylon, New York-based Carbs a Weigh--a company providing low-carbmeals, snacks, desserts and appetizers--in October 2003. Sellinghis frozen meals through wholesale, retail, mail order and his Website, Muscarello has had pizza parlors order pasta items from him,and QVC featured his line in March. Sales for 2004 are projected atmore than $1.5 million, and Muscarello is rolling out Carbs a Weighparties, where guests can sample and purchase food from the host.Muscarello is thrilled, but stresses his mission: "I justwanted to give people an opportunity to really enjoy food.That's why I say, 'Losing weight has never tasted thisgood!'"
While the environment is a prosperous one, entrepreneurs whostill want to open retail stores or enter other quickly saturatingareas may want to consider becoming franchisees. "Ifyou're set on being an independent, you're going to face alot of competition from your neighborhood supermarket," warnsRotbart.
One such franchise is Castus Low Carb Superstores, based in the SanFrancisco Bay area. These low-carb retail stores already have 48franchisees on board, and founders Paul Chalupsky and Rick Schottplan to span the United States and Canada, and are working onentering Australia and the United Kingdom. With plans to open 200locations this year, Chalupsky, 47, and Schott, 50, realize thelow-carb retail store wars have already begun. "If youdon't have additional players, it's not a game. I wish themwell," Schott says good-naturedly. While he welcomes thecompetition, Schott worries about those who are entering theindustry just for the money.
Schott travels and offers low-carb workshops to help inform andeducate others on the low-carb lifestyle. Both founders are seriouslow-carbers and require all their employees to follow a low-carblifestyle. With projected 2004 sales at $10 million, their retailmodel is "We don't sell low-carb products; [we sell] ourcustomer doing well on a low-carb lifestyle."
Like the Internet boom, the low-carb craze has created a feedingfrenzy among businesses that are ready to serve the needs of themushrooming low-carb community. "A lot of people are going tohave success if they have some originality. It's easier tosucceed [now because of its popularity], but the time to get itright will be truncated," says Rotbart. With everyone racingto be the biggest, best and especially the first, he predicts thatmany will enter the marketplace in 2004, but only a few willsurvive. Watch out, though--Rotbart predicts that a second wave ofentrepreneurs 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 hestill stresses the advantage they have over the corporate powers inthis arena: "Entrepreneurs can get products done and on themarket in about half the time."
