Once-hot low-carb diet craze on wane; Atkins Nutritionals files for bankruptcy.

Dr. Robert Atkins died two years ago. Now the diet food company he founded has gone belly up: Atkins Nutritionals has filed for bankruptcy protection, and the low-carb craze it banked on has thinned out.

The Ronkonkoma, New York-based company listed assets of $301 million and liabilities of $325 million in papers filed with the US Bankruptcy Court. Another sign of the times: frozen products based on a rival weight loss plan, the South Beach diet, have gained ground.

Some people are blaming bad publicity: an alleged post-mortem showing that Atkins himself had a history of heart trouble, including congestive heart failure and high blood pressure and was seriously overweight when he died. But more likely, the Atkins diet wouldn't have lasted anyway.

Millions of people tried the low-carbohydrate approach to losing weight. But for a variety of reasons--including the fact that even with its promise that people could eat all the fatty foods they wanted, the diet required sacrifice that many people could not sustain. In the end, Atkins Nutritionals Inc., the company most closely associated with the low-carb fad, was waylaid by increased competition and the inevitable backlash.

"I think you could see this one coming a mile away," said Bob Goldin, executive vice president of Technomic Inc., a food industry research and consulting firm. Today only 2.2% of America's adults say they are on any kind of low-carb regimen, including the Atkins diet. That's down from 9.1% in January 2004, according to NPD Group's Diet Monitor, a marketing research firm based in Port Washington, New York. The number of people saying they are on the Atkins diet has fallen just as sharply, from about five percent to only 1.1%.

"This was an easy diet," said Goldin. "Consumers want magic solutions, the magic bullet. They don't want to have to give up what they like. They don't want to have to work to lose weight." Dieters were drawn to Atkins by both the compelling stories of weight loss and the sausages. A typical day's fare might be a Greek omelet for breakfast, an open-faced Reuben on low-carb bread, and steak for dinner.

For a while, the low--or no-carb diet seemed to have an entire country of adherents. Shelf talkers blossomed in supermarkets promoting low-carb products. The craze prompted restaurants and food companies to scramble to get their own offerings in front of the consumers. Restaurant chains such as T.G.I. Friday's unveiled low-carb menus while Burger King and Hardees rolled out bunless burgers.

The popularity of the diet, which allowed consumers to continue eating big meals while losing weight, grew rapidly despite warnings that the high-protein, low-carb plan increased the risk of higher cholesterol, kidney problems and loss of calcium in the bones. Based on the hype, two normally astute investment companies--Parthenon Capital LLC and Goldman Sachs Capital Partners--bought stakes in Atkins Nutritionals in 2003 for about $460 million.

But the low-carb craze peaked a little more than three months after the sale, according to Diet Monitor. At the same time, competitors like Unilever, Kraft and General Mills were looking to cash in on the craze with their own products, and Atkins did not react quickly enough to bolster falling sales.

That competition may be reflected in ACNielsen figures that show the retail market for all low-carb products advanced 34% to $2.52 billion for the 52 weeks ended July 16. If the Atkins brand was losing, something else had to be gaining. Of course, all or most of that gain was probably in the early part of the reporting year.

"We don't carry nearly as many [Atkins] products as we used to," said Tim Corbett, store director at the Mishawaka Indiana, outlet of Meijer, a midwestern supercenter chain. "As Atkins has gone down, we've seen South Beach get stronger," he added, referring to the still carb-conscious, but less-restrictive South Beach Diet. "It's sort of a swap."