Low-Carb Frenzy

Big companies are gorging on the market. Small companies are still the trailblazers

Kellogg has its low-carb Special K. Coors has Aspen Edge, a low-carb beer. And LowCarb Success has low-carb granola -- in Wild Cherry Nutrageous and Cinnamon Nutrageous.

LowCarb Success? True, it doesn't have the name recognition of a Kellogg or a Coors. But small companies such as 30-person LowCarb Success have been doing the yeoman's work of bringing low-carb products into the mainstream. It started with Atkins Nutritionals, of course, which was born in a doctor's office in 1989 and has since grown to 300 employees. Smaller companies are continuing to lead the charge. In the year ended in March, 2004, some 1,100 trademark applications were filed containing variations of the words "low carbohydrate." And about 85% of those filings came from small companies. "Entrepreneurs are spotting opportunities and seizing them well before the big companies can," says Dean Rotbart, executive editor of trade publication LowCarbiz.

With the entrance of the major foodmakers into the low-carb market, the ability to make a fast buck is long past. Still, there's plenty of room for entrepreneurs to compete, says Rothbart, simply because they're nimbler. Large companies typically think in terms of billion-dollar brands, he explains. A smaller company can make a nice profit on $25 million or less in sales.

Most experts believe the biggest potential for small businesses will be in services. "There's still a huge information gap when it comes to low-carb," says Gus Valen, CEO of consulting firm Valen Group. So entrepreneurs are doing much more than inventing new foods. They're launching low-carb magazines, rolling out low-carb vending machines, even organizing cruises for Atkins acolytes.

IT TOOK NERVE TO STICK with a new business in the fall of 2001. But David and Colleen Martinez were nothing if not committed. "This isn't just a business for me," says David. "It's a matter of life and death." Back in 1999, David, with a family history of heart disease and diabetes, weighed 280 pounds. Colleen was overweight, too. Worse, the couple saw their two children heading down the same path. Now, David weighs 210 pounds; Colleen has lost 40 pounds. And LowCarb Success brought in more than $2 million in the first three months of 2004, primarily by selling 9-oz. bags of granola for $5.50 to $9.00. That's about the same amount of sales the company did in all of 2003.

Like dieting, steering the business hasn't been easy. The couple's first three offerings -- a hot cereal, a pancake mix, and a pizza crust -- were all slow sellers. But in summer 2002, Colleen developed a tasty low-carb granola. Perhaps no one was more pleased than her kids, who had been eating Colleen's experiments for breakfast for six months. They pronounced this version yummy and crispy.

Indeed. Thanks to the granola, LowCarb Success recently moved to a new 10,600-square-foot manufacturing facility. Colleen, who comes from a long line of bakers, continues to tinker in the kitchen. Next up: a low-carb granola bar.

SURE, VENDING MACHINES ARE THERE WHEN you need them. Unless you're on a low-carb diet. "Most people on a low-carb diet know to stay away from vending machines," says Joseph Preston. Unlike other frustrated low-carb dieters, Preston, CEO of a small marketing agency, was in a position to do something about it. He teamed up with Bob Grosh, president of a consulting firm that worked with the vending industry. The two promptly partnered with Monumental Vending, one of Washington, D.C.'s largest vending machine operators, to roll out machines serving only low-carb snacks. The first three appeared at Monumental clients -- Marriott headquarters, a hospital, and NBC News. LowCarb Vending also wants to distribute low-carb products into existing vending machines. By the end of this year, they aim to be servicing 6,000 machines. There's no time to waste: Pure Foods, a Beverly Hills food retailer, is hot on their heels.

AFTER TWO YEARS IN SEMI-RETIREMENT, James Capparell was looking for a new project. That new project -- a low-carb magazine -- may just turn out to be the biggest hit that his $4.4 million CappMedia has had, even though it has launched 10 magazines since 1992.

Capparell spent just three weeks on research before assembling a team of freelancers to create and market LowCarb Living. Even without a prototype, Capparell sold 20 pages of advertising for the first issue. He hired a rep he had previously worked with to get his magazine into large retailers. In January -- less than three months after Capparell first came up with his idea -- LowCarb Living appeared at chains including Wal-Mart Stores, Safeway, and Barnes & Noble. The second issue, published in March, was 20% larger and had nearly twice as many ads. Capparell says he invested $250,000 in the bimonthly and expects it to be profitable by the third issue. That's virtually unheard of. "I've never seen anything like this," says Capparell.

THE CRUISE SHIP -- HOME OF THE 24-HOUR smorgasbord -- is especially unfriendly to dieters. Just ask Peter Coloyan, a frequent cruiser and owner of $4.5 million West Palm Beach (Fla.) travel agency SmartTraveler.com. "It was nearly impossible to go on a cruise and remain on a low-carb diet," says Coloyan, who lost 45 pounds by cutting carbs. "They had low-sodium food, low-fat, vegetarian. But nothing for low-carb dieters."

In January, he approached Miami-based operator Carnival with the idea of a low-carb-friendly cruise. Carnival was receptive, so Coloyan put out a press release and teamed with magazine Low Carb Energy to sign up cruisers. He now has four low-carb cruises planned for the upcoming fall/winter season.

Low-carb devotees will share a ship with other vacationers, but will have a separate dinner seating. They'll be free to dive into the midnight dessert buffet, but a card listing the carb counts of favorites such as baked Alaska will be discreetly left on their pillows. Next year, Coloyan plans to offer as many as 40 low-carb cruises, which he hopes will account for half his revenues. And, no doubt, much of his vacationing.

By Michelle Leder

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