Pasta maker eyes a low-carb future

Tim Webster, chief executive officer of American Italian Pasta Co., holds some of his firm's low-carb pasta. The company has introduced the new product lines in an attempt to stop eroding sales due to popular low-carb diets.Charlie Riedel / AP
/ Source: The Associated Press

Being the biggest maker of dry pasta in North America is an enviable position for a company, but with the nation in the midst of a low-carb food boom, it's also a challenge.

American Italian Pasta Co., which owns brands including Mueller's and Golden Grain and also makes pasta for Wal-Mart, Costco and 18 big supermarket chains, has seen its sales slip along with those of its competitors. Pasta is no longer a staple for the growing number of consumers adhering to low-carb, high-protein diets such as the Atkins, South Beach and Zone diets.

Tim Webster, chief executive officer of Kansas City-based American Italian Pasta, said the sales decline seems to be accelerating.

"That's certainly creating challenges and more intense competition, more intense market-share battles," he said.

So American Italian Pasta is trying to make the most of the low-carb trend. The company reached a deal with Atkins last year to make a low-carb pasta sold under the Atkins label. And in January, American Italian Pasta announced it was creating reduced carb pastas for its own seven regional brands, which besides Mueller's and Golden Grain include R&F, Ronco, Martha Gooch, Luxury and Anthony's.

"We think this is a chance, in a bigger more mainstream way, to offer a product that is nutritionally different than regular pasta, that seems to be right in line with what consumers are looking for," Webster said.

The company, founded in 1988, suffered a 5 percent drop in sales during the first quarter of fiscal 2004 after rising 15 percent to $438.8 million last year. It did outperform its rivals in 2003, when industrywide sales fell 5 percent.

'So far so quickly'
American Italian Pasta attributed the first-quarter slump to a shortened quarter, the 4 1/2-month-long grocery strike in Southern California as well as the popularity of low-carb diets. Webster said it was the first time the company's sales had declined from a year earlier.

Analysts who follow American Italian Pasta don't seem concerned that the low-carb trend will hurt the company.

"They'll do OK," said Jonathan Braatz, analyst for Kansas City Capital. "You gotta put this in the context of where they have come from. ... Fifteen years ago they didn't even exist, they made zero pounds of pasta. They have come so far so quickly in 15 years, and they are now the leading pasta manufacturer in this country. And from an investor standpoint, the company has always been a growth oriented stock."

The company's shares are trading in the $40 range in a depressed stock market. That's down from their 52-week high of $47.28 but above their low of $36.08.

American Italian Pasta employs about 710 people and has plants in Excelsior Springs, Mo.; Columbia, S.C.; Kenosha, Wis.; Tolleson, Ariz.; and Verolanuova, Italy. The company acquired seven pasta brands from Borden Foods Corp. in 2001 and Mueller's from Best Foods in 2000,

Dan Trott, the company's executive vice president of sales and marketing, attributed last year's increased sales in part to American Italian Pasta's non-branded pasta business, including deals with food-service companies as well as its arrangement with Atkins. American Italian Pasta also makes pasta for warehouse clubs such as Sam's Club and Costco; for 18 of the top 20 grocery retailers in the country, including Wal-Mart, Food Lion, Kroger, Meijer and Publix; and for industrial users such as General Mills, Kraft and ConAgra.

Trott isn't worried the attention being paid to low-carb food. "It's a relatively small portion of the population that's actually on the low-carb diet."

Less carbs, more money
But Gus A. Valen, chief executive officer of The Valen Group, a strategy consulting firm in Cincinnati, said American Italian Pasta's decision to sell reduced carb pasta was a smart way to try to grab market share.

"The reality is that the demand is so far outstripping supply that it's one of the low-risk, short-term revenue opportunities that are out there," Valen said.

"I mean, what are they gonna take? Five, 10 percent of the market is low-carb. So where else can you grab 10 percent of the market, chase that, in this day and age?" he added.

The reduced carb pasta -- rotini, elbows, penne, spaghetti and lasagna -- sells for about $1.99 for a 12-ounce package, while regular pasta sells for about $1 and the Atkins pasta sells for $3.99, Webster said.

A serving size of the reduced carb pasta has 31 grams of carbohydrates, compared with 41 grams in a serving of normal pasta, but American Italian Pasta increased the amount of fiber to 12 grams, up from 2 grams, so that the pasta has 19 so-called "net carbs" per serving.

Lisa Young in the Department of Nutrition, Food Studies and Public Health at New York University's Steinhardt School of Education said that while reduced carb pasta may be appealing to consumers, "diet-wise and nutritional-wise, it's doing absolutely nothing to help us slim down."

"Pasta itself is not the problem," Young said. "It's the quantity of pasta that people are consuming in one sitting."