Low-carb disaster hits American Italian Pasta
plunged America's leading dried pasta maker into the red for its
fourth quarter and left the company barely breaking even for the
year, writes Chris Mercer .
Early in 2004, the American Italian Pasta Company (AIP) introduced a range of reduced-carb and low-carb pasta products targeted at the much publicised diet trend.
But more than $6 million (€4.6 million) worth of marketing and $3.9 million in launch costs later, the company has reported low-carb sales some 50 per cent below expectations in its last quarter.
To make matters worse, AIP's deal to supply low-carb specialists Atkins Nutritionals with pasta has broken down, leaving the company with full year sales of low-carb pasta only just above marketing costs at $9.9 million.
Market analyst Sue Perram, of US-based firm Avondale Partners, said AIP had simply gone into the low-carb market too late. "Demand for low-carb products has waned and the market has become saturated. A lot of companies of low-carb products are going to go by the wayside," she said.
More than 125 low-carb products have hit US supermarket shelves since August 2003 yet a survey by financial advice company Morgan Stanley revealed that the number of people on low-carb diets fell from 12 per cent to 10 per cent between January and June this year.
The poor performance of AIP's low-carb pasta caps off a disappointing year for the company. Total dry pasta consumption has declined by around five per cent during the three months to 4 October and this, together with customer shipment delays and $3 million worth of restructuring costs, has pushed AIP $12 million into debt in the fourth quarter.
AIP also temporarily closed its Kenosha factory for much of 2004; reducing production capacity as the company attempted to change its distribution network and the manufacturing remit of its different plants, according to board chairman Horst Schroeder.
Company operating profit for 2004 stands at $17, 000, down 77 per cent from almost $75,000 in 2003. Unsurprisingly AIP has called 2004 "the most challenging year in the company's history", and Tim Webster, AIP president and chief executive officer, said he was disappointed.
But Webster believes the company can turn the corner and said AIP planned to raise sales prices in 2005 to offset rising transport and raw materials costs. The company has also agreed on a strategic plan for 2005 which entails a smaller, more profitable product volume - though specific details were not available and it is unclear how largely low-carb pasta will figure.
"The operational and profit impacts of the restructuring were much greater than expected; however, we believe our operations will improve over the next two quarters," said Webster.
