Can Atkins Exploit Success?
By Susan Orenstein and Matthew Maier

(Business 2.0) – These should be fat times for Atkins Nutritionals. As growing numbers of overweight Americans embrace reduced-carbohydrate foods, they're fueling a diet craze estimated to be worth $10 billion this year alone. Yet this may turn out to be the most challenging period the company has faced since it was founded in 1989 by cardiologist Robert Atkins.

Suddenly, food giants from Unilever to Sara Lee are trying to snatch a piece of the low-carb pie. Products like Breyers CarbSmart ice cream and Michelob Ultra beer are cramming grocery store shelves. Even the Atkins book empire isn't safe: Readers have already snapped up 5 million books about the South Beach diet, a low-carb regimen touted by some doctors as a healthier alternative to Atkins. The result? Atkins is in grave danger of being overwhelmed by the very movement it created.

Atkins Nutritionals may have had things other than brand management on its mind last year. Granted, the privately held company, based in Ronkonkoma, N.Y., saw its revenue more than double to an estimated $200 million. In April, however, its founder died. Six months later, a private-equity group led by Parthenon Capital and Goldman Sachs took over the firm.

The transition came just as the low-carb craze reached critical mass, and in recent months, the company's strategy has seemed divided. Atkins added dozens of new items to its proprietary brand of ultralow-carb foods, aimed at loyal adherents to the founder's original diet. To reach everyone else, the company launched licensing partnerships with Oroweat bread, Subway sandwich stores, and the TGI Friday's restaurant chain to highlight reduced-carb products emblazoned with Atkins's signature red A.

Entering the mass market makes sense, given that only 17 million Americans adhere to specific low-carb diets, while 59 million say they merely want to "watch" their carbs. Yet the partnerships don't sit well with Atkins diehards. "Low-carb bread made with whole-wheat flour?" says Dean Rotbart, executive editor of LowCarbiz magazine. "That's practically an oxymoron."

Mainstream consumers seem to like the co-branded products, however. Sales of Subway's new "Atkins-friendly" wraps, which contain plenty of fat and calories but only 8 to 10 net grams of carbs, "have exceeded our expectations," says Subway spokesman Les Winograd. Still, he adds, while Atkins Nutritionals "absolutely" signed off on the wraps, they're "not necessarily for people strictly following the Atkins diet."

Though Atkins executives declined to comment on the company's plans, marketing experts and food industry observers say Atkins should move more quickly to transform its logo into the equivalent of a Good Housekeeping seal for low-carb foods. In gold-rush environments like a diet craze, argues Peter Fader, a professor at the Wharton School in Pennsylvania, there is no alternative to rapid growth. "You have just one shot at it," he says, adding that Atkins should "partner like crazy, along the lines of 'Intel Inside,'" while aligning itself with lifestyle products beyond food, such as athletic wear or beauty products. Rotbart agrees, pointing out that as larger companies enter the low-carb market, "Atkins is going to have to hitch its railroad car to other people's brands."

How have other revolutionaries managed the perils of mainstream popularity? Not many have gone on to dominate, but a few have. Nike, for example, started the 1970s as a niche manufacturer of running shoes. Over the years, the company skillfully exploited the American obsession with physical fitness by creating shoes for dozens of additional sports and expanding into fashion categories like clothing and watches. Will the Atkins A soar like the swoosh? Only if its parent company can keep up the pace. -- SUSAN ORENSTEIN AND MATTHEW MAIER