Staying power seen in shift from carbohydrates

NEW YORK — A move in consumer habits toward protein-rich foods and away from carbohydrates “shows no signs of abating,” said Robert Moskow, an investment analyst with Credit Suisse in New York.

In a research brief titled “The Return of the Caveman,” Mr. Moskow said the shift to protein is “big and is likely to continue” and should factor into the considerations of investors as they formulate long-term theses on individual stocks in the food sector.

“Using Nielsen data, we found that volume consumption of carb-rich foods has fallen 5% over the past four years, while consumption of protein-rich foods has increased 7%,” he said. “Unlike the Atkins diet fad of the mid-2000s, this demand shift appears to have staying power as consumers holistically try to increase the ‘good fats’ in their diet and reduce the amount of gluten and processed sugars. We view Kellogg as particularly vulnerable to this mega trend, and view Hillshire, Hormel, Tyson, and Kraft Foods as the biggest beneficiaries.”

Beyond the consumption trends, Mr. Moskow cited a recent study by NPD Group indicating that 33% of adults want to reduce or eliminate gluten from their diets, an increase from 25% three years ago. In many instances, a desire to “feel better” is prompting this shift. Increasingly, nutritionists are recommending gluten reduction for patients suffering from auto-immune disorders, rheumatoid arthritis and neurological disorders, he said.

“We think this trend will continue as more Americans seek professional advice on how to alter their diets to address disease concerns,” he said. “As an example, with 1.8 million Americans having celiac disease and 83% remaining undiagnosed according to a study by the Mayo Clinic.”

Additionally, carbohydrate-rich foods have been blamed as a driver of “rising obesity rates,” Mr. Moskow said.

“This is due to presence of added-sugars and ‘empty calories’ in refined grain products,” he said. “Efforts by the manufacturers to put more emphasis on whole grain ingredients across their product lines have so far failed to turn back the negative perception.”

Rather than reflecting a belief that increased meat consumption is healthier, gains in this sector reflect a desire by consumers to compensate for the proliferation of carbohydrate-rich foods that entered the marketplace over the past generation, Mr. Moskow said.

“The snack category expanded dramatically over the past 20 years as manufacturers responded to the demands of time-crunched consumers with a flood of chewy granola bars, potato chips, tortilla chips, and snack crackers,” he said. “Parents came to the realization that these great-tasting products were crowding out the protein from their children's diets and that the ones with high sugar content were causing peaks and valleys in their children’s energy levels. Health-conscious parents have responded in some strange ways such as preparing unhealthy foods for their children in the morning, like bacon and sausages, to make sure they are satiated during the day.”

Recent new products from processed meat makers like Hillshire Brands Co., Kraft Foods Group and Hormel Foods are the beginning of what Mr. Moskow said will be “onslaught we expect to hit the market.”

Mr. Moskow accused Kellogg Co. of spending years denying it faced a problem.

“Kellogg is now developing a stronger marketing campaign touting the health benefits of whole grain in the breakfast cereal category,” Mr. Moskow said. “This is a sensible thing to do because it sticks to the basic truths about the importance of whole grains in a balanced diet and the difference between good carbs and bad carbs. For example, unit sales of products in the food and beverage sector claiming to have low glycemic levels grew 31% in 2013. What remains to be seen is whether Kellogg can make a big enough investment to move the needle given all of the margin and volume pressures facing the company and whether the argument is persuasive enough to reverse consumers' biases. For example, we think consumers would reject a campaign that tries to compare the health benefits of cereal directly against Greek yogurt.”

While the staying power of the trend toward higher protein foods may be real, the underlying science may be a different matter, Mr. Moskow said.

“Of course, maintaining a balanced diet is the most healthy solution longer term,” he said. “Extreme diets like Paleo will stress the body over time and increase the risk of heart disease. But for the foreseeable future, we see an uphill challenge for grain-based processed food products.”

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Graham