Bloomberg News

Gluten Takes a Beating From Fad Dieters and Grain Giants

November 12, 2013

Grain Giants Go Gluten-Free to Plump Profits on Fad Diet

A baker prepares bread rolls for packing, in the bakery at a supermarket in Canvey Island, U.K. Photographer: Chris Ratcliffe/Bloomberg

Grain sellers want to have their gluten-free cake and eat it, too.

As the stretchy protein found in wheat and other grains has become the latest dietary bogeyman, sales at companies like General Mills Inc. (GIS:US), Kellogg Co. (K:US) and Britain’s Warburtons Ltd. have come under pressure. Yet instead of fighting back against what many dietitians contend lacks scientific grounding, they’re boosting output of pricier gluten-free foods while leaving industry groups to defend their traditional products.

Less than 1 percent of Americans have the disorder that requires a gluten-free diet, yet almost one in three now eschews gluten, according to trend watchers NPD Group, influenced by bestselling anti-gluten books and celebrity endorsements. The U.S. market for gluten-free foods will climb from $4.2 billion in 2012 to $6.6 billion by 2017, according to researcher Packaged Facts, as bread bakers, craft-beer makers and eateries from Hooters to Michelin-starred Hakkasan embrace the trend.

“Consumers, rightly or wrongly, have made a connection between gluten-free and healthy,” said Nicholas Fereday, an analyst at Rabobank. “Grain companies are hoping this trend crashes and burns sooner rather than later. But any trend is a marketing opportunity.”

Terrorist Grain

General Mills, the Minneapolis-based maker of Cheerios, has transformed most of its Chex cereal brand into a gluten-free offering by replacing barley malt syrup with molasses. Sales of Chex have jumped by at least 10 percent in each of the past three fiscal years, while the $6 billion breakfast cereal category has remained stagnant. The company makes over 400 gluten-free products, including versions of its Pillsbury cookie dough and Betty Crocker baking mixes.

Wheat flour consumption has fallen to a 22-year low, according to the U.S. Department of Agriculture. That’s at least partly due to the work of gluten-free advocates like William Davis, author of 2011’s “Wheat Belly,” and David Perlmutter, who released “Grain Brain” this year. Davis calls wheat “the world’s most destructive dietary ingredient,” while Perlmutter says grains are a “terrorist group” that “are silently destroying your brain.”

Related: Obesity Without Other Risks May Lead to Heart Attack

Doug VanDeVelde, a senior vice president at Kellogg’s U.S. Morning Foods unit, counters that grains “can play a key role in a balanced, nutritious diet.” Kellogg, of Battle Creek, Michigan, unveiled gluten-free Rice Krispies in 2011. PepsiCo Inc.’s (PEP:US) Doritos Nacho Cheese Tortilla chips went gluten-free the same year.

“We’re responding as we think we should,” said General Mills spokeswoman Kirstie Foster. “There’s a new diet book every week, and most of them really should go without comment.”

General Mills was little changed at $50.46 at the close in New York today, while Kellogg fell less than 1 percent to $62.05.

Flash Trends

Mark Lang, a food marketing professor at St. Joseph’s University in Philadelphia, says grain producers won’t criticize the anti-gluten authors for fear of fueling sales of their books or offending those with celiac disease who really must avoid gluten. Celiac sufferers produce antibodies to attack gluten, causing damage to the intestines and illness, according to the University of Maryland Center for Celiac Research.

“Large companies have learned not to overreact to these flash trends,” Lang said. “There is nothing to gain, and you have everything to lose.”

Grain companies are making the most of the dietary shift. On Amazon.com, gluten-free Rice Krispies cost 29 cents per ounce, versus 17 cents for the original kind. Warburtons’ gluten-free bread is about 5 pounds ($8) per kilogram, more than twice the price of its regular bread.

Loaf Profits

The higher prices reflect the additional costs to produce gluten-free foods, which have “many more” ingredients and are made in smaller batches in separate plants to prevent commingling, a Warburtons spokeswoman said.

“My profit margin is about the same on gluten-free bread, but the dollar profits per loaf are much more,” said Mark Blacker, sales and marketing director of Continental Baker in Reading, England.

The reluctance of grain producers to defend gluten surprises Michael Pollan, author of “The Omnivore’s Dilemma” and “Food Rules: An Eater’s Manual.”

“The industry has been flat-footed in their response,” Pollan said. “They should be reminding people that gluten is protein, generally thought of as a healthy nutrient, compared to fats or carbs.”

‘Wheat Belly’

This isn’t the first time grain makers have been dragged through the mud. Fifteen years ago, diets that limited carbohydrates sent sales of white bread and pasta plummeting. Out of that crisis rose industry associations like the Whole Grains Council, which encourages consumers to eat more brown rice and whole wheat bread and counts General Mills and PepsiCo’s Frito-Lay snack unit among its members.

Cynthia Harriman, the group’s executive director, said her initial reaction to “Wheat Belly” was that it was “such nonsense.” Once she realized “this was not going away,” Harriman used the council’s website to point consumers toward gluten-free grains such as rice and corn.

The Wheat Foods Council, an association of producers formed in 1972, faced a more direct threat, says president Judi Adams, and it lacks the funding for an ad campaign like “Got Milk?,” which cost over $20 million. The council spent $433,000 for public relations in 2011, according to its U.S. tax return. Adams said she’s working with dietitians, who she says are more credible than celebrities backing gluten-free diets.

“We know that consumers are confused,” she said. “Some don’t have a clue what gluten actually is.”

Bread Smoothies

Amid the confusion, one company has stood up for gluten -- Canada Bread, a baker that Toronto-based parent Maple Leaf Foods Inc. is considering selling. It unveiled a YouTube ad last year where a comedian impersonates a smoothie shop owner, stuffing wads of bread into unsuspecting customers’ drinks to remind them of the nutritional benefits of grains.

The ad has been viewed over 860,000 times. “Even our competitors were talking about it,” said Richard Lan, president of Canada Bread. “If we put out a social media ad based on scientific facts, how many hits would we get?”

The company also helped found the Healthy Grains Institute, an advocacy group committed to “tackling the inevitable myths” found in books like “Wheat Belly.” The HGI’s website attributes the rise of gluten-free to “celebrities and those who promote fad diets” and argues gluten-free foods can lead to weight gain.

“We whispered last year,” said Canada Bread chief Lan. “We will not continue to whisper.”

To contact the reporter on this story: Matthew Boyle in London at mboyle20@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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Companies Mentioned

  • GIS
    (General Mills Inc)
    • $52.95 USD
    • 0.09
    • 0.17%
  • K
    (Kellogg Co)
    • $66.27 USD
    • 0.17
    • 0.26%
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