Business Analysis: Unilever pins hopes of Slim-Fast recovery on collapse of Atkins craze

But the company hopes the demise of the Atkins diet craze will start to bring slimmers back to its Slim-Fast products. They offer low-calorie meal replacement drinks as the path to sustainable weight loss, but the brand's sales have declined as slimmers turn to low-carbohydrate diets.

"The low-carb diet of the Atkins mould doesn't sell any more," Patrick Cescau, the chief executive of Unilever, declared yesterday. At the height of the fad, an estimated 9 per cent of Americans were on some form of high-protein, low-carbohydrate diet such as Atkins or the South Beach diet. But the company behind the Atkins phenomenon, Atkins Nutritionals, filed for bankruptcy protection in the US this week, as consumers begin to lose their resolve for low-carb replacements for bread, pasta, rice and potatoes. Demand has slowed after a wave of scares about long-term health damage caused by the Atkins diet and the death of its founder, Robert Atkins, who had a history of heart trouble and high blood pressure.

Although the Atkins diet craze is almost over, slimmers who abandoned Slim-Fast to go on the low-carbohydrate regime of Atkins have not yet returned. Instead of signing up again to Slim-Fast programmes, many are just changing their general eating patterns, buying naturally healthier foods and balancing their diets better, rather than choosing specially manufactured slimming products. The slimming foods market has decreased by25 per cent over the past six months, Unilever said. This caused the write-down on Slim-Fast.

M. Cescau said: "Slim-Fast has increased its share as the market declined but sales are well down. The consumers who left our category for Atkins and are now disappointed with the results have not come back to us. We always had strong reservations about Atkins and the fact it was not a scientifically proven diet, but as we're not seeing customers come back to us yet, we're not seeing any benefits [from the demise of Atkins]."

Unilever plans to step up efforts to win back dieters and has launched products such as high-protein snack bars to stave off the most common complaint about Slim-Fast - hunger. "Meal replacement diets are proven to work but people fear that a few hours after their shake, they will feel hungry. So we've launched high-protein bars to tackle this fear," M. Cescau said.

While a strict low-carb diet as the sole means of weight loss has proved unpopular with consumers, the Atkins hype has made slimmers more conscious of the weight-inducing nature of carbohydrates. And so Unilever has developed a range of Slim-Fast products combining their traditional low-calorie nature with low-carbohydrate content to appeal to dieters who also want to keep their carb intake down.

To coincide with this, a new advertising campaign is being targeted at US customers with the strapline "Hello Yummy. Goodbye Tummy".

Unilever bought Slim-Fast from the Thompson Medical Company in 2000 for $2.3bn (£1.3bn). For the first two years of ownership, the business brought double-digit growth but as the Atkins craze took hold across the US, Slim-Fast sales went into freefall. At times, sales were down by 30 per cent. Yesterday's write-down was the second time Unilever has had to lower the value of Slim-Fast, and it now stands on its books with a €400m value.

The low-carb craze appeared to reach a peak in 2003 and has since been in decline. Figures from the research group Mintel show the entire market for slimming foods in the US fell 8 per cent between 2003 and 2004 to $2.9bn. A recent survey of UK consumers by Mintel showed that more than one in 10 adults had tried a low-carb diet but were no longer on one, and consumers are reporting confusion with the range of contradictory diet information and products.

M. Cescau defended the decision to stick with the Slim-Fast business throughout its troubles. Rising obesity levels in the UK and the US mean the group is unwilling to sell what is a leading market position in the weight-management market. About two thirds of men in the UK are overweight and half of women are classed as being so, making the potential market for diet products huge.

And with Slim-Fast sales accounting for less than 1 per cent of revenues for Unilever, analysts were more interested in the underlying performance of the rest of the business, which has also been struggling to grow amid a slow down in consumer spending and an increasingly competitive market. Yesterday provided news that the rest of the business was seeing signs of a turnaround, although trading conditions in Western Europe remain challenging.

Shares in the company rallied 4 per cent yesterday to close at 572p on news that sales volumes were in growth. "Our markets are growing at 3 percent, and we are now growing in line with our markets. But Europe remains very difficult especially France, UK and Germany," M. Cescau said.

The group is trying to re-ignite sales growth after a dismal 2004 when it put out its first profits warning in its 75-year history and abandoned its sales and earnings targets, which led to a management shake-up.

Including the Slim-Fast write-down, pre-tax profits in the six months to 30 June were €2.38bn against €2.59bn for the same period a year earlier.