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Last Updated: Friday, 7 May, 2004, 15:30 GMT 16:30 UK
Krispy Kreme hit by Atkins craze
Krispy Kreme coffee and doughnut - Kripsy Kreme
Fatty fast foods are blamed for the obesity epidemic
Doughnut maker Krispy Kreme has seen its shares plunge after it warned that demand is being hit by the craze for low-carb diets.

The firm said doughnut sales were falling across the industry, and that it would close a gourmet bakery unit it bought only last year.

The news profits were likely to fall pushed shares down 25% to $23.90.

More and more Americans have tried to cut out carbohydrates as part of the popularity of the Atkins diet.

For the diet's adherents, Krispy Kreme's glazed, gooey confections - as well as baked goods in general - are off the menu.

Change of fortune

The warning marks the first real setback for the company since it went public four years ago.

Consumer interest in low-carb diets has accelerated in the last two to three months
Scott Livengood, Krispy Kreme boss

In the intervening time it has expanded overseas, including - in what some would see as a departure from its down-home roots in the US South - an outpost in the upscale Harrod's department store in London.

The brand's endorsement by celebrities has helped drive it to a strong position in the 10-billion-doughnut-a-year US market.

And since floating in 2000, its shares have tripled in price.

No room for dough

But the 0.4% fall in overall sales in the most recent quarter - compared with a 7.4% annual rise in the previous three months - may indicate trouble ahead.

In a statement, Krispy Kreme had no hesitation in blaming the Atkins diet and its lookalikes.

"For several months, there has been increasing consumer interest in low-carbohydrate diets," said Scott Livengood, the firm's president, chief executive and chairman.

"This trend had little discernible effect on our business last year. But recent market data suggests consumer interest (in low-carb diets) has heightened significantly following the beginning of the year and has accelerated in the last two to three months."

From now on, he said, the firm will focus on the core doughnut business - which means that the writing is on the wall for Montana Mills, the gourmet bakery business bought last year for $40m.

In addition, Krispy Kreme is hoping to bring out a low-calorie, sugar-free, doughnut by the end of this year.

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