Atkins winner: Splenda
Sweetener from J&J division McNeil rides low-carb bandwagon to unexpected fortunes.
May 2, 2004: 11:32 AM EDT
CHICAGO (Reuters) - It doesn't get much sweeter than this.
With no special advertising or publicity, Splenda, the sugar replacement from Johnson & Johnson's McNeil Nutritionals Worldwide division, is riding the hottest trend in food today -- low-carbohydrate eating popularized by the Atkins Diet.
"It's wild," Colin Watts, McNeil's president, said in a recent interview. "We've doubled the business within just the most recent 18 months."
Drug maker J&J doesn't break out Splenda's results. But sales surpassed those of rival Equal in early 2003, and now command about a 47-percent share of U.S. sugar substitute market at retail, according to Watts. The market is worth an estimated $1 billion.
Watts, 38, forecasts that within a few years, Splenda itself will grow to at least $1 billion in sales at retail and to restaurants and other food service outlets, in part because historical sugar junkies are cutting back on calories and carbs amid the growing U.S. obesity crisis.
Splenda is getting much of its lift from Atkins and its more moderate offshoot, the South Beach diet, whose dieters embrace the product because of its ability to withstand the high heat of baking and cooking without breaking down or losing flavor.
Splenda's little yellow packets recently became a staple at Starbucks coffee shops around the United States and it has gained increased popularity as a sweetener in low-carb foods such as Unilever Plc's Wishbone Carb Options dressings.
"The product is growing like gangbusters," said Bruce Cranna, a Leerink Swann analyst. "It almost sells itself."
The reason: Splenda is made from sugar by a process that bonds the sugar molecule sucralose with chlorine atoms. The result is that the sweetener has no calories and less than one carbohydrate gram per teaspoon; it passes through the body without being broken down.
It received U.S. regulatory approval as a general purpose sweetener in 1999 and McNeil took it national in 2000. Splenda's zealous following claim that it tastes more like real sugar than Merisant Co.'s Equal and Nutrasweet brands, made from aspartame, or Cumberland Packing Corp.'s Sweet 'N Low, the granddaddy of artificial sweeteners, which contains saccharin.
"Sweet flavor, no aftertaste or funny flavors," wrote Lisa Shea, a reporter for Bella Online, a women's issues Web site.
Much lighter in weight than sugar, Splenda is sold in two concentrations, the one-to-two equivalent found in the small packets and a measure-for-measure formulation.
Still, some health professionals are not convinced, and have called for more reserach. They note that aspartame has been proven to pose a small health risk to people with a rare inherited metabolic disorder, while saccharin in extremely high doses has been linked to cancer.
Farming it out
In February, McNeil made a deal to hand over Splenda's manufacturing and its business as an ingredient in other packaged foods to British sweetener maker Tate & Lyle Plc. McNeil remains in charge of marketing and selling Splenda in grocery, club stores and other retail venues.
Tate & Lyle makes Splenda at a single plant in Alabama and handle accounts such as Diet RC Cola, Log Cabin Sugar Free Low Calorie Syrup, and Ocean Spray Lightstyle fruit drinks, all of which feature the sweetener as an ingredient.
In its first such deal with a leading soda company, Splenda will be used in PepsiCo Inc.'s Pepsi Edge, a soft drink touting 50 percent less sugar by using a mix of Splenda and corn syrup.
"We are joined at the hip," said Watts, who would not discuss the financial nature of Tate & Lyle deal. Tate & Lyle declined to comment, saying that the relationship was too new.
Watts said McNeil has no plans to market Splenda as a low-carb panacea, even though the low-carb trend has strong momentum. "I believe we may be on top of the bubble," he said. "You have to make sure you have flexibility in your 'go to market' model."
That means continuing to promote the product to wider audiences, including the growing U.S. diabetic population, one of its main targets. In addition to a host of recipes, Splenda's Web site has separate sections just for diabetics and healthcare professionals; there is no low-carb link.
Other key growth areas will be the food service market, where McNeil hopes to lock up more blockbuster distribution agreements like the one it secured with Starbucks Corp. It also has arrangements with restaurant chain Ruby Tuesday Inc. and food service contractor Sodexho.
In addition, Europe got regulatory approval for Splenda in February; that's a market Watts believes will be critical for growth.
"We're in the process of a number of pretty big deals," he said.
http://money.cnn.com/2004/05/02/new...0/splenda.reut/
Atkins Winner: Splenda
Linear Mode
