NutraSweet Company History

Address:

1751 Lake Cook Road
Northbrook, Illinois 60015-5222
U.S.A.

Telephone: (708) 940-9800
Fax: (708) 405-7812

Wholly Owned Subsidiary of Monsanto Company
Incorporated: 1985
Employees: 1,400
Sales: $944 million
SICs: 2869 Industrial Organic Chemicals Nec

Company History:

NutraSweet, the world's largest manufacturer of the sweetening product known as aspartame, originated as a single product manufactured by the drug company G. D. Searle & Co. Aspartame was discovered in 1965 when a Searle scientist was testing combinations of amino acids for a potential ulcer drug. When the scientist put a finger in his mouth, he found that one of the mixtures, a combination of aspartic acid and phenylalanine, tasted like sugar. Aspartame proved to be 180 times as sweet as sugar, and unlike other artificial sweeteners like cyclamates and saccharin, it did not have a bitter or metallic aftertaste.

Receiving approval to market aspartame from the U.S. Food and Drug Administration (FDA) proved a lengthy process. The FDA approved aspartame in 1974, only to change its mind in 1975 when a psychiatrist claimed it caused brain damage in animals. Further tests showed no evidence of neurological damage. After lengthy studies were completed, aspartame finally received FDA approval in 1981. By that time the sweetener had already received approval in France, Luxembourg, and Belgium and was being sold there.

Searle initially marketed aspartame as a table-top sweetener, packaged in individual serving packets, under the Equal brand name. Aspartame was also used in cereals and desserts under the NutraSweet brand name. The big money in sweeteners was in low-calorie drinks, however, and Searle received approval to include aspartame in carbonated beverages in 1983. By that point aspartame was already being used in 40 products in 22 countries, including soft drinks in Canada. Sales of aspartame reached $74 million in 1982, when Searle decided to create the NutraSweet brand name. It also created a NutraSweet business group to manage the sweetener. One of the group's first moves was an introductory advertising campaign that offered consumers coupons worth five free NutraSweet-containing gumballs. The company received two million coupons in the first year.

Some U.S. soft drink companies were slow to use aspartame because it cost $90 a pound, versus $4 a pound for saccharin, according to an August 1, 1983 article in Newsweek. Aspartame also lost its sweetness if stored for long enough in warm temperatures. Blends had a shelf life of about eight months, while products using pure NutraSweet tended to lose their sweetness in about six months. But the beverage market was fiercely competitive, and when manufacturers perceived the use of NutraSweet as a marketing advantage, they began using it in large quantities. Searle allowed some soft drink manufacturers to mix aspartame and saccharin to hold their costs down. In the meantime, Searle worked to increase aspartame production, which could not meet demand anyway. In 1983 construction began on a $100 million aspartame plant in Georgia.

Sales of low-calorie powdered drink mixes using NutraSweet were booming as the entire diet foods sector grew dramatically. Searle's pharmaceutical arm had long been suffering mediocre sales, and NutraSweet's profits were accounting for more and more of its total revenue.

With aspartame becoming a crucial ingredient in the products of other manufacturers, Searle began a campaign to build public recognition for it. When it created the name NutraSweet in 1983, a logo--a red and white swirl--was designed to go along with it. Searle spent $40 million advertising NutraSweet, and got food manufacturers to display the NutraSweet logo on products that used it. The trademark demand was initially unpopular with retailers of products made with Nutrasweet, though some changed their minds when they found that promoting NutraSweet as an ingredient increased demand for their products. Searle's initial ad campaign focused on the number and variety of products that used NutraSweet and the fact that they displayed the red swirl. The move was partly designed to put pressure on soft drink manufacturers and others that used a blend of NutraSweet and saccharin. The firm also wanted to lock up the artificial sweetener market for NutraSweet before its aspartame patent expired in 1992.

In 1985 Searle was bought by Monsanto, which combined the NutraSweet and Equal operations into the NutraSweet Company, a wholly owned subsidiary of Monsanto. NutraSweet sales amounted to over $700 million in 1985.

In 1986, NutraSweet began a $30 million advertising campaign to push the fact that it was made from natural ingredients, not artificial ones like saccharin and cyclamates. The television ads, which featured views of fruits and vegetables, used the theme, "Nature doesn't make NutraSweet, but NutraSweet couldn't be made without it." The print ads, which appeared in major national magazines, focused on the fact that NutraSweet was digested in the same way that fruit or milk are digested.

By 1986 NutraSweet was marketed in over 50 countries, including Germany, where the product had finally been granted approval that year. The company was awaiting approval in France, Spain, and Italy, however, and its patents in several European markets were about to expire. Aware that it was essentially a one-product company, NutraSweet was pouring research dollars into developing new sweeteners and other food products. In the meantime, it received approval from the FDA to use NutraSweet in juice drinks, breath mints, tea beverages, and frozen novelties. These four new product categories had total annual sales of about $6 billion a year, giving NutraSweet huge new market opportunities.

According to New York Times contributor Eben Shapiro, when NutraSweet's European patents expired in 1987, the firm took strong competitive measures, cutting prices by over 60 percent, down to $27 a pound. As a result it continued to hold onto most of its market share, though profits in Europe tumbled.

NutraSweet unveiled its first serious attempt at product expansion in January 1988 with an all-natural fat substitute named Simplesse. Simplesse was made of egg whites or milk protein that were heated until they coagulated, then shaped into tiny beads that simulated the texture of fat. The fat-like proteins were discovered in 1979 by a chemist working on alternative uses for the byproducts of cheese making. In 1985, NutraSweet had bought the rights from John Labatt Ltd., a Canadian beer and food concern, and spent another two years perfecting the product.

Simplesse was introduced at a press conference at which the company asserted Simplesse did not need FDA approval since it was made from natural ingredients. The next day, however, the FDA commissioner announced that Simplesse would be seized unless it was submitted for review. NutraSweet chair Robert B. Shapiro quietly announced that Simplesse would be submitted after all. The attempt to skirt FDA review was largely an effort to beat competitors to market. Procter & Gamble had already submitted a fat substitute for review, and others were close behind.

Simplesse had only 15 percent of the calories of fat. When exposed to heat, however, it became tough. It was therefore limited to the $15 billion dairy, cheese, and salad dressing markets. Procter & Gamble's Olestra was a synthetic chemical that had no calories because the body did not digest it. Heat did not change Olestra, and it therefore could be used to cook foods. However, Olestra raised more health concerns than Simplesse, which, like NutraSweet, claimed to be digestible in the manner of the natural ingredients from which it was made. Other Simplesse competition came from products made from starch, though these too could not be heated.

NutraSweet's artificial sweetener market was also hit with increasing competitive pressure. By 1989 Pfizer, Hoechst Celanese Corp. were almost ready with competing products, while Kraft General Foods Group and Procter & Gamble were working on them. NutraSweet had 65 percent of the market, and its years of advertising its red swirl trademark had paid off in high consumer recognition. Its competitors were aware of this, however, and countered with huge advertising budgets of their own. Pfizer spent $30 million on its introductory campaign for its Alitame sweetener, said to be 2,000 times sweeter than sugar. Johnson & Johnson's Sucralose, which was derived from sugar, had the advantage of being stable enough to be used in baked and frozen products.

A potential benefit to NutraSweet's competitors was the dislike many food makers had for the NutraSweet Company. NutraSweet had acquired a reputation for arrogance as it built its huge business quickly. It had charged premium prices and advertised directly to consumers even though, in its first couple of years, it could not produce enough aspartame to meet demand. Despite criticism over these moves, NutraSweet began marketing Simplesse in similar ways even before it had FDA approval.

The FDA finally approved Simplesse in 1990. By this time, Kraft Foods was well under way in developing a Simplesse-based low-fat mayonnaise. In an attempt to broaden its base, NutraSweet kept the rights to use Simplesse in frozen products for itself. Shortly after the approval of Simplesse, it brought out the Simple Pleasures line of frozen desserts, putting NutraSweet into competition with its own customers. Simple Pleasures ice cream cost as much as premium ice cream and had half the calories and less than 10 percent of the fat. Industry observers reported that its taste was not up to that of premium ice creams like H&aumlèn Dazs. Simple Pleasures was also going up against low-fat frozen yogurt, which had about the same caloric content and was already popular.

Robert E. Flynn became NutraSweet's top executive in 1990, taking on the mission of preventing a drop in earnings when the aspartame patent expired. He immediately began trying to improve relationships with clients. When NutraSweet announced a $20 million ad campaign in 1991, it was targeted to support the products of customers using NutraSweet. Flynn also began cutting NutraSweet prices. Company sales reached $933 million in 1990, but Simple Pleasures reportedly contributed only $12 million of that. Although Simplesse was being approved for use in countries outside the United States, it was falling short of expectations. Kraft, for example, sold back its rights to Simplesse, and brought out its own fat-free mayonnaise. NutraSweet continued working on products using Simplesse, including cheesecake and frostings, and released an ice cream that used Simplesse and NutraSweet. To strengthen the company's bottom line, Flynn stressed reducing the cost of producing aspartame and laid off 12 percent of the firm's 1,700-person work force.

Nevertheless, the firm faced trouble because of its expiring patents. Coca-Cola Co. and Pepsi-Cola Co. reportedly accounted for about 80 percent of NutraSweet's sales. Both were expected to produce aspartame themselves within a few years of the patent expiration, according to Tom Pirko, the president of a food and beverage consulting firm, who was quoted in a 1991 Advertising Age. With Simple Pleasures not selling well, NutraSweet finally decided to sell the Niles, Illinois plant where Simple Pleasures products were manufactured. The move improved relations with customers, since NutraSweet resumed its role as an ingredient supplier rather than a potential competitor. NutraSweet instead concentrated on producing a second generation of artificial food ingredients. It worked on methods of eliminating cholesterol and fat from egg yolks and removing high-calorie sucrose from orange juice.

In 1991 NutraSweet announced work on a new product called Sweetener 2000, an artificial sweetener 10,000 times as sweet as sugar. The sweetener was more stable than aspartame, with an indefinite shelf life and the ability to be used in baking. In the meantime, Johnson & Johnson's Sucralose, which was not approved in the United States, seemed to be approaching the market. Despite the prestige of having the NutraSweet logo on its cans, major soft drink companies were expected to consider dropping NutraSweet in favor of Sucralose, which had an indefinite shelf life. The new sweetener would enable the companies to advertise their products as "new and improved." NutraSweet thus found itself in a race to come up with its own new and improved ingredients before decreasing aspartame profits devoured its bottom line. In the early 1990s, the company was a serious competitor in the artificial ingredients arena, but the heady days of the mid-1980s were gone.

NutraSweet Company History

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