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Bitter Competition: The Holland Sweetener Company versus NutraSweet Sample

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In late 1986. the Holland Sweetener Company ( HSC ) . based in Maastricht. the Netherlands. was fixing to come in the European and Canadian aspartame markets. Aspartame. a low-calorie. high-intensity sweetening. had been discovered in 1965 by G. D. Searle & A ; Co. . a U. S. pharmaceuticals company. After holding secured a figure of patents on its find. Searle had gone on to develop markets for aspartame as a food-and-beverage additive. By 1986. NutraSweet. the operating entity set up by Searle to construct the aspartame concern. had reached gross revenues of $ 711 million.

Now. NutraSweet’s patents in the European and Canadian markets were due to run out as of 1987. although the U. S. market would stay protected until December 1992.

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Winfried Vermijs. president of HSC. reviewed his company’s scheme for viing in the aspartame concern. Price and volume prognosiss had been prepared for the European and Canadian aspartame markets. On monetary value. two scenarios were being entertained: “normal competition” and “price war. ” Vermijs wondered which scenario was the more likely.

AspartameHigh-intensity sweetenings had a long history. In Roman times. grape juice was boiled down in lead pans to bring forth sapa. a sweet compound used for everything from a nutrient additive to an unwritten preventive. Boding concerns over the safety of modern high-intensity sweetenings. usage of sapa unluckily led to neurological harm or even decease. Discovered in 1879. the oldest high-intensity sweetening still in usage was saccharin. a crude oil derived function about 300 times every bit sweet as sugar ( sucrose ) of equal weight. In the sixtiess. Abbott Laboratories developed cyclamate ( 30 times every bit sweet as sugar ) but. following surveies proposing a nexus to malignant neoplastic disease. the Food and Drug Administration ( FDA ) banned cyclamate in 1970. In 1977. the FDA tried to censor saccharin every bit good. but the resulting public call caused Congress to step in and declare a moratorium. Manufacturers of saccharin were. nevertheless. required to put notices on labels. warning consumers of the possible increased malignant neoplastic disease hazard. Apart from the safety issue. many people found saccharin to hold a somewhat acrimonious. metallic aftertaste.

Aspartame was a white pulverization consisting of L-aspartic acid and L-phenylalanine. two of course happening optically active amino acids. together with a little sum of methyl alcohol. It had Professor Adam M. Brandenburger prepared this instance as the footing for category treatment instead than to exemplify either effectual or uneffective handling of an administrative state of affairs. The instance draws on a study by Peter Wetenhall ( MBA ‘92 ) . Aid from Research Associate Maryellen Costello. Rena Henderson. and Research Assistant Julia Kou is appreciatively acknowledged.

Copyright © 1993 by the President and Fellows of Harvard College. To order transcripts or bespeak permission to reproduce stuffs. name 1-800-545-7685. write Harvard Business School Publishing. Boston. MA 02163. or travel to http: //www. hbsp. Harvard University. edu. No portion of this publication may be reproduced. stored in a retrieval system. used in a spreadsheet. or transmitted in any signifier or by any means—electronic. mechanical. run offing. entering. or otherwise—without the permission of Harvard Business School.

Acrimonious Competition: The Holland Sweetener Company versus NutraSweet ( A )

the same thermal content as sugar of equal weight. but was 180 times as Sweet. Unlike sugar. aspartame did non advance tooth decay. The chief drawbacks of aspartame were that it became unstable when exposed to high temperatures ( as in baking ) and that it had a limited shelf life in soft drinks.

Aspartame had been discovered by accident. In 1965. James Schlatter. a research scientist at G. D. Searle & A ; Co. . a pharmaceuticals company based in Skokie. Illinois. was working on a undertaking to develop an anti-ulcer drug. While experimenting with L-aspartic acid and L-phenylalanine. he happened to cream his finger to pick up a piece of paper and noticed a sweet gustatory sensation. He subsequently coined the term “aspartame” for the combination of aminic acids.

NutraSweet1G. D. Searle & A ; Co. was formed in 1908. although the company’s roots could be traced back to 1888. From its upper Midwest beginnings. Searle grew to go a Fortune 500 pharmaceuticals company in 1968. Following its serendipitous find of aspartame. the company had an chance to strike out in a new way. Searle secured two cardinal patents on aspartame. The “use” patent. obtained in 1970. covered any usage of aspartame as a sweetening ingredient. The “blend” patent. obtained in 1973. covered combinations of aspartame and saccharin. Blessing from the FDA for the usage of aspartame as a nutrient additive was sought the same twelvemonth. 2 After giving a green visible radiation to dry usage of aspartame ( tabletop sweetenings and powdery drinks ) in 1974. the FDA withdrew its blessing shortly afterwards. pending the consequences of farther trials. Not until July 1981 did the FDA give the concluding green light for dry usage of aspartame.

Wet-use blessing ( soft drinks ) came in July 1983. In the aftermath of the regulative holds. Searle sought extensions of its two patents. It was successful in acquiring the usage patent extended—to 1987 in Europe. to December 14. 1992 in the United States. and to April 1993 in Australia. An effort to widen the Canadian usage patent. which was due to run out in 1987. was unsuccessful. The blend patent was extended to November 4. 1996. in the United States.

ManufacturingTo fabricate aspartame on a commercial graduated table. Searle turned to Ajinomoto. a major Nipponese chemicals and nutrient company. Ajinomoto was a taking participant in aminic acerb research and production. ruling the monosodium glutamate ( MSG ) market. ( For fiscal informations on Ajinomoto. refer to Exhibit 3. ) Ajinomoto supplied a chemical yoke procedure for fabrication aspartame. every bit good as the L-phenylalanine input. ( The other input. L-aspartic acid. was widely used in pharmaceutical applications and could be obtained from a figure of sources. ) Searle agreed to pay Ajinomoto royalties for entree to the procedure engineering. and the two parties further agreed to portion information on subsequent procedure betterments. A cross-licensing trade was besides struck under which Ajinomoto was given sole entree to the Nipponese aspartame market—where it went on to sell aspartame under the trade name names Pal Sweet and Pal Sweet Diet. Searle retained exclusive rights to the North American market.

1Some stuff in this subdivision is taken from “The NutraSweet Company: Technology to Tailor-Make Foods”

( Harvard Business School Case No. 589-050 ) and Sweet Success: How NutraSweet Created a Billion Dollar Business. by Joseph McCann ( Homewood. Ill. : Irwin. 1990 ) .2Under FDA regulations. an applier had to set up the “added value” of a new merchandise. However. merely the efficaciousness of a new merchandise. and non its cost. entered into the added value appraisal. Thus the standard for blessing of a high-intensity sweetening was that it be demonstrably superior to bing sweetenings as an assistance to dieting.

Acrimonious Competition: The Holland Sweetener Company versus NutraSweet ( A )

It took two to three old ages to convey aspartame production up to rush. ( Once operational. nevertheless. a installation had to be run at or near to plan capacity. Breaks to production were prohibitively expensive due to important mothballing and debugging costs. ) Minimum efficient graduated table was of the order of 2. 000 metric tons one-year capacity. while works building costs exceeded $ 100 million. With transportation costs for aspartame around 15-20 cents per pound. NutraSweet and Ajinomoto concentrated production in a limited figure of installations ( see Table A ) . Postpone A xxx NutraSweet and Ajinomoto Production Facilities

Beginning:

Annual capacity ( metric tons )2. 0003. 000n/a2. 000



Chemical Marketing Reporter and Financial Times ( assorted issues ) . casewriter estimations

The NutraSweet-Ajinomoto method of fabrication aspartame was covered by procedure patents widening through the late ninetiess. With a go oning plan of procedure betterment and capital investing in topographic point. NutraSweet and Ajinomoto aimed to increase the efficiency of their fabrication operations over clip. By 1992. NutraSweet would be proclaiming that it had cut its fabrication costs by 70 % over the old decennary.

Market DevelopmentHaving spent about $ 80 million in start-up costs ( excepting investings in works ) . Searle launched its first aspartame merchandise. the tabletop sweetening Equal. in October 1981. At that clip. the U. S. tabletop sweetening market totaled approximately $ 110 million. It was dominated by one trade name. Sweet ‘N Low. a saccharin-based merchandise made by the Cumberland Packing Company of Brooklyn. New York. Although it was three times more expensive than Sweet ‘N Low. Searle’s Equal was an immediate success in the market place.

In December 1982. The NutraSweet Group was established as a separate operating division of Searle. 4 Forty-year-old Robert Shapiro. Searle’s general advocate. was brought in as president. Educated at Harvard and Columbia Law School. Shapiro had served on several authorities consultative commissions and had so exhausted clip in the private sector before fall ining Searle in 1979. Following FDA blessing for wet usage of aspartame. Shapiro set in gesture the now-famous “branded ingredient” scheme. Aspartame. under the trade name name NutraSweet. was made available to any interested nutrient or drink maker.

This was backed up with extended advertisement ( estimated at $ 30 million yearly ) of the trade name name straight to end-users and by concerted advertisement with makers. The company gave price reductions of up to 40 % off the list monetary value of aspartame to makers who agreed to utilize 100 % aspartame as a sweetening ( instead than blends of aspartame and saccharin. say ) . to do NutraSweet their sole worldwide provider. and to expose the NutraSweet hallmark and typical red-and-white “swirl” logo on their merchandises and in their ain advertisement.

Acrimonious Competition: The Holland Sweetener Company versus NutraSweet ( A )

By 1986. the company was claiming that 98 % of American consumers

The soft drink market was NutraSweet’s primary focal point in 1983. The U. S. soft drink industry was dominated by two participants. Coca-Cola and Pepsi-Cola. which. between them. accounted for something over 60 % of cargos in an industry with one-year gross revenues of $ 26 billion at the retail degree. The diet section accounted for 20 % of the U. S. soft drink market and was turning quickly. To day of the month. saccharin had been used to dulcify diet soft drinks.

NutraSweet sold aspartame straight to major purchasers such as Coke and Pepsi via secret. negotiated. multi-year contracts. In 1983. the contracted monetary value was around $ 85- $ 90 per pound. Although this represented a significant premium over saccharin ( which cost around $ 3 per pound ) and even sugar ( about 25 cents per pound ) . aspartame replaced virtually all the U. S. soft drink usage of saccharin within two old ages of its debut. Pepsi. foremost to utilize 100 % aspartame in its diet drinks. used its head start over Coke to advance Diet Pepsi against Diet Coke.

The 1980s saw intense activity by Coke and Pepsi in the U. S. soft drink market. A memorable episode in the alleged Cola Wars was Coke’s 1985 reformulation of its 99-year-old Coca-Cola trade name. from which it beat a headlong retreat in the face of consumer opposition. Pepsi responded to the reformulation with commercials proclaiming: “For 87 old ages Coke and Pepsi have been eyeball to eyeball. It looks like they merely blinked. . . . ”6

Over clip. NutraSweet expanded aspartame’s scope of applications to include usage in powdery drink mixes. frozen sweets. masticating gum. toppings. cereals. and nonprescription pharmaceuticals. among other merchandises. However. diet soft drinks continued to be the chief usage. accounting for approximately 80 % of entire gross revenues of aspartame. The tabletop market accounted for another 15 % of gross revenues. other nutrient and drink merchandises the balance.

NutraSweet besides looked to develop markets for aspartame outside the United States. Canada was an early mark. In 1984. NutraSweet and Ajinomoto set up a 50:50 joint venture. NutraSweet AG. based in Zug. Switzerland. to market NutraSweet to European commercial purchasers and the tabletop sweetening ( under the name Canderel ) to European consumers. As in the United States. the soft drink industry was the primary focal point of attempts to sell aspartame internationally. and Coke and Pepsi were once more the major purchasers. Unlike the state of affairs in the United States. nevertheless. Coke enjoyed a strong lead over Pepsi in most abroad markets. In Europe. Coke was estimated to hold a 50 % market portion and Pepsi a 10 % portion. In Asia. Coke’s portion of the soft drink market stood at 40 % ; Pepsi once more held a 10 % portion. In Latin America. Coke held a 55 % market portion and Pepsi a 20 % portion. Exhibit 1 depicts the growing of the world-wide aspartame market through 1986. In that twelvemonth. worldwide aspartame monetary values were about $ 70 per pound.

AcquisitionIn summer 1985. Searle was acquired by Monsanto Corporation for $ 2. 8 billion. Monsanto. headquartered in St. Louis. Missouri. was a prima U. S. manufacturer of agricultural merchandises. plastics and forte chemicals. public presentation stuffs ( such as man-made fibres ) . and industrial control equipment. ( Exhibit 4 summarizes fiscal informations on Monsanto. ) Curiously. the mission of the original Monsanto Chemical Works. formed in St. Louis in 1901. was to dispute the so German monopoly clasp on the saccharin market. Now. with the purchase of Searle. NutraSweet became a entirely owned subordinate of Monsanto.

Since the acquisition. Monsanto had been composing off the cost of the aspartame patents via a $ 173 million one-year charge against NutraSweet’s net incomes. The amortisation charge would stop with the U. S. termination of the usage patent in 1992.

The Holland Sweetener CompanyIn April 1985. the Holland Sweetener Company ( HSC ) was formed in Maastricht. the Netherlands. as a joint venture between Tosoh Corporation and DSM to come in the aspartame market. Headquartered in Tokyo. Japan. Tosoh had begun concern in 1935 as a manufacturer of sodium carbonate ash and acerb sodium carbonate. The company had since grown to go a diversified maker of basic chemicals. intermediates. and downstream merchandises. every bit good as scientific instruments and ceramics. Based in Heerlen. the Netherlands. DSM was a chemicals group with involvements in plastics. man-made gum elastic. all right chemicals. fertilisers. rosins. consumer merchandises. and oil and natural gas geographic expedition and development. The company had begun as “Dutch State Mines” around the bend of the century. but over clip had been migrating into downstream concerns. Since 1986. DSM had been publically traded. with the Dutch authorities retaining a one-third involvement. Exhibits 5 and 6 summarize fiscal informations on Tosoh and DSM.

Tosoh brought to the hook-up with DSM a patented procedure for fabrication aspartame that employed a natural accelerator to work out the job of accomplishing a precise yoke between the aspartic acid and phenylalanine inputs. The Tosoh procedure was capable of utilizing either Lphenylalanine or D. L-phenylalanine ( a mixture of the D- and L-isomers ) as base feedstock. ( Exhibit 2 studies the process. ) HSC claimed that its method of bring forthing aspartame would be less dearly-won and more flexible than NutraSweet’s. although this was disputed. DSM’s part to the joint venture was natural stuff supply and traditional chemical procedures ( courtesy of its Fine Chemicals Division ) . and cognition of the European market place.

Heading up HSC was Winfried Vermijs. a 50-year-old chemical applied scientist who had been with DSM since 1961. Vermijs had begun his calling working on procedure development in DSM pilot workss. After a stretch as a works director in the seventiess. he had returned to research and development activities for several old ages before taking on general direction duty as president of HSC. In February 1986. HSC began work on a 500-tonne aspartame works in Geleen. the Netherlands. with a position to disputing NutraSweet in Europe and Canada one time NutraSweet’s patents expired at that place in 1987. The company received a D. Fl. 35 million ( $ 17 million ) loan from the European Investment Bank toward the undertaking.

In preliminary treatments with possible clients. HSC discovered that NutraSweet had signed Coke and Pepsi to sole. multi-year contracts. It decided to lodge a ailment with the European Commission. bear downing that the contracts were anti-competitive. Joining HSC in the ailment was the Irish company Angus Fine Chemicals.

New SweeteningsIn add-on to aspartame. saccharin. and cyclamate. several other high-intensity sweetenings were on the market or in assorted phases of regulative reappraisal. Acesulfame-K had been discovered in 1967 and was now being sold in Europe. It was 200 times sweeter than sugar and was heat-stable. which gave it an advantage over aspartame in shelf stable merchandises and in baking.

Acrimonious Competition: The Holland Sweetener Company versus NutraSweet ( A )

Acesulfame-K was manufactured by Hoechst. a major German

Sucralose. a heat-stable compound 500 times sweeter than sugar. was derived from saccharose by a patented chlorination procedure developed in 1976 by the British sugar company Tate & A ; Lyle and research workers at Queen Elizabeth College in London. Johnson & A ; Johnson. the U. S. consumer merchandises company. had entered a licensing understanding with Tate & A ; Lyle and. through its McNeil Forte Products division. hoped to market sucralose in the United States and Japan under the trade name name Splenda.

Alitame. a heat-stable merchandise 2. 000 times sweeter than sugar. was made by the U. S. pharmaceuticals company Pfizer. A request for FDA blessing was submitted in 1986. There were besides several of course derived high-intensity sweetenings. Stevioside. made from the foliages of the South American Stevia works. was in demand in Japan. Thaumatin. genetically engineered to retroflex proteins found in berries of certain West African workss. was being used as a sweetening in Japan. Brazil. and the U. K. Neither sweetening had yet been approved in the United States.

One tendency expected to beef up if a wider scope of high-intensity sweetenings became available was intermixing. Research workers had found that uniting sweetenings could hold a interactive consequence: the blend was sweeter and might hold a better gustatory sensation profile for certain applications than either sweetening individually. U. S. wellness governments besides encouraged a multiple-sweetener attack on the evidences that it reduced the wellness hazards from any one merchandise.

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Bitter Competition: The Holland Sweetener Company versus NutraSweet Sample. (2017, Jul 18). Retrieved from https://graduateway.com/bitter-competition-the-holland-sweetener-company-versus-nutrasweet-essay-sample-1488/

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