Bitter Competition

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BITTER COMPETITION : THE HOLLAND SWEETENER COMPANY VERSUS NUTRASWEET (A)

In the late 1986, the Holland Sweetener Company (HSC), based in Maastricht, the Netherlands, was preparing to enter the European and Canadian aspartame markets. Aspartame, a low-calorie, high-intensity, sweetener, had been discovered in 1965 by G.D. Searle & Co., a U.S. pharmaceuticals company. Having secured a number of patents on its discovery, 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 build the aspartame business, had reached sales of $711 million. Now, NutraSweet’s patents in the European and Canadian markets were due to expire as of 1987, although the U.S. market would remain protected until December 1992.

Winfried Vermijs, president of HSC, reviewed his company’s strategy for competing in the aspartame business. Price and volume forecasts had been prepared for the European and Canadian aspartame markets. On price, two scenarios were being entertained : “normal competition” and “price war”. Vermijs wondered which scenario was the more likely.

Aspartame

High-intensity sweeteners had a long history. Discovered in 1879, the oldest high-intensity still in use was saccharin, a petroleum derivative about 300 times as sweet as sugar (sucrose) of equal weight. In the 1960s Abbott Laboratories developed cyclamate (30 times as sweet as sugar) but, following studies suggesting a link to cancer, the Food and Drug Administration (FDA) banned cyclamate in 1970. In 1977, the FDA tried to ban saccharin as well, but the resulting public outcry had caused Congress to intervene and declare a moratorium. Manufacturers of saccharin were, however, required to place notices on labels, warning consumers of the possible increased cancer risk. Apart form the safety issue, saccharin was found by many people to have a slightly bitter, metallic, aftertaste.

Aspartame was a white powder consisting of L-aspartic acid and L-phenylalanine, two naturally occurring optically active amino acids, together with a small amount of methanol. It had the same caloric content as sugar of equal weight but was 180 times as sweet. Unlike sugar, aspartame did not promote tooth decay. The main drawbacks of aspartame were that it became unstable when exposed to high temperatures (as in baking) and that it had a limited shelf life of three to six months in soft drinks.

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

NutraSweet

G.D. Searle & Co. had been formed in 1908, although the company’s roots could be traced back to 1888. From its upper Midwest beginnings, Searle had grown over time to become a Fortune 500 pharmaceuticals company in 1968. Now, following its serendipitous discovery of aspartame, the company had an opportunity to strike out in a new direction. Searle secured two key patents on aspartame. The “use” patent, obtained in 1970, covered any use of aspartame as a sweetening ingredient. The “blend” patent, obtained in 1973, covered combinations of aspartame and saccharin. Approval from the FDA for the use of aspartame as a food additive was sought the same year. After giving a green licht to dry use of aspartame (tabletop sweeteners and powdered drinks) in 1974, the FDA withdrew its approval shortly afterwards pending the results of further tests. It was not until July 1981 that the FDA gave the final go-ahead for dry use of aspartame. Wet use approval (soft drinks) came in July 1983.

In the wake of the regulatory delays, Searle sought...
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