Last week (December 7-14, 2012) was a good week for the stevia industry in general. First, Health Canada approved the use of stevia as an additive in food and beverage products across Canada. Next, Cargill announced an exclusive strategic agreement with Grupo Herdez, one of the leading producers of shelf stable foods in Mexico, for the distribution and marketing of Truvia sweetener throughout Mexico. Grupo Herdez will contribute its local marketing expertise to the Truvia brand to build consumer awareness through advertising and in-store campaigns. Europe has also seen growth in stevia ever since the European Commission authorized its use in 2011. According to the European Stevia Association [EUSTAS], stevia farms have begun to sprout up in Spain. SteviGran, which operates stevia farms in Paraguay and Granada Spain, and De Primera, cultivates 15 hectares of land dedicated to growing stevia. According to Miguel Arrillage, the owner of De Primera:
The demand for stevia is exploding... The next step is to install a stevioside extraction plant in southern Spain, using ecological processes.
Through a podcast posted on Nov. 28th Euromonitor International Ingredients analyst Lauren Bandy commented on the global state of stevia when she stated, "We can finally call stevia a mainstream ingredient". Ms. Bandy pointed out that stevia consumption in soft drinks doubled from 2011 to 2012, from 460 tons to over 1000 tons globally, and sales of stevia are forecasted to grow 30% from 2011 to 2016. The largest market for stevia is the US, where more than half of the product was consumed, followed by Japan, China and France. Stevia production continues to expand globally; Canada, Spain and Mexico are current examples.
How does an investor profit from the growing stevia market? The giant bottlers are far too large to expect stevia to drive their stocks up, as are other large manufacturers such as Kraft (KFT), with its new natural stevia-based Crystal light Pure. However, there are companies that these giant bottlers and food manufactures will have to rely on for growing, producing, and distributing stevia products globally, and some of these companies might be good investments for a stevia play.
Grupo Herdez (GM:GUZOF), as stated above, entered the stevia business when it announced a strategic partnership with Cargill to distribute Truvia throughout Mexico. This should be a good mix for both companies, given Grupo Herdez's presence in Mexico and its lead position in the Mexican food category in the in the U.S. Chairman and CEO of Grupo Herdez, Hector Hernandez-Pons, commented on his excitement of adding Truvia to their premium product line:
The demand for a calorie-free sweetener from a natural source has grown with consumers' expectations around understanding the source of their food. Our strategic agreement with the Truvia® business, the leader in its category, will keep our products relevant to consumers by acknowledging their needs and preferences.
Grupo Herdez has 13 plants, 8 distribution centers, 7 tuna vessels and more than 6,000 employees. It distributes a wide array of more than 500 food and beverage products, and its portfolio includes Aires de Campo, Barilla, Chi-Chi's, Del Fuerte, Don Miguel, Dona Maria, Embasa, Herdez, La Victoria, McCormick, Wholly Guacamole and now Truvia.
Grupo Herdez is a $1.22 billion market cap company based in Mexico. It has had solid gains on the Mexican Stock Exchange this year, with decent volume averaging just over 300 thousand shares traded per day. However, the US ADR's have very little volume and not much movement. Earlier this year, Standard & Poor's, and Fitch Ratings both affirmed long-term corporate credit ratings at AA(mex) on the Mexican national scale, with the outlook of Stable. If one is looking to invest in a company on the Mexican Stock Exchange, Grupo Herdez is a stable company and a good long-term investment. As a play in the future growth of stevia, I think the best it can do is open new routes and introduce the country of Mexico (with 10% of its population suffering from diabetes) to the natural zero calorie sugar substitute stevia.
Reed's Inc. (REED), a small boutique, natural beverage company based in Los Angeles, CA, has had quite a run - up 385% YTD, and that's after the stock had been hammered in the past month, down almost 30%. Reed's carries a line of natural sodas including Reed s Ginger Brews, made with fresh ginger root, spices, and fruit juices, Virgil's natural sodas, including a brewed root beer, and a real cola. Reeds also carries through Virgil's a zero calorie line, featuring root beer, cream soda, and Dr. Better, all infused with Stevia. Consumers are buying its products, as Reed's announced 3rd quarter revenues were up 23% compared to 2011, with sales at $7.9 million, beating consensus estimates of $6.4 million. Gross profit increased 21% from 2011 to $2.5 million, and net income for the 2012 second quarter was $22,000 compared to a loss of $175,000 a year earlier.
Reed's, a $64 million market cap company, is growing, and may be moving beyond just a niche market for those who want a quality, flavorful, natural sodas, and are willing to pay a premium. The company recently launched its Culture Club Kombucha line of drinks nationwide. Chris Reed, founder and CEO, commented on the launch:
The launch of our new Culture Club Kombucha has exceeded our expectations. According to recent syndicated data, the functional juices and Kombucha category has surpassed $609 million and is the fastest growing category at +35% retail dollar growth. In our early store-by-store analysis, we are finding that our four Kombucha flavors are tracking to outsell our top four Reed's and Virgil's SKUs. Consumer and retailer feedback has been extremely positive to date and we intend to capitalize on the feedback and the opportunity to build Culture Club Kombucha into a national, dominant player within this fast-expanding category.
Recently Reed's entered into distribution partnerships with Central Beverage of Chicago, Geyser Beverage of the San Francisco, Zip Beverage of Montana, and Tops Friendly Markets with locations in upstate NY and PA. They also attended the Natural Products Expo Asia show to introduce Reed's and Virgil's products to the Asian market. With Reed's products expanding, and its zeal for natural ingredients, this company, which has seen its stock shoot up from $1.10 per share in January, appears to be primed to grow further and might take a big chunk out of the natural sugar free beverage market with its stevia-infused product line. What I like is that the stock has dipped considerably since its high of $8.82, and now at $5.36 a share, is more in line as a possible entry point.
Stevia First Corp. (OTCQB:STVF), a development stage stevia production and manufacturing company based in Yuba City, CA, is developing seeds and tissue high in Rebaudioside A (Reb A), the sweetest of the steviol glycosides (extracts from the plant's leaves). On Tuesday, the company announced its determination to act in concert with USDA-funded researchers by providing plant material, logistical support, and sites for ongoing stevia field trials. Stevia First is focused on being an advocate of the USDA's Specialty Crops Project, and believes supporting the project is important to successful domestic stevia cultivation.
One reason is that in 2010, roughly 50,000 acres of stevia were grown globally, and less than 1% of that was grown in the U.S. Stevia First plans on changing that by developing and growing quality stevia on its 1000-acre industrial farmland. The USDA's Specialty Crops Project has the capability to lend support to industry and academic sponsors and work directly with agrochemical companies enabling the approval of safe and effective conventional and organic agrochemicals for stevia growers across the US. Stevia First's CEO Robert Brooke commented:
We are seeking to develop a reliable and scalable North American supply chain of stevia products. Development of integrated pest management tools is critical in our effort to produce conventional and organic California grown stevia leaf.
The company has been making some noise lately on its methods of producing high-grade stevia. It plans on catering to the ever-growing organic market by becoming the first industrial size organic stevia grower in the U.S. It is also developing a conventional stevia product through a yeast based fermentation process which makes it possible to convert the low-cost plant material into sweet steviol glycosides through controlled fermentation methods, thus bypassing or significantly reducing the need for leaf production. This could enable the company to develop new strains of the Reb A that would be sweeter while removing any negative characteristics of the steviol glycosides, including the lingering aftertaste. Once operational, Stevia First expects the fermentation process to lower the cost of stevia production by 70% compared to planting the seedlings in the ground and harvesting and extracting the Reb A. Therefore, its fermentation process should be able to produce the product at a far less cost with a lot more control of the product's most desirable characteristics than the other stevia growers around the world.
Stevia First is a microcap development company, with a market cap of $20 million, and is in its early stages of developing and producing its stevia products. It has no sales to date, and it doesn't expect to have its product on the market for another year and a half, as it focuses on developing the highest quality stevia extracts to bring to market. But I like where this company is heading, as it is focusing its entire efforts in developing one of the fastest growing food products on the market today - stevia. As noted earlier in the article, stevia continues to expand globally and is still in its early stages of acceptance, so Stevia First does not see a need to rush its development, but rather, be certain it is developing a high quality product that will propel the company forward. Stevia First has seen its stock fluctuate this year, from the low $0.20s to $3.28 per share. Today, it hovers around $0.37, and may represent a great entry price for investors' interested in the company's growth. I do like the fact the company announced plans to work with the USDA's Specialty Crops Project, as it helps bolster confidence by developing stevia plants and plant material in one of the most fertile growing regions of the country - California's central valley.
As more people in more countries learn about stevia and welcome it as their choice for a natural zero calorie sugar substitute, I look for not just stevia growers and producers to have a windfall of profits, but for companies who incorporate stevia in their products, such as Reed's. But I caution, microcap stocks can be volatile, they offer huge upside potential and corresponding downside risks. The companies offered here appear to have good current-level entries for various levels of risk. Interested investors are advised to perform additional research to determine which, if any, of these fit their long-term goals.