Will The Sweetener Stevia Be A Sweet Investment?

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Includes: ADM, AMZN, JNJ, KO, PCRTF, PEP, TATYY
by: Tony Daltorio

Summary

Stevia is garnering a greater share of the global sweetener market.

That share rise is being led by the beverage companies, notably Coke and Pepsi.

Stevia is gaining market share at the expense of the makers of artificial sweeteners.

American consumers alone will eat and drink 600 tons of stevia in food and drink products by 2018.

It's a sign of the times in the $60 billion global sweetener market...

Privately-held ASR Group, the maker of America's leading sugar brand - Domino Sugar, will launch by the end of the year its first no-calorie natural sweetener extracted from the stevia plant. ASR Group is also known as American Sugar Refining and is the world's largest refiner of cane sugar.

Not a surprising move when one considers that, in less than ten years, stevia has gobbled up a healthy chunk of the $1.3 billion worldwide market for artificial sweeteners.

What Is Stevia?

For those readers unfamiliar with stevia, it is a plant that originated in Paraguay. Its leaves have been used for hundreds of years as a sweetener, for instance, in tea.

It is 200 to 300 times sweeter than natural sugar. Stevia gets its sweetness from naturally occurring glycosides.

Despite its sweetness, stevia does not raise blood sugar levels.

So it is a good alternative for not only those counting their calories, but for those people (diabetics) trying to avoid blood sugar spikes. It can be used in baking, giving those people a way to enjoy sweet snacks without worrying about excess sugar.

The Food and Drug Administration (FDA) approved one of the compounds appearing in stevia - Rebaudioside A - for use as a sweetener back in 2008.

Coke and Pepsi Adding Stevia Drinks

Interestingly, Heinz (HNZ) says it will be rolling out a ketchup using stevia. Already Greek yogurt maker Chobani uses stevia in its first light yogurt brand, Simply 100.

Stevia though may turn out to be of the greatest aid to the soft drinks companies trying to boost their sales - Coca Cola (KO) and Pepsico (PEP). Both firms have seen declining sales of soft drinks in recent years as consumers switch to healthier alternatives. In 2013, soft drink volume fell 3%, following 1% drops in the prior two years.

Both companies have launched competing stevia sodas in green cans.

Pepsi rolled out its product - PepsiTrue (using sugar and stevia) - in October. But in a strange marketing move, it is only available on Amazon.com (AMZN).

Coke already released its product - Coca-Cola Life (also using sugar and stevia) - in places like Chile, Australia, Mexico and Great Britain. Here in the U.S., the company had brought out the drink in Southern states to date. But nationwide release has now occurred this month.

The stevia/sugar mix (notice no high fructose corn syrup) makes the drinks about one-third less in calories. The sugar is added to overcome the somewhat bad taste of stevia.

Stevia Sales Soaring: The Effects

With stevia becoming more mainstream, sales of it are growing rapidly.

According to the food and beverage consultancy Zenith International, global sales of stevia will rise 14% in 2014 to a total of 4,670 metric tons, valued at $336 million.

What is surprising about the increased stevia sales to date is that it hasn't dented sugar sales much yet. The real effect has been felt by the makers of corn syrup.

Not to mention the makers of artificial sweeteners: Sweet N' Low, made by privately-held Cumberland Packaging; Splenda, owned by Johnson & Johnson (JNJ) and Tate & Lyle PLC ADR (OTCQX:TATYY); and NutraSweet, which is controlled by a private equity firm.

Artificial sweeteners face the very real possibility of losing further market share to stevia. Market intelligence firm Euromonitor International predicts that artificial sweetener demand will drop by a third by 2018 to 3,243 tons.

Stevia: The Winners

The winners from the increased stevia uptake are obviously the makers of stevia products. Surprisingly, the big players here are the same players as in Big Sugar and Big Agriculture.

I already mentioned ASR Group. Imperial Sugar, controlled by commodities giant Louis Dreyfus, has a stevia/sugar product in the marketplace. The leading stevia brand is Truvia, which entered the market in 2008, which is owned by agribusiness powerhouse Cargill.

Archer Daniels Midland (ADM), a loser on the corn syrup end, recently completed a $3 billion acquisition of Wild Flavors, as it expands into the health-conscious food and beverage market. Stevia is one area of focus for Wild Flavors.

There are also smaller players in the industry that are trying to compete against the big boys.

Most prominent among these has to be Malaysia-based PureCircle Ltd (OTCPK:PCRTF). With a market cap of nearly 1 billion British pounds, its shares are traded mainly on the London Exchange.

The company says it is responsible for producing up to 80% of the world's supply of high purity stevia ingredients. It is large enough to be able to supply food and beverage companies with stevia products in high volumes and at competitive prices.

Though it remains to be seen whether it can compete successfully against the giants.

Stevia's Bright Future

For those companies involved with stevia, tremendous growth lies ahead.

According to market intelligence company Datamonitor, stevia is still a rather rare ingredient in U.S. food and beverages. The company says its data shows that only 1.5% of new food products launched in the U.S. during the first nine months of 2014 contained stevia. The majority of newly-launched products has been in beverages, with over 230 products launched.

Euromonitor International forecast U.S. consumers will eat and drink nearly 600 tons of stevia by 2018. That is up from a meager 14.5 tons in 2008.

This bodes well for the likes of PureCircle and the other big players in the industry.

Sources:

Dallas Morning News: Soft Drink Makers Have a Powerful Thirst for a New Sweetener

Reuters: Has Sugar Lost Its Sweet Spot? Stevia Upends Market

Sydney Morning Herald: Coke Adds Stevia, But Is It Really Any Healthier?

Financial Times: Stevia Adds Spice to Sugar 'Fat' Debate

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