Introduction (graphics not availalbe)
The Holland Sweetener Company (HSC) is planning to enter the low-calorie, high-intensity sweetener market which is currently dominated by NutraSweet. Below we first analyze our target industry. Next we look at what kind of response should HSC expect from NutraSweet upon its entry into this market. We will also analyze few likely scenarios that could play out and we will try to estimate the likelihood of each scenario. Based on our analysis, we will give a recommendation for HSC to plan their entry into this market.
Industry Analysis
The low-calorie, high-intensity sweetener market has been dominated by one major player, NutraSweet, with annual sales of $711M and about 80% market share (the total market in 1986 was $884M annual sales). NutraSweet, a monopolist in the industry, was able to charge premium prices and successfully capture the majority of the pie. Also, the market was expected to grow 15% annually, with a 70% projected sales growth in Europe and Canada. However, since NutraSweet’s original patents were due to expire soon (Europe/Canada market patent expires in 1987 and US in 1992), a new entrant was threatening to enter the lucrative low-calorie sweetener market – HSC.
Barriers to Entry
Throughout the monopoly period, NutraSweet had successfully built several barriers to entry as a means to protect their leadership within the industry and thwart new entrants.
Manufacturing: Aspartame manufacturing required a high initial capital expenditure (plan construction costs $100M), and long lead production time (2-3 years to bring aspartame production to speed). The facility needed to be run at or near design capacity and experienced MES of 2,000 tones annually. Also, as the first mover, NutraSweet had the advantage of increasing their manufacturing efficiencies (manufacturing costs cut by 70% over the years).
Patent Protection: NutraSweet owned several crucial patents in the U.S. and other regions. Among them were the use/mix patent for aspartame and their manufacturing process patent.
Buyers locked up: The market was dominated by two major customers - Coca-Cola and Pepsi (accounted for ~50% of the aspartame usage). NutraSweet had entered into exclusive multi-year contracts with both of them. This would prevent potential entrants from establishing sales volume necessary to support the minimum efficiency production scale necessary to compete effectively in the aspartame market.
Brand recognition: NutraSweet invested heavily in building their U.S. brand with the introduction of a “branded ingredient” campaign, which required an extensive advertising investment ($30M annually) and resulted in 98% brand recognition.
Aspartame, or more commonly known as NutraSweet, Equal, Spoonful and Equal Measure; was discovered purely by chance in 1965 by a chemist named James M. Schlatter, who was testing an antacid drug (Prantini; 2014). The commercial industry believed that “a wonder product” had been discovered, which stood to revolutionise the food industry as an artificial sweetener. Aspartame is an artificial sweetener which is found in many of our foods and beverages universally. Aspartame is two-hundred times sweeter than sugar and is commonly used as a tabletop sweetener, a sweetener in prepared foods, diet foods or drinks, flavored waters, chewing gum, condiments and is even found in flavoring of medicines. It is found in majority of our food products marketed for weight control (Prantini; 2014). Aspartame has a sweeter taste in comparison to sugar, and therefore less of the sweetener can be used in food products in order to achieve the same level of sweetness as if sugar was used; which results in an individual consuming fewer calories and less sugar (American Cancer Society; 2014).
Due to the ever increasing use of aspartame, researchers have discovered that aspartame has been closely associated with the function of the brain. In the human brain, there is a blood-brain barrier that acts as a system of specialized capillary structures that are designed to prevent toxic substances from entering the brain. Prior to birth and during the first 12 months of life, the blood-brain barrier is incomplete. The protective enzymes in a baby’s brain are still immature, and therefore are unable to effectively detoxify the excitotoxins, toxins that bind to certain receptors and may cause neuronal cell death when they enter the brain. This would mean that in the case o...
Researchers at the Massachusetts Institute of Technology (MIT) observed 80 people who suffered brain seizures after eating or drinking products with aspartame. The Community Nutrition Institute declared: "These 80 cases which fit the FDA definition of imminent risk to public health, which requires the FDA to immediately withdraw the product from the market."
...has already been assumed to be pursued by the $17 million loan they received from the European Investment Bank to use toward the 500-tonne aspartame plant project. HSC should entertain a normal competition instead of a price war in order to really learn the industry before going directly against NutraSweet’s in a price war. The more strategic move of HSC is to not directly compete against NutraSweet in a price war because in my opinion, NutraSweet is the expert and HSC is the amateur in the respect of HSC has a lot to learn before it could try to go to war with NutraSweet. Overall, I feel that if HSC would try to directly compete with NutraSweet in a worldwide market and not just in Europe and Canada that they will lose because NutraSweet already has developed brand loyalty and the company ventures off into other forms of capital like signing with Coke and Pepsi.
A monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. A monopoly sells a good for which there is no close substitute. The absence of substitutes makes the demand for the good relatively inelastic thereby enabling monopolies to extract positive profits. It is this monopolizing of drug and process patents that has consumer advocates up in arms. The granting of exclusive rights to pharmacuetical companies over clinical a...
...ions in Europe and the United States, making chocolate competitive for the more extensive overall public.
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