Co-Opetition - Adam M. Brandenburger [37]
Bittersweet Success Aspartame is a low-calorie, high-intensity sweetener much better known by Monsanto’s brand name for it, NutraSweet. It was the key to the explosive success of diet Coke and diet Pepsi in the 1980s. For people looking to cut calories, it’s a godsend:
A tenet of western culture is that there is no pleasure without a price. What we are saying is that there is a free lunch.
—Bob Shapiro, CEO, NutraSweet2
The lunch may have been free of calories, but that was the only sense in which it was free. NutraSweet made over half a billion dollars in 1985. The business had 70 percent gross margins. Such profits usually attract entry, but NutraSweet was protected by a patent. What would happen when the patent expired?
High-intensity sweeteners have a long and checkered history. In Roman times, grape juice was boiled down in lead pans to produce sapa, a sweet compound used for everything from a food additive to an oral contraceptive. Unfortunately, the lead in sapa made it hazardous, even lethal. Cyclamate was discovered in the 1960s but was banned in 1970 by the Food and Drug Administration (FDA) after studies suggested a link to cancer. In the United States, the only alternative to aspartame was saccharin, a petroleum derivative discovered back in 1879. In 1977 the FDA tried to ban saccharin, too, as carcinogenic. But the public protested, Congress intervened, and saccharin is still on the market. Apart from the safety issue, some people find saccharin to have a slightly bitter, metallic aftertaste.
Aspartame was discovered by accident. In 1965 James Schlatter, a research scientist at G. D. Searle & Co., was trying to develop an anti-ulcer drug. While experimenting with L-aspartic acid and L-phenylalanine, Schlatter noticed a sweet taste when he happened to lick his finger. He later coined the term “aspartame” for the combination of amino acids. Aspartame has the same caloric content as sugar of equal weight but is 180 times as sweet.
In 1970 Searle secured a patent on aspartame and sought FDA approval for the use of aspartame as a food additive. When the FDA granted permission for dry use of aspartame in July 1981, Searle quickly launched its first aspartame product, the tabletop sweetener Equal. Use in soft drinks wasn’t approved until July 1983. Following these long delays, Searle managed to get the use patent extended—to 1987 in Europe and 1992 in the United States.
In 1985 Monsanto acquired Searle and, with it, ownership of the aspartame monopoly. For Monsanto, this was coming full circle. Today Monsanto is a major producer of agricultural and chemical products, but its original mission, back in 1901, was to challenge a German monopoly on the saccharin market.
What goes around comes around. In 1986 the Holland Sweetener Company began building an aspartame plant in Geleen, the Netherlands, to challenge Monsanto’s hold on the aspartame market. Holland Sweetener was a joint venture between two chemical companies, the Japanese Tosoh Corporation and the local DSM (Dutch State Mines). It was created with the express purpose of challenging Monsanto’s monopoly of the aspartame market. The process of making aspartame is quite complicated, so Holland Sweetener didn’t expect a flood of other entrants when Monsanto’s patent expired.
With the expiration of NutraSweet’s European patent in 1987, Holland attacked the European market. Monsanto fought back with aggressive pricing. Before Holland’s entry, aspartame prices had been $70 per pound. After Holland’s entry, they fell to $22–$30 per pound. Holland was losing money. To survive, it appealed to the European courts, which imposed antidumping duties on Monsanto.
Having survived the war in Europe, Holland Sweetener was now prepared to go after the big prize. As