Fat Profits in Low-Calorie Foods

A year ago, when the Food and Drug Administration announced approval of NutraSweet’s cholesterol-free substance, Simplesse, food industry observers labeled the product a “blockbuster,” the first in a new generation of highly profitable, low-calorie fat substitutes. In a single day, Monsanto, NutraSweet’s parent company, watched its stock jump $4.38.

But Simplesse’s name and the excitement caused by its introduction belie how difficult and risky the development of new food ingredients can be. To date, Simplesse has only been recognized as safe for frozen desserts. And NutraSweet’s effort to repeat with Simplesse the wildly successful strategy it used with aspartame, its low-calorie sweetener, seems likely to fall far short of expectations.

What does not fall short of optimistic projections, however, is consumer demand for healthy foods low in calories, fat and cholesterol. As the U.S. population ages and concerns about nutrition and health increase, the food industry is challenged to develop more foods and ingredients that address these needs. At stake are huge shares in a number of important markets.

In recent years, for instance, the total sales of processed cheeses have increased by only 2.5%, but that growth has been fueled almost exclusively by 30% to 40% growth in low-fat, low-calorie cheeses.

But while the growing demand for new foods is obvious, how to satisfy those demands seldom is. Technological, regulatory, marketing and competitive challenges often make it difficult for a company to predict the ultimate success of a proposed product or ingredient--even when that substance is in high demand by consumers.

Procter & Gamble’s experience with olestra, its sucrose polyester fat substitute, is a good case in point. Patented in 1971, olestra, which unlike Simplesse can be used in cooking, has the potential to replace fats in a variety of foods. Four years after its initial FDA petition, Procter & Gamble is still trying to gain approval for the substance. Recently, in an effort to facilitate the approval process, the company amended its petition to seek approval only for snack foods fried in 100% olestra.

FDA regulations also prohibit foods containing less than 10%t butterfat to be labeled as ice cream. These labeling regulations--many written long before low-fat and low-calorie ingredients were invented--pose a challenge to the company that is loathe to call its new product a “frozen processed dairy dessert with cellulose gel.” While the FDA in recent years has acknowledged the need for new labeling guidelines, any changes will take time and will undoubtedly prove controversial.

Finally, the low-calorie, low-fat, low-cholesterol market is becoming increasingly competitive. Today more than 30 companies worldwide have conducted significant R&D; efforts with sweeteners, and at least 15 are engaged in the development of fat replacements.

As the amount of research increases, the likelihood of one company grabbing the lion’s share of a market--as NutraSweet did with aspartame--decreases. NutraSweet’s Simplesse is competing in food categories where several alternatives for fat replacement exist. Avicel, a cellulose-based, fat-free ingredient, already holds a larger share of the low-fat market.

For these and other reasons, NutraSweet’s effort to position its product as a premium, high-priced ingredient is likely to prove far less successful with Simplesse than it did with aspartame. Monsanto have been preparing investors to lower their expectations when it announced in February that it would not introduce additional consumer products containing Simplesse (beyond Simple Pleasures, a frozen dessert).

Yet, despite the many challenges facing food companies, the introduction of new products will continue to be profitable, and foods low in cholesterol, fats and calories will be the fastest-growing segment of this nation’s largest industry.