Sector News

UK sugary drink tax could be sweet for food ingredient suppliers

March 21, 2016
Food & Drink

The British government’s planned levy on sugary soft drinks means more business for suppliers of specialty ingredients that boost sweetness without adding calories and can mask aftertastes or add texture.

The surprise levy announced on Wednesday would go into effect in two years. That gives manufacturers including Coca-Cola or PepsiCo and their UK partners such as Coca-Cola Enterprises or Britvic time to roll out more low-calorie drinks.

Beneficiaries could include PureCircle, which sells the natural low-calorie sweetener stevia, Tate & Lyle, which sells sweeteners such as sucralose, and Kerry Group , which sells natural flavours and colouring agents.

Such companies are profiting from growing demand for lower-calorie foods and are free of competition from independent start-ups or own-brand players, since they often supply all major manufacturers.

They are also high-margin, high-growth and have high barriers to entry, said Neil Brown, investment manager of pan European equities on Alliance Trust’s Sustainable Investment team. His fund has owned shares of Kerry and peers Chr. Hansen , Naturex and DSM for years.

“Obesity is a serious issue, and most of us are trying to eat more healthily,” Brown said.

“We’d rather be in the company that gets the phone call to try and fix it, rather than the company that faces clear headwinds.”

U.S. firm Ingredion, which sells corn syrup and other ingredients, has seen “double-digit” growth in its specialty ingredients business in Mexico since that country implemented a tax on sugary drinks and foods in 2014.

“It created an environment for a company like ours to come up with affordable, healthy solutions,” CEO Ilene Gordon told Reuters recently.

“We quickly took formulations that we had in the rest of the world, solutions from Europe, and we adjusted them for the Mexican market, in flavour, taste and affordability,” she said, citing as an example a Mexican yogurt that Ingredion reformulated using a less expensive starch.


For Investec analyst Nicola Mallard, the two-year window before implementation of the UK levy is a sign the government wants manufacturers to reformulate drinks, rather than merely raise prices, which can have limited effect if people get used to the new price and eventually return to old habits.

“The easiest way to get people to consume less sugar is to not put it in the product in the first place,” Mallard said.

Yet Coke, Pepsi and others have been changing their product line-ups for the past decade, adding more lower-calorie juices, teas and water drinks as well as low-calorie versions of their flagship colas, to match consumer demand.

“If you go back 20 years, the proportion of low- or no-calorie products on the market was 30 percent,” said Gavin Partington, director general of the British Soft Drinks Association. “Now it’s about 60 percent,” including bottled water.

In January, for example, Coke announced a “one brand” approach to marketing its flagship cola that allows for the classic full-calorie version in red packages, but also Diet Coke in silver, Coke Zero in black and most recently, Coke Life in green.

The variety means Coke never has to change the recipe of the classic cola, said Liberum analyst Robert Waldschmidt, though it has changed the recipe for Coke Life in the UK.

Instead of one-third less sugar as it had for its 2014 launch, the new mid-calorie Coke Life has 45 percent less, due to the addition of more stevia, which comes from a South American shrub.

“Reformulation is biggest on new products because there’s no preset notion of what it should taste like,” Waldschmidt said.

Brands are reluctant to change recipes too fast, he said, citing last year’s rocky performance for Diet Pepsi in the United States after it replaced aspartame with sucralose.

Consumers complained of an unpleasant aftertaste in the new version, which highlights the opportunity for a class of specialty ingredients that do not provide sweetness or flavour, but have functional benefits like masking an aftertaste, boosting a sweetness, or providing bulk or texture.

There will also be growing demand for ingredients such as Tate & Lyle’s Dolcia Prima, made from allulose, which has 70 percent of the sweetening power of sugar but only 10 percent of the calories.

Allulose, which occurs naturally in figs, raisins and jackfruit, can be used in the United States, but has not yet been approved in Britain.

By Martinne Geller

Source: Reuters

comments closed

Related News

February 4, 2023

Unilever names FrieslandCampina’s Hein Schumacher as next CEO

Food & Drink

Schumacher will replace Alan Jope, who announced his decision to retire last September, less than a year after a failed attempt by Unilever to buy GlaxoSmithKline’s consumer healthcare business and just months after activist investor Nelson Peltz joined the company’s board.

February 4, 2023

Tetra Pak execs flag plant-based ice cream development hurdles as indulgent offerings expand

Food & Drink

Globally, plant-based ice creams have doubled their share of the market over the last five years, according to Tetra Pack. Pea protein and coconut milk are leading the way, but Tetra Pak cites data showing that oat-based ice cream launches have doubled in the previous year.

February 4, 2023

Examining the meaning of eco-labels: Is it time for mandated methodology?

Food & Drink

A myriad of so-called eco-labels are being rolled out across various F&B products, but with no gold standard or strict rules governing precisely what the logos mean and what methodology is behind them, concerns are growing that they will confuse consumers and ultimately be counterproductive.

How can we help you?

We're easy to reach