By Henry Kawabe
In a landmark announcement last November, European Union authorities announced that the no-calorie natural sweetener, Stevia, could be sold within the European Union.
Thanks to this ruling, companies like The Coca-Cola Company (NYSE:KO) have been able to sell their stevia-based products in the U.K. and elsewhere in Europe. Coca-Cola originally launched Vitaminwater in the UK in 2008; but now that the entire European Union is open to stevia, Coca-Cola will begin to introduce fresh packaging for Vitaminwater that features better nutritional information. The company also announced a new Vitaminwater formula that will cut calories by 30 and also reduce sugar levels by 30%. This is of great importance to diabetic patients and those with insulin dependence, who often avoid sweets and refined sugar so that their blood sugar levels don’t spike.
Though there are many artificial sweeteners in the market, stevia has been found to be not only safe, but also helpful in reducing blood sugar levels. Stevia is a plant that is native to Paraguay. Its natives have used the plant’s extract as a sweetener for hundreds of years. The leaves of a stevia plant have 9 to 12 sweet-tasting compounds called steviol glycosides. These have no calories or glycemic index, and Harvard’s School of Public Health says that stevia is almost 300 times sweeter than sugar and potentially helpful in reducing blood sugar levels. The calorie-free sweetener is broken down by the body in such a way that no accumulation of the substance is left behind. The World Health Organization concluded that high- purity stevia is safe to be consumed and also helpful for both diabetic and non-diabetic people.
Thus, Coca-Cola’s Vitaminwater is being launched at the right time when people have begun to talk about stevia favorably. The re-launched package and the new sweetener formula are expected to help Coca-Cola to expand its market in the UK and elsewhere in Europe. At the moment, Canada and the U.S. are the largest markets for Vitaminwater.
Coca-Cola’s rival, PepsiCo Inc. (NYSE:PEP), recently launched a reduced-calorie soda that uses stevia. The world’s #2 soda company claims that the new Pepsi has 60 calories per can, which is half the calories of a regular can. PepsiCo also mentioned that stevia can leave a bitter aftertaste if not treated properly. However, the company treats stevia extracts in a special process to make sure that the sweetness is not ruined by any aftertaste. PepsiCo and Britvic had announced a Vitaminwater-like beverage called SoBe V Water in April 2012. The water beverage is sweetened by stevia too, and has been very popular in the UK, competing against Coca-Cola’s Vitaminwater.
Dr. Pepper Snapple Group Inc. (NYSE:DPS) has a distinctive advantage over both Coca-Cola and PepsiCo thanks to its product line. America’s third largest soda company, Dr Pepper Snapple’s Sunkist and A&W Root Beer taste very differently when compared with PepsiCo’s and Coca-Cola’s cola-based drinks. Dr. Snapple’s drinks easily mask the aftertaste that is often associated with stevia. This is one of the reasons why PepsiCo and Coca-Cola have concentrated on vitamin waters instead of recreating their signature cola drinks with stevia. Coca-Cola’s Vitaminwater has received rave reviews from beverage critics for its health benefits and taste, and is likely to be popularized further when the Sochi Winter Olympics takes place in Russia in 2016.
All three beverage companies discussed above face difficulties related to stevia’s aftertaste. The technology that these companies use to remove bitterness from the extract is expensive and may not be helpful for recreating original products. The core problem facing the beverage industry with regards to stevia is that flavor and sweetness is affected by the different steviol glycoside levels in the leaves from plant to plant. The amount of water the plant receives; the climate, the area it’s grown, and the cultivation method are all factors that can affect the flavor and sweetness. Stevia producers have found it very difficult to control the level of sweetness. There has been limited success from the efforts of companies and growers to cross-breed new varieties of stevia plants that are more consistent in sweetness and flavor.
Stevia First Corp. (OTC:STVF) is working on a fermentation technology that could result in high consistency and lower production costs at the same time. The company announced on August 29th that it had obtained the technology from Vineland Research and Innovation Centre. The key points mentioned in the press release were that the technology enables better control over the consistency of the final product sweetener along with a reduced production cost. The release noted that about 70% of the cost of stevia extract is directly related to the cost of stevia leaf production. Successful development of this fermentation process could prove to be profitable for investors with the possible growing interest of the company among the three major beverage companies (currently, speculative interest only). Increased demand in the U.S. along with the growing demand for stevia products in the U.K. and Europe will drive growth for companies with the foresight to develop better production processes or implements use of the ingredient in their products and successfully implement their marketing campaigns. If or when the fermentation technology becomes available, Coca-Cola, PepsiCo, and Dr Pepper Snapple will likely be watching the company very closely. Stevia First’s common shares trade around $0.38 with a market cap of $20 million. An investment in the company should currently be considered as speculative as it has no marketed product as of yet and is a development-phase company. However, the $20 million market capitalization does allow for much upside potential if the company begins showing signs of success with its fermentation process for producing stevia extracts.
The European regulatory approval of stevia-based products will likely induce increased consumption of beverages that have usually been frowned upon by health conscious people and diabetics, most notably carbonated drinks. The market is really huge, as millions of people have given up on carbonated drinks fearing increased glucose levels. Many of those who have given up carbonated and sweetened beverages (including vitamin waters) will opt for stevia-based beverages for their health benefits. The increased sales and revenue for all the companies involved could prove to be an investor’s gold mine. Now is probably the best time to invest in Coca-Cola, PepsiCo, Dr Pepper Snapple, and Stevia First, who are leading the research and development process for stevia. Wise entries are of course advised, but the upside for each of these companies should become more evident as sales improve or as product development initiatives begin producing fruit. Each company has differing upside potential versus downside risk. Interested investors should thoroughly research each to ascertain which could be good fits for their portfolios.
Disclosure: Long STVF and KO
