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The beverage industry is facing a major challenge going forward in their fight against obesity.
Namely, sugary drinks, like most Coke and Pepsi products, have been implicated as a primary cause in the global obesity crisis in general, and in childhood obesity in particular. Since schools across the United States started removing full-calorie soft drinks from their vending machines in 2004, beverage companies have been experimenting with artificial sweeteners in hopes of reversing this growing trend. Even so, consumer research has plainly shown that most people simply do not like the taste of sugar substitutes in diet soft drinks, which is why Splenda—the most popular sugar substitute by market share, has failed as a viable substitute for high fructose corn syrup in major cola brands. Simply put, consumers want natural sugars that are low in calories.
Stevia may be the solution for the beverage industry
Stevia is a natural sweetener derived from the leaves of the South American plant Stevia rebaudiana, and has been consumed by humans for centuries. Per industry reports, stevia has zero calories and is approximately thirty-times sweeter than cane sugar. Despite its natural advantages over cane sugar and being commercially available in Japan since the 1970’s, stevia extract did not receive FDA approval as a food additive until 2008. Immediately after its approval, however, stevia was successfully brought to market by food-giant Cargill (co-developed by Coca-Cola) under the brand Truvia, and by PepsiCo (PEP) under the brand PureVia.
Last year, U.S. sales for Truvia alone hit $92 million, and global sales of stevia extract exceeded $130 M. As such, stevia extract is now the second leading sugar substitute in terms of market share (Splenda is still numero uno). Zenith International has thus forecast the stevia market to break $1 B in sales over the next two years, and these strong revenue projections are based on the fact that stevia extracts have found their way into several leading beverage brands such as Coca-Cola (KO), PepsiCo (PEP), and even Starbucks’ (SBUX) energy drinks “Refreshers”. With a consumer mandate for natural sugars that are low calorie, the demand for stevia extra looks to be strong going forward, and could very possibly become the market share leader in the near future.
Stevia First Corporation
As the major producers of stevia are either privately-owned (Cargill) or produce myriad products other than stevia (e.g., Coca-Cola and PepsiCo), Stevia First Corporation (STVF.OB) is presently the only public company solely focused on producing or developing commercial stevia extract. The company’s operations include stevia plant breeding, agricultural practices, and post-harvest techniques. Until the company is able to harvest extract from its land in California’s Central Valley, STVF is purchasing extract from external suppliers to use in its own tabletop sweetener. Using the extract from its suppliers, STVF is attempting to improve the taste profile of their product, compared to either Truvia or PureVia, by experimenting with fermentation technologies. Specifically, the company hopes to remove the bitter taste experienced by some consumers. Indeed, if STVF can remove or lessen the bitter aftertaste, this innovation would provide a major competitive advantage over its rivals already in the marketplace.
According to the company’s recent 10-K, STVF’s tabletop sweetener is currently undergoing product testing, with a possible commercial launch later this year. Specifically, STVF stated that, “Assuming favorable results from our consumer product testing efforts, we would expect to release our planned tabletop sweetener product later in 2013 and generate revenues from this proposed product as soon as the second half of 2013”. On the financial front, STVF currently has enough cash to meet its short-term financing needs, but the longer term will undoubtedly depend upon the commercial success of its tabletop sweetener. In other words, dilution does not appear imminent but investors would be wise to keep an eye on the sales of their tabletop sweetener post-launch.
Although STVF is a microcap company trading on the “OTC” and is therefore a risky investment, it does offer investors an interesting value proposition. Namely, STVF’s launch of its tabletop sweetener later this year should radically transform the company into a major player in the sugar substitute market, especially given the worldwide demand for products like stevia extract. With a market cap of only about $20M yet potential sales in the hundreds of millions, this is a stock worth watching by aggressive investors.
