The Changing ingredienT gamea BUSineSS CaSe FOr high FrUCTOSe COrn SYrUP

The New England Consulting GroupMintel Research Consultancy

John S. White, PhD

November 2011

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The food ingredient game is changing, with big implications for food product and beverage manufacturers.

In response to the widespread increase in obesity and other health-related issues, consumers are showing

a greater interest in healthier eating. Notably, public attention is shifting from a focus on specific ingredients

to total calories and overall nutrition. This shift promises substantial new opportunities to forward-thinking

food and beverage companies.

At the same time, some food and beverage marketers continue to make unwise decisions based on the

misperception that many consumers are worried about and avoiding high fructose corn syrup (HFCS) in

food and beverage products.

This white paper reviews:

• New government and industry dietary initiatives that are changing the ways consumers think about

food and beverage ingredients.

• The transient nature of public perceptions of ingredients.

• The science of HFCS and other sweeteners.

• Market research into what consumers say compared to what they do.

• The facts about “HFCS-free” marketing strategies.

• What F&B manufacturers can do to get ahead of the changing ingredient game.

ChangeS in The PUBliC POliCY and BUSineSS landSCaPeS

Both government and industry are moving away from a focus on individual ingredients and toward more

useful contextual information that will help consumers manage their calorie intake and overall health.

The U.S. Department of Agriculture’s (USDA) 2010 Dietary Guidelines, for example, place new emphasis

on calorie balance and nutrient-dense foods. USDA’s “Food Plate” model, introduced in 2011 to replace

the previous “Food Pyramid,” focuses on a balanced approach to nutrient-dense foods such as fruits,

vegetables and whole grains.

Figure 1: New Nutritional Icon

Source: USDA

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Manufacturing and trade groups such as the Grocery Manufacturers Association and the American

Beverage Association have implemented new, voluntary, front-of-package labeling guidelines that

simplify product ingredient information into food nutrient groups and total calories. Notably, these

nutrient groups include “sugars” rather than a list of specific types of sugar.

Among major retailers, Walmart has championed the formulation and reformulation of food and

beverage products to provide more balanced nutrition, with lower levels of sugars, salt, fats and oils.1

Together, these public and private initiatives are working to shift consumers’ attention toward a more

holistic approach to healthy eating.

YESTERDAY:Emphasisonreducingspecificingredients

TODAY:Focusontotalcaloriesandnutrientgroups

Figure 2: New Food Labeling

1Wal-Mart Stores, Inc., “Walmart Launches Major Initiative to Make Food Healthier and Healthier Food More Affordable,” 20 January 2011.

2Value Line Inc., $M Sales 2003-2009.

5gSAT FAT25% DV 15% DV

360mgSODIUM

PER SERVING

PRIMARY

5gSAT FAT25% DV 15% DV

360mgSODIUM

14% DV 12% DV

500mgPOTASSIUM

PER SERVING

3gFIBER

ALTERNATIVES

SMALL PACKAGES

(Four Broad Nutrients) (Expanded Nutrients)

“PaSSing FanCieS” in PUBliC PerCePTiOn OF FOOd ingredienTS

Several examples from recent “food history” illustrate the changing ingredient game.

For about an 18-month period from 2003 to 2005, carbohydrates were the target of the widely publicized,

aggressively promoted Atkins and South Beach diet regimens. Sales of pasta in the United States dropped

more than 15 percent during this “no carb” craze. However, after the Institute of Medicine of the National

Academies reaffirmed that carbohydrates are an important part of a balanced diet, pasta sales rose a full

70 percent over the next four years.2

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Caffeine has received mixed press over the years, causing it to fall out of favor with many consumers.

Yet, at the same time, Starbucks has repositioned the entire coffee business for major growth, and the

energy-drink category has become a part of mainstream culture, with nearly a 20 percent compound

annual growth rate from 2005 to 2010.3

Excessive consumption of salt has been and continues to be an understandable concern in the medical

and nutritional communities—and for many health-conscious consumers. In 2008, Campbell Soup

Company responded to this interest with the launch of its lower-sodium Healthy Request® soups.

However, the company’s focus on salt reduction to the detriment of benefits such as taste and value

resulted in significant volume declines.4

HFCS is the most recent object of critical hyperbole, with detractors ranging from Whole Foods to Dr. Oz

to Jillian Michaels. However, several prominent influencers have acknowledged that their previous

positions on these ingredients were uninformed or misguided. In May 2011, for example, one of HFCS’s

earliest critics, Dr. Barry Popkin, retracted his original 2004 claim that HFCS is a unique contributor to

obesity, noting that “all sugar you eat is the same. That’s what we know now that we didn’t know in 2004.”5

With regard to HFCS specifically, it is worth noting that the ingredient is not the subject of widespread

conversation on social media. Furthermore, other food topics rank higher in social media conversations.

MYTH:PublicinterestinHFCScontinuestogrow

REALITY:HFCSisoldnews

Figure 3: HFCS: Not Social Media News

3Hoovers Inc.

4 The Nielsen Company

5”The Market Report” on TBD.com, 5 May 2011.

Source: Radian 6 social media report, October 1, 2010 to September 30, 2011

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The real SCienCe OF SweeTenerS

HFCS has been misunderstood and mischaracterized by some nutritionists, by a small number of

consumers and by uninformed marketers. However, many credible scientists agree that HFCS:

• Is similar in composition to sugar. (American Medical Association) 6

• Has the same calories as sugar. (American Dietetic Association) 7

• Once absorbed into the bloodstream, is indistinguishable from sugar. (American Dietetic Association) 8

• Has been shown in clinical studies in humans to have no meaningful differences from table sugar.

• There is no scientific justification for switching to table sugar.

“Most scientific experts now agree that high fructose corn syrup and sucrose produce similar effects

on human metabolic responses. Studies comparing high fructose corn syrup and sucrose have found

no significant differences in fasting blood glucose, insulin, leptin and ghrelin. Satiety studies of the two

sweeteners have found no differences in appetite, feelings of fullness or short-term energy intakes.”

(American Dietetic Association)9

Among the many organizations that support this science, the Center for Science in the Public Interest

concludes: “The bottom line is there isn’t a shred of evidence that high-fructose corn syrup is nutritionally

any different from sugar.”10

In addition, HFCS meets the U.S. Food and Drug Administration’s (FDA) definition of natural and has been

deemed safe by FDA. (GRAS 1983, 1996)11

Chemically and metabolically, a sugar is a sugar. The bonding of glucose and fructose molecules in

table sugar (sucrose) is slightly different from HFCS, but those differences disappear as these sugars are

absorbed into the bloodstream. The end product is the same: the simple (free, monosaccharide) sugars

glucose and fructose.

As Figure 4 illustrates, the form of HFCS used in many foods (HFCS-42) is the lowest fructose-containing

caloric sweetener on the market.

Figure 4: Simple Sugars

6American Medical Association press release, 17 June 2008.7American Dietetic Association, “Hot Topics” paper on high fructose corn syrup, December 2008.8 Ibid.9 Ibid.10M. Jacobson, PhD, Executive Director, Center for Science in the Public Interest, USA Today, 2 March 2010.11(61 Fed. Reg. 43447 (23 August 1996), 21 C.F.R. 184.1866. Direct food substances affirmed as Generally Recognized as Safe; High Fructose Corn Syrup - Final Rule.)

Source: NutritionData.com Condé Nast 2008

HFCS 42 Sugar Honey HFCS 55 Pear JuiceConcentrate

AgaveNectar

% Content

55

74

5042

TOTAL SIMPLE SUGARS* – FRUCTOSE & GLUCOSE CONTENT

FRUCTOSE GLUCOSE

*Total sugars = (sucrose + glucose + fructose + lactose + maltose + galactose)

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Multiple studies have compared the metabolism of table sugar and HFCS, and all have reached the

same conclusion: The human body metabolizes both the same way. In six key measures of obesity—

concentrations of glucose, insulin, triglycerides, uric acid, ghrelin and leptin—the studies show no

difference between table sugar and HFCS. Figure 5 illustrates these comparisons.

Figure 5: Metabolic Equivalence

Melanson, et al. 2007. Nutrition 23(2):103-112.

Zukley M, et al. June 2007. Presented at the June 2007 meeting of The Endocrine Society. Program Abstract #P2-46.

Lowndes J, et al. June 2007. Presented at the June 2007 meeting of The Endocrine Society. Program Abstract #P2-45.

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Rates of obesity in the United States have indeed risen dramatically—but for one simple reason: an increase

of nearly 25 percent in average daily per capita calorie consumption. Notably, added sugars—both table

sugar and HFCS—account for only 14 percent of these additional calories; a full 80 percent of the caloric

increase comes from fats and oils, along with grains. Of even greater note: Per capita HFCS consumption in the

United States has dropped steadily since 2002, while obesity rates were climbing.

The bottom line: Sweetener reformulations from HFCS to sugar provide no nutritional gains—and to claim

or imply otherwise is to mislead consumers.

MYTH:SugarisahealthiersweetenerthanHFCS

REALITY:HFCSandtablesugararemetabolicallyandnutritionallythesame

Figure 6: Obesity vs. HFCS

Figure 7: Sources of Added Calories

Source: National Center for Health Statistics, part of the Centers for Disease Control and Prevention; USDA ERS

Source: Economic Research Service, USDA (U.S. per capita loss-adjusted food availability: “Total Calories”)

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whaT COnSUmerS SaY vS. whaT TheY dO

Some recent market research has seemed to indicate that as many as 44 percent of consumers are trying

to limit their consumption of HFCS.12 But this research is flawed in its failure to distinguish between aided

and unaided responses to survey questions.

Market researchers and experienced marketers know that a gap exists between aided and unaided responses

from consumers. The type of study cited above, for example, typically uses multiple-choice questions, where

“HFCS” is, in effect, a suggested response. In contrast, unaided responses, which represent unprompted,

top-of-mind opinions or statements, are more predictive of consumers’ true attitudes and behaviors.

In early 2011, Mintel, a global provider of market intelligence, conducted research on attitudes toward

HFCS among more than 2,000 U.S. consumers. The survey examined consumer awareness, avoidance of

HFCS, message recall about HFCS, food product label-reading habits and purchase decisions. The unaided

responses revealed a clearer picture of consumers’ actual attitudes and purchase behaviors.

When consumers were asked the open-ended question “What ingredients do you look for on food and

beverage packages?”, only 3 percent responded with HFCS. Similarly, when asked “What foods, beverages

or ingredients are you trying to reduce or avoid?”, only 4 percent said HFCS.

Figure 8: Label Reading

12International Food Information Council Foundation, “2011 Food & Health Survey,” May 2011.

Figure 9: Ingredients/Foods Avoided

Source: Mintel 2011; N = 2005

Source: Mintel 2011; N = 2005

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Even when survey questions focused specifically on HFCS (aided questions), the responses indicated that

claims of “HFCS-free” products were not compelling to consumers. When asked “Have you ever bought any

HFCS-free product?”, only 11 percent answered “yes.” But when asked to name specific product categories

for the HFCS-free products they had purchased, they could name, on average, only 1.2 product categories.

MYTH:ThemajorityofconsumersareavoidingHFCS

REALITY:Fewconsumersareavoidingit

Figure 10: Claims to Have Purchased HFCS-Free Products

Source: Mintel 2011; N = 2005

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Figure 12: Fresh Bread/Muffins

After switching to an HFCS-free formula, a national brand of English muffins experienced continued

decline in brand share, with annual share spikes reflective of seasonal promotional activity.

Source: NECG Analysis; The Nielsen Company 9/3/11

Source: NECG Analysis; The Nielsen Company 9/3/11

hFCS and markeTing STraTegieS

Actual purchase behavior, of course, is what really counts. Nielsen data was collected through

September 3, 2011, as part of a comprehensive review of retail sales of products that had switched

from HFCS to sugar.13 The data covered 25 leading brands and more than 3,200 SKUs in beverages,

baked goods and prepared foods. These brands are representative of those that have not only

switched from HFCS to sugar, but have also communicated the new formulations to their consumers.

The analysis confirmed that HFCS-free strategies, regardless of execution, had not been effective in

driving incremental share growth.

Figure 11: Catsup

In March 2010, an HFCS-free catsup product launched with a reduced-salt product line extension (32-oz.

and 15-oz. bottles) by replacing two existing SKUs with the new formula. Brand dollar sales share trend for

the HFCS-free products is flat after HFCS removal. HFCS-free did not drive a significant increase in market

share during catsup’s key summer season.

13Nielsen U.S. Retail Sales Food Stores (over $2 million annual sales), Drug Stores (over $1 million annual sales) and Mass Merchandisers (excluding Walmart), September 2011.

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Based on these facts, the performance of HFCS-free products to date does not appear to support marketer

goals because—in case after case—there has been no significant improvement in brand share, no significant

improvement in volume sales and no noticeable shift in consumer attitudes or behaviors in favor of HFCS-

free products.

MYTH:HFCS-freewillhaveapositiveimpactonmybusinessasafoodorbeveragemanufacturer

REALITY:HFCS-freeisaverysmallconsumeropportunityforfoodandbeveragecompanies

This lack to date of a favorable consumer response to HFCS-free products complicates the assessment of

the costs and the risks in switching from HFCS to sugar, but there is no question that the combination of

sugar’s higher input costs and the lack of consumer demand for HFCS-free products is central to the calculation.

The negative impact on ROI that switching is likely to have is evident in soft drinks, where sweetener costs

would approximately double (a floor-cost increase of about 7 percent), and retail prices would have to

increase by approximately $0.75 per case to maintain soft-drink system margins.14

Similar negative impact on ROI can be seen in bread, where the retail price would have to rise by approximately

15 cents per loaf, or as much as 5 percent, to maintain manufacturer and retailer margins.15

In big-picture terms, a 100-million-case bottler switching from HFCS to sugar would see incremental ingredient

costs rise approximately $45 million annually, in addition to major increases in labor and capital costs.

A baking company producing 1.5 billion loaves annually would see its cost of goods sold rise by $60 million.

MYTH:ThebenefitsofswitchingfromHFCStosugarstronglyoutweighthecosts

REALITY:Thecostsofswitchingaresignificant;thebenefitsareminimal

14NECG Analysis, Confidential Sources (fully loaded at bottler plant level before delivery costs).

15Ibid.

Figure 13: Beverages

In 2009, a major brand of citrus soft drink introduced an HFCS-free formula in addition to its standard

formulation. Review of the brand’s combined dollar share sales trend indicates that the HFCS-free

formulation did not provide incremental sales growth.

Source: NECG Analysis; The Nielsen Company 9/3/11

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geTTing ahead OF The Changing ingredienT game

The time has come for food and beverage marketers to rethink their sweetener ingredient strategies.

Aggressive strategies can create long-term advantage if they focus on value to the consumer, based on

real demand rather than on inflammatory headlines.

While past focus in the industry has often been on individual ingredients, consumers are broadening their

interest in nutrition and healthier eating—meaning that product success is likely to depend on building

and sustaining total brand value propositions.

Marketers have the opportunity to advance that effort through a rigorous reassessment of HFCS in their

brand portfolios that considers accurate measurement of HFCS-free product and SKU performance,

thorough economic analyses of the true costs of switching from HFCS to sugar, a nuanced portfolio

configuration, and in-market demonstrations and vitality tests of products containing HFCS.

Innovative, research-based, fact-based assessments and strategies such as these can enable marketers

and their brands to get ahead—and stay ahead—of the changing ingredient game.

nOTeS

The New England Consulting Group is the largest marketing management consulting firm in the world,

servicing food and beverage companies in all categories, countries and channels. Its strategy is to have

a significant and immediate positive impact on clients’ businesses by providing superior management

counsel to companies that are or wish to be market-driven.

Mintel Research Consultancy is an independent, award-winning provider of world-leading market

intelligence, delivering robust information, analysis and critical recommendations. Its trusted portfolio of

proprietary industry solutions and products has been supporting high-profile clients in key sectors such

as FMCG, financial services, media, retail, leisure and education for over 38 years.

John S. White, PhD, is founder and president of White Technical Research. He has spent more than 28 years in

researching the production, functionality, applications, consumption and metabolism of caloric sweeteners.

The Corn Refiners Association represents the corn refining (wet milling) industry and has launched a national educational campaign to provide science-based facts about high fructose corn syrup to the public. High fructose corn syrup contains the same two simple sugars as table sugar, honey, and maple syrup. It is used to sweeten, preserve freshness, and flavor foods and beverages.