Holland Sweetener
Introduction
The Holland Sweetener Company (HSC) is planning to enter the low-calorie, high-intensity sweetener market which is currently dominated by NutraSweet. Below we first analyze our target industry. Next we look at what kind of response should HSC expect from NutraSweet upon its entry into this market. We will also analyze few likely scenarios that could play out and we will try to estimate the likelihood of each scenario. Based on our analysis, we will give a recommendation for HSC to plan their entry into this market.
Industry Analysis
The low-calorie, high-intensity sweetener market has been dominated by one major player, NutraSweet, with annual sales of $711M and about 80% market share (the total market in 1986 was $884M annual sales). NutraSweet, a monopolist in the industry, was able to charge premium prices and successfully capture the majority of the pie. Also, the market was expected to grow 15% annually, with a 70% projected sales growth in Europe and Canada. However, since NutraSweet’s original patents were due to expire soon (Europe/Canada market patent expires in 1987 and US in 1992), a new entrant was threatening to enter the lucrative low-calorie sweetener market – HSC.
Barriers to Entry
Throughout the monopoly period, NutraSweet had successfully built several barriers to entry as a means to protect their leadership within the industry and thwart new entrants.
Manufacturing: Aspartame manufacturing required a high initial capital expenditure (plan construction costs $100M), and long lead production time (2-3 years to bring aspartame production to speed). The facility needed to be run at or near design capacity and experienced MES of 2,000 tones annually. Also, as the first mover, NutraSweet had the advantage of increasing their manufacturing efficiencies (manufacturing costs cut by 70% over the years).
Patent Protection: NutraSweet owned several crucial patents in the U.S. and other regions. Among them were the use/mix
The Holland Sweetener Company (HSC) is planning to enter the low-calorie, high-intensity sweetener market which is currently dominated by NutraSweet. Below we first analyze our target industry. Next we look at what kind of response should HSC expect from NutraSweet upon its entry into this market. We will also analyze few likely scenarios that could play out and we will try to estimate the likelihood of each scenario. Based on our analysis, we will give a recommendation for HSC to plan their entry into this market.
Industry Analysis
The low-calorie, high-intensity sweetener market has been dominated by one major player, NutraSweet, with annual sales of $711M and about 80% market share (the total market in 1986 was $884M annual sales). NutraSweet, a monopolist in the industry, was able to charge premium prices and successfully capture the majority of the pie. Also, the market was expected to grow 15% annually, with a 70% projected sales growth in Europe and Canada. However, since NutraSweet’s original patents were due to expire soon (Europe/Canada market patent expires in 1987 and US in 1992), a new entrant was threatening to enter the lucrative low-calorie sweetener market – HSC.
Barriers to Entry
Throughout the monopoly period, NutraSweet had successfully built several barriers to entry as a means to protect their leadership within the industry and thwart new entrants.
Manufacturing: Aspartame manufacturing required a high initial capital expenditure (plan construction costs $100M), and long lead production time (2-3 years to bring aspartame production to speed). The facility needed to be run at or near design capacity and experienced MES of 2,000 tones annually. Also, as the first mover, NutraSweet had the advantage of increasing their manufacturing efficiencies (manufacturing costs cut by 70% over the years).
Patent Protection: NutraSweet owned several crucial patents in the U.S. and other regions. Among them were the use/mix