Growing Energy
LONDON-Americans' dietary disconnect is often evident. Sure, 72 percent of consumers understand the health benefits of a balanced diet. But only 33 percent practice healthful eating. Still, about 80 percent say they want food companies to develop healthier foods-so long as they taste good, that is. "Marketing is always solving a paradox," says Iain Ferguson, CEO of Britain's Tate & Lyle, a leading food manufacturer. "The paradox we're helping to solve is, 'I want to enjoy eating it, but I don't want it to show around my waistline.'"
Actually, Tate & Lyle is something of a paradox itself. It has long been a maker of sugars and starches. But in a low-carb world, Tate & Lyle has sped up its transformation from a commodities supplier to a leading producer of value-added food and industrial ingredients, all created from renewable resources (particularly corn and sugar cane). What's more, it's betting that future growth lies with "functional foods"-processed foods that not only are nutritious but make people healthier or help fend off diseases.
Value-added ingredients offer Tate & Lyle new ways to generate growth in a stable commodities environment, says Julian Hardwick, an analyst at ABN AMRO. "It's been making very good progress in terms of delivering on that strategy." Indeed, it boasted a 9 percent jump in sales, to $3.8 billion, in its results for the first half of its fiscal year, announced last month. Operating profits leapt 26 percent to $357 million.
In Britain, Tate & Lyle is best known as a consumer brand, a purveyor of sugars and Lyle's Golden Syrup, which comes in a distinctive can that first appeared in 1885. Nevertheless, North America accounts for 70 percent of the company's operating profits. Yet Americans could be forgiven if they've never heard of Tate & Lyle-in the States, its clients are other brands. One product U.S. consumers will recognize is the popular artificial sweetener Splenda, made from sucralose, which was developed by Tate & Lyle. Sucralose is derived from sugar but calorie free.
Tate & Lyle's U.S. ambitions have led to rapid expansion. It has doubled capacity at its McIntosh, Ala., sucralose plant; it's building a corn mill in Fort Dodge, Iowa, to provide raw materials for specialty starches and ethanol; it's expanding a starch plant in Sagamore, Ind.; and in Loudon, Tenn., with partner DuPont, it just opened a plant to produce Bio-PDO, a glucose-based, high-end substance that can be used in products ranging from carpets to cosmetics to de-icers. Tate & Lyle estimates the potential market for Bio-PDO at $3.5 billion. It's also enthusiastic about the future of polylactic acid, a biodegradable plastic made from sugars.
Plant to plastic. Tom Welton, a chemist at London's Imperial College, predicts that eventually all chemical compounds will be derived from plants, not petroleum. Critics may question using corn to make plastics when millions of people go hungry, he says. "But world hunger isn't caused by a lack of food but by a lack of distribution." Still, if biofuels and biomaterials take off in a big way, growing enough crops in a sustainable way to meet demand could prove difficult.
Food ingredients, however, remain Tate & Lyle's biggest slice of the cash pie, bringing in 80 percent of revenues. And Splenda was its first megasuccess. Sales last year totaled $254 million, and its profit margin was an impressive 48 percent. Although the patent on the formula has expired, Splenda is still protected by 35 other patents. Last May, the company sued a Chinese manufacturer and eight importers for patent infringement, and so far three defendants have settled out of court. Some artificial sweeteners have been hit by health scares. But many food-safety regulatory bodies have vetted sucralose. "The evidence is very robust that it poses no detrimental health risk," says Toni Steer, a nutritionist with Britain's Medical Research Council.
Tate & Lyle is also interested in probiotics, or foods that contain healthful bacteria; prebiotics, which stimulate the growth of natural disease-fighting bacteria in the gut; omega-3 oils, typically found in fatty fish, which may have health benefits; and dietary fiber. For example, CEO Ferguson says, there are clear fibers that could be added to bottled waters.
Last summer, it launched Tate & Lyle Ventures, a $45 million fund charged with backing innovations in functional foods and industrial biomaterials. So far, it's close to funding two out of the first 100 projects it has looked at. Tate & Lyle isn't alone in investing in food-and-health research. Many food companies, including the American Cargill and Switzerland's Nestlé, now have venture funds hunting for breakthrough foods.
Aficionados of unmolested foods may be wary of this trend, perhaps balking at the notion of putting fish oils in, say, granola. For example, the Whole Foods Market chain eschews overly processed foods and won't carry products sweetened with Splenda. But Steer cautions that it's a mistake to be "incredibly rigid about these things. We cannot shun functional foods that can help us have a more healthy diet." Modern lifestyles dictate that convenience and heat-and-eat foods are here to stay, she says, and "if we can improve them, why not?"
Tate & Lyle isn't abandoning sugar, however. For good reason: Analysts say that as the developing world's middle classes continue to grow, they're also likely to adopt the West's taste for sugary treats. And while the outlook for Tate & Lyle's sugar business in Europe is modest, that's mainly because of a change in the European Union's sugar price regime. Sales are still growing. Says Jeremy Batstone, an analyst at brokerage Charles Stanley & Co.: "I don't think Europe has got over its sugar addiction yet." Sweet words for a sugar company-even one that's betting on fatter profits from artificial sweeteners and more healthful foods.
This story appears in the December 18, 2006 print edition of U.S. News & World Report.