Finding the Sweet Spot
By starting small but thinking big, sugar substitute Splenda pulled off one of the most successful consumer-product launches in history.
By Elizabeth Esfahani

(Business 2.0) – For years the sweetener bins at McDonald's were dominated by the same three colors: pink, white, and blue. That is, until this summer, when the fast-food chain's countertops began to take on a distinctly yellow hue. McDonald's 13,700 U.S. stores are ditching Sweet'N Low's iconic pink packets to make room for Splenda, a sweetener that customers have been clamoring for since shortly after it hit the market five years ago. Though the switch won't make McDonald's any more money, Splenda's runaway popularity means that another sweetener simply has to go.

It's hard to believe that consumers could be fanatical about an artificial sweetener, but McDonald's isn't an isolated case. When Starbucks began stocking Splenda last year, some employees reportedly kept the yellow packets behind the counter so customers wouldn't take fistfuls. Dunkin' Donuts and Peet's Coffee & Tea have also adopted it in response to demand, and new varieties of Diet Coke, Diet Pepsi, and 7-Up are sporting Splenda logos. In fact, thanks in part to its courting of big-name brands, Johnson & Johnson's McNeil Nutritionals has accomplished one of the most impressive feats in consumer-marketing history: taking an unknown brand to No. 1 in less than five years.

Its secret to sweet success? Starting small but attacking the market on many fronts. To build buzz, McNeil rolled out the product gradually, first to diabetics and then to grocery stores and restaurants. Meanwhile, the company persuaded niche food and beverage makers--including low-carb diet company Atkins Nutritionals--to use Splenda as an ingredient before going after high-profile brands. McNeil has also aimed high in its marketing, pitting Splenda not against other low-calorie sweeteners but against sugar. With advertising emphasizing that it's the only artificial sweetener that measures and bakes like sugar, Splenda is doing something no other brand has been able to do: dip into sugar sales. Splenda's revenues recently passed those of top sugar brands Domino and C&H, and during the past year, its $187 million in retail sales have bested Equal's ($57 million) and Sweet'N Low's ($51 million) combined, according to Information Resources. "Our competition isn't just low-calorie sweeteners," says Debra Sandler, McNeil's worldwide group president. "It's any sweetener, including sugar. I'm looking for iconic status."

The Right Stuff

Splenda is the trademarked name for a sweetener called sucralose, which is produced by English ingredient maker Tate & Lyle. Sucralose was reputedly discovered in 1976 when a researcher misunderstood the word "test" during an experiment and tasted a substance he wasn't supposed to ingest. His accidental discovery--a sugar molecule in which three hydrogen-oxygen groups are replaced with three chlorine atoms--was 600 times sweeter than sugar, yet it wasn't absorbed by the body as a carbohydrate. Even better, Tate & Lyle discovered that sucralose could withstand the heat of cooking. It partnered with Johnson & Johnson, which helped get sucralose approved by the FDA in 1998. McNeil then created the Splenda brand to sell the ingredient to retail stores and restaurants.

Sandler, a 13-year veteran of PepsiCo, was charged with introducing the unknown brand. Though McNeil's sucralose plant in Alabama wasn't fully operational yet, Sandler decided to make the product available to a small but crucial consumer base: diabetics. In 1999 she began selling Splenda on the website for LifeScan, a J&J company that makes glucose monitors. The diabetic community, it turned out, had a powerful word-of-mouth network. The online business moved more than 1 million units in two years; meanwhile, Sandler was mobilizing the medically savvy J&J sales staff to educate doctors and nutritionists about Splenda's virtues.

Sweetening the Pot

Those early days established what would become Splenda's primary marketing message--"made from sugar, so it tastes like sugar"--an appeal to consumers looking to avoid the aftertaste and perceived health risks associated with Sweet'N Low's saccharin and Equal's aspartame. After Splenda's yellow boxes began landing in grocery aisles in September 2000, McNeil rolled out a series of ad campaigns playing off nursery rhymes, such as "Splenda and Spice and Everything Nice," and featuring images of families enjoying baked goods. The emotional appeal was a dramatic shift from the more functional advertising of Equal and Sweet'N Low, which competed mainly against each other. By challenging sugar head-on, Splenda positioned its product as more natural.

As a subtler way to boost Splenda's recognition, McNeil got the ingredient into consumer products as soon as possible. Beverage veteran Sandler knew that Cadbury Schweppes's Diet Rite was looking to differentiate itself from Coke and Pepsi, so after Splenda got FDA approval, McNeil began working with the beverage maker to replace the cola's aspartame with the relatively unknown Splenda. Diet Rite saw Splenda as reinforcing its own "Better for you" message and began promoting the reformulated cola in 2000. Sales have climbed steadily as a result; they were up 35 percent last year alone.

It also didn't hurt that Splenda's debut coincided with the low-carb diet craze. Seeing the brand's potential as a low-carb ingredient, McNeil approached Atkins Nutritionals and persuaded the company to use Splenda in its new line of nutritional bars. Celebrity diet guru Robert Atkins was reportedly so smitten with Splenda that he voluntarily promoted it in his book and on TV.

Suddenly companies all around the country wanted sucralose in their products and, in return, often prominently displayed the Splenda logo on their packages. Jamba Juice endorsed Splenda after consumers reacted positively to it in taste tests; two years later, the low-calorie Enlightened Smoothie line makes up more than 10 percent of annual sales. The Velvet Ice Cream brand enlarged its Splenda logos in 2003, after sales passed those of the company's old NutraSweet line by 35 percent. "McNeil has been brilliant," says John Sicher, editor and publisher of Beverage Digest. "It's very unusual for an ingredient to get this kind of consumer marketing." In 2003, Splenda overtook Equal as the No. 1 artificial sweetener, and according to research firm Mintel International, sucralose contributed in part to the 11 percent drop in sugar sales between 1999 and 2004.

Going to the Table

In April 2004, McNeil ceded management of the ingredient business to Tate & Lyle, which has since gotten Splenda into more than 3,000 foods and drinks, including Diet Coke. Tate is expected to pull in about $260 million this year supplying sucralose to McNeil and products from General Mills and Unilever. Demand is so high that Tate is turning away new clients until at least 2006 as it increases production.

Meanwhile, McNeil is focused on selling Splenda packets to the nation's 100 largest food-service chains, 40 of which don't carry the product. Similarly, the company has worked with restaurants to create Splenda-branded menu items. In 2003 it approached the Cheesecake Factory, which spent months developing a recipe for its 6-Carb Original Cheesecake Sweetened With Splenda, which has been one of the restaurant chain's top sellers since it debuted in 2004. McNeil is now supplying other chefs with 5-pound bags to encourage them to develop recipes. It's also spent some of the millions it's poured into R&D to create new consumer variations that are optimized for baking. It released a Splenda-and-white-sugar blend last fall and a brown-sugar blend in September.

All of this brand building will soon become even more important. Though sucralose itself isn't patented anymore, there are 35 patents protecting the process of making it; these start to expire in 2006, so it's only a matter of time before generic versions surface. (Ironically, aspartame maker NutraSweet is reportedly working on one.) "Tate & Lyle and Johnson & Johnson aren't going to have a free run on this forever," says Julian Lakin, a food and beverage analyst for Mirabaud Securities. But Sandler isn't worried: McNeil is poised for a major European expansion, and she thinks the Splenda brand can stand up under pricing pressure. "Private labels are a fact of life, and we'll protect our brand by continuing to innovate," Sandler says. "From my perspective, the Splenda brand is limitless."

1976 Sucralose is discovered by Tate & Lyle, a British ingredient firm known for making sugar cubes

1998 Sucralose gets FDA approval

1999 PepsiCo veteran Debra Sandler takes charge of Splenda's marketing

1999 The brand gets a major boost when Atkins Nutritionals adds Splenda to its low-carb products

2000 Diet Rite becomes the first soda to use Splenda nationwide

2000 Splenda goes on sale in grocery stores

2003 Splenda overtakes Equal as the No. 1 artificial sweetener brand

2004 Starbucks begins using Splenda in low-calorie Frappuccinos

2004 McNeil works with chefs to create Splenda desserts, including a six-carb cheesecake at the Cheesecake Factory

2005 In response to consumer demand, Coke debuts Diet Coke with Splenda