Huang He's Introduction: In recent years, a nationwide trend toward sugar-free products has emerged, with both foreign FMCG giants and local traditional and emerging brands launching various new sugar substitutes and even zero-sugar products. Globally, many countries and regions have imposed strict sugar taxes, and China has also frequently introduced multiple policy documents advocating reduced sugar intake and promoting the use of natural sweeteners and sweetening agents permitted by food safety standards to replace sucrose. However, concepts such as zero sugar, zero sucrose, low sugar, and sugar substitutes are often misused. Genki Forest also apologized on the evening of April 10 for its product labeling of zero sugar and zero sucrose. What "sugar" does the state advocate reducing? Are products claiming zero sugar, zero calories, and zero fat truly zero sugar? What is the much-hyped erythritol? This article will analyze the sugar industry from three aspects: sugar manufacturing, sweeteners, and 2C sugar consumer products, hoping to help everyone understand these concepts and also provide inspiration for investment and entrepreneurship. -01- What is "Sugar"? 1. Classification of Sugar Chemically, sugars are a class of important organic compounds widely distributed in nature. Sucrose in daily consumption, starch in food, cellulose in plants, and glucose in human blood are all sugars. From a molecular structure perspective, sugars can be defined as polyhydroxy aldehydes, polyhydroxy ketones, their condensation polymers, and their dehydration condensation products. Based on whether they can be hydrolyzed and the products of hydrolysis, sugars can be divided into monosaccharides, oligosaccharides (of which disaccharides are the most important), and polysaccharides. Monosaccharides: Cannot be further hydrolyzed into simpler sugars, including glucose, fructose, and galactose. Oligosaccharides: Each mole of sugar can produce 2-10 moles of monosaccharides upon hydrolysis. Among them, disaccharides are the most important, with common disaccharides including sucrose, maltose, and lactose. Polysaccharides: Each mole of polysaccharide can hydrolyze into multiple moles of monosaccharides, such as starch and cellulose. What we usually call sugar refers to edible sugar, i.e., sugar in a narrow sense, generally referring to sweet, water-soluble organic compound crystals, namely monosaccharides and disaccharides. The most important is sucrose, a disaccharide. Sucrose is present in most plants, with the highest content in sugar beet and sugarcane. The white sugar and brown sugar we usually consume are sucrose. In a broad sense, sugars include not only these sweet substances but also odorless and tasteless polysaccharides such as starch and cellulose. In this article, we discuss sugar in the narrow sense, i.e., edible sugar, mainly sucrose. 2. When We Talk About Sugar Reduction, What Sugar Are We Reducing? Before answering this question, let's look at the definitions of sugar in the sugar reduction recommendations of the World Health Organization (WHO) and China. In the WHO's 2014 updated "Guideline: Sugars intake for adults and children," it recommends reducing free sugar intake to below 5% of total energy intake. According to the WHO's explanation in the "Bulletin of the World Health Organization," the "sugar reduction" recommendation here only targets free sugars, not the sugars in whole fruits and vegetables. Sugars in fruits and vegetables are called intrinsic sugars. These sugars are wrapped by a layer of plant cell wall, making digestion slower and requiring more time to enter the bloodstream than free sugars. According to the WHO definition, free sugars include monosaccharides and disaccharides added to foods by manufacturers, cooks, or consumers, plus sugars naturally present in honey, syrups, and fruit juices. In China's 2019 "Healthy China Action (2019-2030)" document, it is pointed out that the current per capita daily intake of added sugar (mainly sucrose, i.e., "white sugar," "brown sugar," etc.) is about 30g, with the intake of children and adolescents requiring high attention. It advocates that the average daily added sugar intake for adults should not exceed 25g; encourages consumers to reduce sucrose intake; and advocates that food producers and operators use natural sweet substances and sweeteners permitted by food safety standards to replace sucrose. Thus, the "sugar" in China's sugar reduction advocacy refers to artificially added sugar, mainly sucrose. Although the definitions of sugar reduction in WHO and Chinese policies are not exactly the same, we can still draw a common conclusion: the sugar we usually talk about, or edible sugar, refers to artificially refined sugar, mainly sucrose, including white sugar and brown sugar. The sugar reduction advocated in various policies mainly refers to reducing the intake of artificially refined sugars such as sucrose. For the sugar manufacturing industry that produces artificially refined sugar, sugarcane and sugar beet are the main raw materials for producing sucrose. China is a major sugar-producing country and also a major sugar-consuming country. Sucrose (mainly white granulated sugar) as an important sweet food ingredient is widely present in various packaged products. In addition to products with obvious sweetness like biscuits, bread, and beverages, puffed foods, spicy strips, and other salty and spicy snacks also contain white sugar. 3. What Are Sugar Substitutes? In recent years, with the intake of high-sugar energy diets, the rates of diabetes, overweight, obesity, and dental caries have been rising. People have gradually realized the harm of excessive sugar intake to the body. However, millions of years of adaptation to the environment have shaped human genetic structure, and the preference for sweetness is etched in our evolutionary genes. Although people know that eating sugar is unhealthy, eating sugar can relieve stress and bring relaxation and pleasure, so most people still find it difficult to quit sweets. On one hand, there is the awakening of health awareness and the pursuit of a healthy lifestyle; on the other hand, people find it difficult to resist the temptation of sugar on the taste buds. Therefore, the demand for sugar substitutes that can satisfy both the need to reduce sugar intake and provide taste satisfaction has emerged. Sugar substitutes, more accurately called sweeteners, refer to substances that can impart sweetness to food with very low or no energy. Sweeteners meet consumers' demand for sweetness without the high energy of sugar and without rapidly raising blood sugar, making them substitutes for sugar, increasingly widely used in food and beverages. Although the safety of sweeteners is sometimes controversial, with advances in production processes and R&D technology, new sweeteners with better taste and higher safety are gradually being applied, and early sweeteners with lower safety will continue to exit. China's "National Food Safety Standard for the Use of Food Additives" (GB2760-2014) specifies the permitted sweetener varieties, their usage scope, and maximum usage levels. Using sweeteners in accordance with relevant regulations and standards is safe. We will analyze the characteristics and development status of various sweeteners in detail later. 4. What Are 2C Consumer Sugar Products? Sugar consumer products for C-end consumers can be divided into two major categories: one is candy that can be eaten directly as leisure snacks, such as Yungeng Wuzuo's brown sugar ginger tea and Buff's functional sugar; the other is sugar as a condiment, such as solid sugar or syrup that can be directly added to beverages and food, or sugar used in home cooking and baking, which is more common in countries with home baking traditions like Europe, America, and Japan. -02- Development Status of the Sugar Manufacturing Industry 1. Industry Overview Sugarcane and sugar beet are the main raw materials for artificially refined sugar. Sugarcane is a tropical and subtropical crop, requiring high annual average temperatures and abundant rainfall. Main sugarcane sugar producers include Brazil, India, southern China, Thailand, the southern United States, Australia, and Pakistan. Sugar beet is more cold-resistant and can be grown in colder regions unsuitable for sugarcane. Main global sugar beet producers include the EU, Russia, the northern United States, Canada, northern China, and Japan. Only eight countries globally, including China, the United States, Japan, Russia, and Argentina, produce both sugarcane sugar and sugar beet sugar. The sugar yield of sugarcane is 15%-20%, while that of sugar beet is 10%-17%. Sugar beet sugar contains betaine and raffinose, making its taste inferior to sugarcane sugar. In terms of production, before the 1970s, the proportion of sugarcane sugar and sugar beet sugar was roughly equal, with sugarcane sugar accounting for about 55% of total supply. With the expansion of sugarcane cultivation in Brazil, India, and other countries, sugarcane sugar production increased significantly in the 1980s, gradually widening the gap with sugar beet sugar. After the 21st century, with the EU sugar market reform, production in various countries decreased due to cuts in subsidies and production quotas, further reducing sugar beet sugar production. According to data from the U.S. Department of Agriculture, global sugar production in 2018 was 194.5 million tons, of which sugarcane sugar production was 151.02 million tons, accounting for 78%; sugar beet sugar production was 43.47 million tons, accounting for 22%. Overall, global sugarcane production has seen some growth in recent years, remaining relatively stable. China's sugarcane production far exceeds sugar beet, with fluctuations in different years due to the "sugar cycle." India, Brazil, the EU, Thailand, and China are the world's top five sugar-producing regions, accounting for 60% of total production. In the 2018/19 crushing season, the top five sugar-producing countries/regions were India, Brazil, the EU, Thailand, and China, with combined production accounting for about 60% of global sugar production. In 2019, with reduced sugar production in Brazil, India became the largest sugar producer, and India is also the world's largest consumer of white sugar. Brazil remains the decisive country for international sugar prices, with the largest export share; Thailand is the second-largest exporter of raw sugar, and white sugar production is an important industry. In the 2018/19 crushing season, world sugar exports were 54.86 million tons, accounting for over 30% of total world production that season. Major sugar-producing countries are often also major exporters. In 2018/19, Brazil, Thailand, India, Australia, and the EU together accounted for 71.5% of global sugar exports; Brazil alone accounted for 35.7%. China's sugar industry capacity is insufficient to support domestic consumption; Guangxi is China's main sugar-producing region, accounting for 59%. China is the world's third-largest sugar consumer. The USDA predicts China's sugar consumption in the 18/19 season will be 15.8 million tons, a year-on-year increase of 0.6%. After 2014, China's sugar consumption ended its overall upward trend, fluctuating around 15 million tons, stabilizing overall. China's sugar industry capacity is insufficient to support domestic consumption, with about one-third of domestic sugar consumption relying on imports, making China the second-largest sugar importer. Due to differences in suitable growth temperatures, sugar beet is mainly suitable for planting in lower-temperature regions such as Northeast, Northwest, and North China, with main production areas in Xinjiang and Inner Mongolia. Sugarcane is suitable for growth in Guangxi, Yunnan, and Guangdong. China's production is mainly sugarcane sugar, with sugarcane sugar accounting for 87% in the 2018/2019 crushing season. Guangxi is China's main sugar-producing region, accounting for 59% of national sugar production. Sugar production shows cyclical fluctuations due to raw material growth characteristics. Due to the growth characteristics of sugarcane and sugar beet, sugar production shows obvious cyclicality. After sugarcane is harvested in the previous year, the buds left in the soil sprout under suitable environmental conditions and grow into cane plants, called ratoon cane, with a ratoon period generally of 2-3 years. Ratoon cane generally accounts for about 70% of the planted area. The growth of ratoon cane directly affects the total sugarcane output of the following year. Ratoon cane has a pattern of increasing production for 2-3 years, followed by 2-3 years of decline, with a complete cycle of about 6 years. White sugar prices also follow a pattern of three years of decline and two years of increase, forming the sugar cycle.
2. Market Participants
According to data from the China Sugar Association, as of June 2019, China had 40 million sugar farmers and 46 sugar manufacturing enterprises (groups). There were 216 sugar factories, with sales revenue of 67.7 billion yuan in 2018, and sugar manufacturing enterprises suffered losses of 1.9 billion yuan. Market participants in China's sugar manufacturing industry are mainly listed companies, characterized by obvious regionality, increasing concentration, and high degree of nationalization. Listed sugar companies in the secondary market mainly show characteristics of large deviations in P/E ratios and low P/B ratios. -03- Development Status of the Sweetener Industry 1. Industry Development Drivers 1) Policy Sugar reduction for national health has risen to the national level, with China successively introducing multiple policies advocating sugar-reduced living. According to data from the "Healthy China Action (2019-2030)" issued by the State Council, chronic diseases such as cardiovascular and cerebrovascular diseases, cancer, chronic respiratory diseases, and diabetes account for over 70% of the total disease burden, becoming important factors affecting health. Currently, the per capita daily intake of added sugar (mainly sucrose, i.e., "white sugar," "brown sugar," etc.) in China is about 30g (WHO recommends no more than 25g per capita daily), with the intake of children and adolescents requiring high attention. The "Healthy China Action (2019-2030)" also explicitly advocates that urban populations with high sugar intake reduce consumption of beverages and sweets containing sucrose, and choose beverages and foods produced with natural sweet substances and sweeteners instead of sucrose. The Shenzhen Health Commission issued the "Announcement on the Standards and Specifications for Health Warning Labels on Alcoholic Beverages and Carbonated Beverages in Shenzhen (Trial)", officially publishing relevant labels, a first in the country. According to the "Health Regulations," starting January 1, 2021, clear regulations were made for labeling at places selling sugary drinks. If merchants do not set up relevant labels, the market supervision department will issue warnings and set corresponding penalty rules. It is worth mentioning that these policies and regulations particularly emphasize restricting the sale of high-sugar beverages and snacks in primary and secondary schools and childcare institutions, building healthy campuses. Cultivating and transmitting the concept and lifestyle of sugar-free and low-sugar living to primary and secondary school students from a young age will also affect their consumption habits in adulthood. In the long run, reducing sugar in diets is an inevitable trend. Globally, as early as 2003, the WHO recommended reducing free sugar intake for adults and children to below 10% of total energy intake. After a decade of research, more evidence showed that reducing free sugar is beneficial to health. In 2014, the WHO further recommended reducing free sugar intake to below 5% of total energy intake. After 2014, more and more countries realized the harm of excessive sugar intake to health and adopted mandatory taxation to reduce sugar intake. Currently, many countries and regions globally have imposed strict sugar taxes.
2) Demand Side
From the demand side, the pursuit of internal health and external beauty has led to continuously increasing consumer demand for sugar reduction. Excessive sugar intake not only increases the risk of heart disease and cancer, causes obesity, osteoporosis, and dental caries, but also accelerates skin aging and wrinkles. Therefore, whether for internal health or external beauty, sugar reduction is becoming a common demand for consumers of all ages. In recent years, with the intake of high-sugar energy diets, the rates of diabetes, overweight, obesity, and dental caries have been rising. According to IDF data, the number of diabetes patients (20-79 years old) globally reached 463 million in 2019, and it is expected that by 2045, 700 million people worldwide will have diabetes. IDF predicts that by 2045, China, India, and the United States, the countries with the largest number of diabetes patients, will have 147 million, 134 million, and 36 million respectively. The "Report on Nutrition and Chronic Disease Status of Chinese Residents (2020)" shows that the overweight/obesity rate among Chinese adult residents has exceeded 50%, the overweight/obesity rate among adolescents aged 6-17 is nearly 20%, and the overweight/obesity rate among children under 6 has reached 10%. Obesity has become an important issue affecting the health of Chinese residents. With the increasing prominence of health issues such as diabetes and obesity, and the promotion of sugar-reduced living concepts by relevant institutions, consumers' awareness of sugar control is continuously improving. In product consumption, they increasingly prefer low-sugar/sugar-free products, and sugar reduction is becoming a trend.
3) Supply Side
With the maturity of production and R&D processes, sweetener performance continues to iterate; in terms of cost, sweeteners are far cheaper than sucrose. Sweeteners have a development and application history of over a hundred years. With technological and R&D progress, sweeteners are continuously optimized, with increasing ease of use, stability, and safety. The maturity of R&D and production processes provides a foundation for their application. In addition, consumers' dual demand for health and taste, and the awakening of sugar reduction awareness, are also forcing the optimization of various new sugar substitute products. In terms of cost, when artificial sweeteners and sucrose achieve the same sweetness, the cost of artificial sweeteners is less than 10% of sucrose. For manufacturers, using sweeteners instead of sucrose can significantly reduce production costs. According to research data from Industrial Securities, taking a common beverage as an example, a 1L sugary drink typically contains 50-100g of sugar. At the same sweetness, replacing sucrose with acesulfame potassium or sucralose can reduce sweetener costs by 91.5% and 92.3% respectively, showing significant cost advantages.
2. Classification and Characteristics of Sweeteners
Sweeteners refer to substances that can impart sweetness to food. They are a class of food additives with very low or no energy. There are many types of sweeteners, which can be divided into artificial sweeteners, natural sweeteners, and functional sugar alcohols by source. By sweetness multiple, they can be divided into high-intensity sweeteners and low-intensity sweeteners. Natural sweeteners and artificial sweeteners are usually dozens to hundreds of times sweeter than sucrose, even thousands of times, and belong to high-intensity sweeteners. Functional sugar alcohols usually have sweetness lower than or slightly equal to sucrose, belonging to low-intensity sweeteners. It should be noted that sugars such as glucose, fructose, sucrose, and maltose, although considered natural sweeteners, are not usually regarded as food additives due to long-term human consumption. The sweeteners discussed in this article do not include such sugars. In terms of application fields, sweeteners are widely used in beverages, table condiments, personal care products, baked goods, pharmaceuticals, health foods, candies and chocolates, medical products, and chemical products. Among them, beverages are the main application field for sweeteners. In terms of application direction, they are divided into food additives used in production processes for B-end enterprises and sugar products that C-end consumers can directly consume. B-end manufacturers: As food and beverage additives, added to the products they produce. Sugar is one of the main ingredients in most food and beverages. With the development of the sugar-free trend, downstream consumers' demand for sugar reduction will force upstream food and beverage manufacturers to accelerate the replacement of sucrose with sweeteners. C-end consumers: Directly consume candies, leisure snacks, and functional candies; solid sugar or syrup directly added to beverages and food, as well as condiment sugar used in cooking and baking. Next, we will analyze in detail the characteristics and development status of various sweeteners.
1) Artificial Sweeteners
Artificial sweeteners refer to chemical substances with sweetness created through artificial chemical modification or synthesis. They have high sweetness, no calories, and most are hardly converted by the human body and have no nutritional value. Artificial sweeteners appeared early and have undergone six product iterations from the initial sodium saccharin, sodium cyclamate, and aspartame to acesulfame potassium, sucralose, and neotame, which have higher safety and better taste. ➀ Sodium Saccharin Sodium saccharin is the oldest synthetic sweetener, introduced in 1879 and officially produced in 1910. Its sweetness is about 350 times that of sucrose, but its safety is questioned, and it is banned in many countries. China has controlled the production and application of sodium saccharin, implementing designated production, limited production and sales, and total quantity control. ➁ Sodium Cyclamate Sodium cyclamate was introduced in 1937, with sweetness about 50 times that of sucrose. It has carcinogenic risks and is banned in over 40 countries worldwide. China has clear restrictions on its use, allowing it in fruit cans, jellies, cold drinks, compound seasonings, bread, pastries, instant rice and noodles, jams, preserved fruits, cooked beans, fruit cakes, preserved plums, nuts, and other food categories, with strict limits on its dosage. Except for the above foods, sodium cyclamate is not allowed in any other foods. ➂ Aspartame Aspartame was developed in 1965 and officially produced in the 1970s. Its sweetness is about 200 times that of sucrose. It is generally safe but not suitable for people with phenylketonuria. It is approved for use in over 90 countries and regions. Aspartame is unstable under high temperature or high pH conditions and is not suitable for foods requiring high-temperature baking, so it is more commonly used in beverages. ➃ Acesulfame Potassium Acesulfame potassium was developed in 1967 and mass-produced in 1978. Its sweetness is about 200 times that of sucrose. It has high cost-effectiveness, high safety and stability, and good taste. It is approved for use in over 100 countries. In 2005, the patent for acesulfame potassium held by Germany's Nutrinova expired, and domestic enterprises invested in building acesulfame potassium capacity, leading to rapid capacity growth. ➄ Sucralose Sucralose, commonly known as sucralose, was introduced in 1976 and entered the market in 1988. Its sweetness is about 600 times that of sucrose. It is a functional sweetener made from sucrose, with good solubility and stability. It is approved for use in over 120 countries, mainly in food, health products, medical, and daily chemical products. According to data from East China University of Science and Technology, global demand for sucralose increased from 2,500 tons in 2009 to 10,000-11,000 tons in 2018, a growth of more than four times. Currently, global demand for sucralose is growing at about 15-20%, with a positive market trend. China's sucralose market began to develop in 2008, and by 2018, market demand had approached 3,000 tons, accounting for about 30% of global market demand, making it the fastest-growing market region globally in recent years. China is a major producer and exporter of sucralose, with 80% of products exported and about 20% sold domestically. ➅ Neotame Neotame was developed in 1993, officially approved in China in 2003, and approved by the EU in 2010. Its sweetness is 7,000-13,000 times that of sucrose. It has high sweetness, pure taste, no bitterness, and no other aftertaste. Due to its high sweetness, it is difficult to control, and its application is not yet mature. ➆ Alitame Alitame was developed by Pfizer in the United States in 1979. It has the sweetness and flavor of sucrose, with a quick and lasting sweetness and no bitterness. However, because its molecular structure contains a sulfur atom, it has a slight sulfur taste. Its sweetness is 2,000-2,900 times that of sucrose. Alitame has not been approved by the FDA, and only six countries, including China, Australia, and Mexico, have approved its use, so its application range is narrow.
2) Natural Sweeteners
Natural sweeteners are extracted from natural plants, and their names usually include the plant name. Natural sweeteners are safe in composition, but their application time is not long. They mainly include thaumatin, ammonium glycyrrhizinate, steviol glycosides, and mogrosides, with steviol glycosides and mogrosides being the two main natural sweeteners. ➀ Thaumatin Thaumatin has a sweetness of 1,600-2,000 times that of sucrose, with high sweetness. It was first adopted in Japan in 1979, approved by the FDA for chewing gum in 1984, and approved in China in 2014, but only for ice cream, processed nuts, beverages, and table sweeteners, limiting its application categories. Domestic production is currently small. Thaumatin works well when mixed with other sweeteners and has flavor-enhancing properties. ➁ Ammonium Glycyrrhizinate Ammonium glycyrrhizinate has a sweetness of 200-250 times that of sucrose, with a long-lasting sweet taste, a slight bitter aftertaste, and stable chemical properties. Glycyrrhizin is currently mostly extracted from licorice roots. The FDA considers glycyrrhizic acid a GRAS (Generally Recognized As Safe) compound, but long-term large doses of foods or drinks containing glycyrrhizic acid can cause severe hypertension, hypokalemia, and limb paralysis. In China, the main manufacturers of glycyrrhizin are mostly pharmaceutical companies, and the products are mostly used in the pharmaceutical field for cough relief, phlegm reduction, and liver disease treatment. ➂ Steviol Glycosides Steviol glycosides have a sweetness of 200-300 times that of sucrose. They are sweet glycosides extracted from the leaves of the herbaceous plant Stevia rebaudiana. Steviol glycosides are widely used in the production of food, beverages, and seasonings in Asia, North America, South America, and EU countries. China is the main global producer. In recent years, stevia products have been launched in large quantities, with broad market space. ➃ Mogrosides Mogrosides have a sweetness of 300 times that of sucrose, with a sweet aftertaste. They are extracted from Luo Han Guo, an economic plant native to Guangxi. They passed FDA certification in early 2012. Mogrosides have strong thermal stability and are widely used in food, beverages, health products, and medicine. China currently has no mandatory requirements for the use and dosage of mogrosides. In terms of origin, due to planting environment restrictions, Luo Han Guo is currently basically only grown and cultivated in China, and China prohibits taking Luo Han Guo seeds abroad. The mountainous areas of Guangxi are the most suitable places for Luo Han Guo growth in China, making Guangxi the largest production area for Luo Han Guo in China. With the development of the mogroside industry, Luo Han Guo cultivation has expanded to Hunan and Jiangxi. According to a report from Jaken Consulting, as of the end of 2018, domestic Luo Han Guo planting area exceeded 200,000 mu, with a yield of 1.44 billion fruits, and effective mogroside production capacity of about 1,100 tons. Over the past decade, production capacity has grown at an average annual rate of 15%, with leading enterprises having annual production capacity between 150-300 tons. Representative enterprises include Guilin GFS Monk Fruit Corporation, Guilin Layn Natural Ingredients, Hunan Huacheng Biotech, and Hunan Green Biological. However, due to limitations in upstream raw material planting area and climate, and the limited planting region, mogroside production capacity is difficult to expand rapidly in the short term.
3) Functional Sugar Alcohols
Functional sugar alcohols refer to monosaccharides reduced to corresponding polyols through catalytic hydrogenation and sodium borohydride reduction. They have high safety and stability and good taste, but their sweetness is less than or equal to sucrose, with low sweetness-to-price ratio and high unit cost. Functional sugar alcohols originate from plant products and have higher safety than artificial sweeteners. Currently, many children's sugar-free candies use functional sugar alcohols as sweeteners. Functional sugar alcohols include mannitol, sorbitol, maltitol, xylitol, erythritol, isomaltulose, and lactitol. ➀ Mannitol Mannitol is a sugar alcohol formed by reducing the aldehyde group of mannose to an alcohol group. It has a cooling sweet taste, with sweetness about 57%-72% of sucrose. Mannitol has low chemical reactivity, and its flavor and taste can mask the odor of vitamins, minerals, and herbs. It also has antihypertensive and diuretic effects, and is widely used in medicine, cosmetics, food, and industry. ➁ Sorbitol Sorbitol is a major photosynthetic product of Rosaceae plants, with a cooling sweet taste and sweetness about half that of sucrose. Sorbitol has stable chemical properties and is widely used in medicine, daily necessities, and food. It is the largest-produced sugar alcohol in China. According to Imarc data, in the global sorbitol consumption structure, the pharmaceutical industry has the highest demand for sorbitol, accounting for about 35%; followed by toothpaste, which accounts for 22% of global consumption. Large amounts of sorbitol can cause diarrhea, but no other harm has been found in long-term experiments. In the future, due to its unique role in food, medicine, daily chemicals, and its high cost-effectiveness, market demand for sorbitol will continue to increase. ➂ Maltitol Maltitol is obtained by hydrogenation of maltose and is one of the earlier sugar alcohols used in low-calorie sweeteners. Its sweetness is close to sucrose. Maltitol has a stable chemical structure, and in recent years, its sales have been strong in the international market. According to Limu Information Consulting data, China's maltitol production capacity was only 80,000 tons in 2015, reached 150,000 tons in 2017, and reached 190,000 tons in 2019. ➃ Xylitol Xylitol is mainly used to produce chewing gum, ice cream, baked goods, and other foods to replace sucrose or other sweeteners. Its sweetness is 1.2 times that of sucrose. When consumed in solid form, it produces a cooling sensation in the mouth. Xylitol is widely present in various fruits, vegetables, and grains. Currently, it is mostly extracted from plant materials such as corn cobs and hemicellulose. The upstream product of xylitol is corn. China can fully self-supply corn, and the inventory-to-sales ratio has been at a high level for a long time. Corn prices have not fluctuated significantly, and the production cost of xylitol has not changed much. According to Imarc's forecast, from 2018 to 2023, the global xylitol market size will grow at a compound annual growth rate of 5.8%, reaching an estimated market size of $1.1 billion by 2023. ➄ Isomaltulose Isomaltulose, also known as palatinose or isomalt, is a newly emerging functional sugar alcohol internationally in recent years. Its sweetness is 50-60% of sucrose, with a stable chemical structure, low hygroscopicity, high tolerance, low calories, and pure sweetness. It has high safety and is not digested by saliva, gastric juice, or pancreatic juice, only slowly digested in the small intestine. The FDA has granted it GRAS status. China's Ministry of Health standard sets the daily intake limit at no more than 100 grams. ➅ Lactitol Lactitol can be prepared by catalytic hydrogenation of lactose. It was first made from lactose obtained from whey in the 1920s and began to be used in food in the 1980s. It has a refreshing sweetness with no aftertaste, and its sweetness is half that of sucrose. Its good stability makes it popular in the baking industry. It can be added to sugar-free candies, biscuits, chocolates, and ice cream. In addition, lactitol, as a prebiotic, can be utilized by probiotics to maintain colon health. However, its sweetness-to-price ratio is low, and unit cost is high, so its application is not yet widespread. ➆ Erythritol Erythritol is a four-carbon sugar alcohol, widely present in nature, such as in fungi like mushrooms, lichens, and fruits like melons, grapes, and pears. Its sweetness is 60%-70% of sucrose, with a cooling sensation on the tongue, pure taste, and no bitter aftertaste. It can be compounded with high-intensity sweeteners to inhibit their off-flavors. Erythritol has a stable chemical structure, is very stable to acid and heat, and can be widely used in the food industry. Genki Forest, which has ignited the sugar-free market in the past two years, uses erythritol as its sweetener. Influenced by Genki Forest, the listed company Baolingbao, a concept stock for erythritol, has seen its stock price hit the daily limit multiple times in the secondary market, with a static P/E ratio as high as 124.5 at the close on April 9, 2021. Industrial production of erythritol began in Japan in the early 1990s. Japan's Nikken Chemical has a production line with an annual output of 1,000 tons. Over the following decades, with the slow expansion of downstream applications, Nikken Chemical's erythritol production capacity gradually increased. China's erythritol industry started relatively late. Baolingbao was the first domestic enterprise to enter industrial production of erythritol, followed by Shandong Sanyuan Biotechnology and Zhucheng Dongxiao. In 2019, Sanyuan Biotechnology, Baolingbao, and Zhucheng Dongxiao accounted for 33%, 18%, and 6% of global market production share, respectively. Erythritol products can be divided into different specifications based on mesh size, and compound sugar products can be divided into different types based on the required high-intensity sweetener. Erythritol's sweetness is 60-70% of sucrose, lower than sucrose. As a low-intensity sweetener, it can be compounded with other high-intensity sweeteners to make compound sugars of different sweetness levels. In compound products, erythritol usually acts as a filler. According to data from Sanyuan Biotechnology's prospectus, taking the example of compounding mogrosides with 300 times sweetness with erythritol to make 1kg of compound sugar with the sweetness of 1kg of sucrose, the weight proportion of mogrosides in 1kg of compound sugar is only about 0.19%, with 99.81% being erythritol. With the rapid development of the domestic sugar-free market, domestic erythritol consumption has also shown rapid growth. According to research data from LP Information Inc., the global erythritol market size was approximately $230 million in 2019. According to Frost & Sullivan data, from 2015 to 2019, the CAGR of domestic erythritol consumption was 53%; in terms of production, the global production CAGR from 2015 to 2019 was 14.5%, while China's was 29.9%, far exceeding the global growth rate. China has become the world's largest producer of erythritol. In terms of production growth rate by subcategory, erythritol's CAGR from 2015 to 2019 was 29.9%, significantly faster than artificial sweeteners such as aspartame, acesulfame potassium, and sucralose. Among these three artificial sweeteners, sucralose had a notable growth rate, with a CAGR of 18.9% from 2015 to 2019, followed by acesulfame potassium at 9.8%, while aspartame was -14.1%.
3. Sweetener Entrepreneurship and Investment Opportunities
According to a research report from Sinolink Securities, the global sweetener market size is approximately 9.546 billion yuan, and China's sweetener market size is approximately 6.661 billion yuan. Currently, the existing sweetener market is small, but with the continuous increase in end consumers' demand for sugar-free diets, upstream food and beverage manufacturers will be forced to accelerate the replacement of sucrose with sweeteners, and the market demand space for sweeteners is yet to be released. Taking leisure food as an example, according to Frost & Sullivan estimates, domestic leisure food sales reached 1,029.7 billion yuan in 2018, of which sweet snacks such as baked pastries, candies and chocolates, and biscuits accounted for 43%. According to online sugar-free snack sales data from Alibaba's business advisor, consumers have a huge demand for sugar-free snacks such as pastries, biscuits, and preserved fruits. It is expected that the demand for sweeteners to replace sucrose in leisure snacks will continue to rise in the future. Therefore, we believe that with the development of the sugar-free trend, sweeteners have great potential in the Chinese market in the future. As a type of food additive, downstream manufacturers will comprehensively consider factors such as cost, taste, safety, and stability when choosing sweeteners. Earlier, we analyzed various sweeteners and their characteristics in detail. Finally, let's summarize which type of sweetener offers the most entrepreneurial and investment opportunities. We can break down this question from two angles: first, whether the characteristics of the sweetener itself have broad application potential; second, the industry concentration and competitive landscape of this track, and whether there is an absolute leading global enterprise. ➀ Artificial Sweeteners Sodium saccharin and sodium cyclamate, due to their early application and low price, are currently the two most widely used artificial sweeteners, with production shares of 28% and 44% respectively, but they have obvious disadvantages in safety, stability, and taste. Many countries have banned their use, and China also has strict restrictions on their production and use. In addition, with consumers' increasing attention to safety and taste, these two types of sweeteners will gradually exit the market. Aspartame has relatively high safety but is controversial. According to Frost & Sullivan data, aspartame production had a CAGR of -14% from 2015 to 2019, showing a significant downward trend. In the future, with the application of better-performing sweeteners, the application space for aspartame will continue to narrow. Sucralose and acesulfame potassium are currently the two artificial sweeteners with faster application growth. Due to their combined advantages of safety, stability, and cost, sucralose and acesulfame potassium are widely used in beverages. In terms of market competition, acesulfame potassium and sucralose already have global leading enterprises. Jinhe Industrial is in a global leading position in the production of acesulfame potassium and sucralose, with acesulfame potassium capacity of 12,000 tons and a global market share of over 60%, ranking first globally, and sucralose capacity of 4,000 tons per year, ranking second globally. Therefore, these two types of sweeteners pose great competitive pressure for startups. Neotame has a sweetness multiple of 6,000-10,000 times that of sucrose, with high sweetness. As a high-intensity sweetener, it needs to be diluted in solution before use, requiring high precision, making it difficult to control and inconvenient to use. Therefore, its application is not mature, and it has not been widely used, being in the introduction stage. China's neotame production is still in its infancy, and this emerging sweetener deserves attention. ➁ Natural Sweeteners Natural sweeteners have obvious advantages in safety. Among them, steviol glycosides and mogrosides perform well in terms of cost, taste, and stability. In terms of market competition, steviol glycosides already have leading enterprises: Langjing Health Technology has an annual production capacity of 4,000 tons, accounting for 40% of the global total; PureCircle and Shengren Pharmaceutical have capacities of over 1,000 tons. In addition, Jinhe Industrial has also entered this track. In 2019, the national production capacity of mogrosides was approximately 1,050 tons, of which Huacheng Biotech, GFS, Layn Natural Ingredients, and Green Biological had a combined capacity of 850 tons. The overall production volume of this track is small, with Huacheng Biotech having the highest market share. There are market opportunities, and it is recommended to keep an eye on it. ➂ Functional Sugar Alcohols Functional sugar alcohols, as low-intensity sweeteners, usually have sweetness lower than sucrose, so their unit sweetness cost is higher, and they are usually used in combination with high-intensity sweeteners. Apart from higher cost, they perform well in safety, taste, and stability. In terms of market status, xylitol, erythritol, and isomaltulose already have leading enterprises in China. We are optimistic about startup opportunities in tracks such as maltitol, sorbitol, and lactitol, where there are currently no enterprises with absolute advantages. Overall, with people's increasing pursuit of taste and health, natural sweeteners and functional sugar alcohols will usher in development opportunities. Pay attention to emerging sweetener subcategories where leading enterprises have not yet appeared.
-04-
2C Sugar Consumer Product Entrepreneurship and Investment Opportunities
Sugar consumer products that can be directly consumed by C-end consumers can be divided into two major categories: one is candy as leisure snacks, and the other is sugar as a condiment. Therefore, we will analyze the entrepreneurial and investment opportunities in sugar consumer products from the perspectives of leisure snacks and condiments.
1. Sugar Consumer Products as Leisure Snacks
Let's first look at the current development status of China's candy category. The candy industry has a low threshold, low technical difficulty, high standardization, and no special logistics requirements. Therefore, as the most basic consumer category in leisure snacks, candy developed first. With reform and opening up and investment attraction, many foreign brands entered the domestic market in the 1990s, such as Want Want, Mars, and Nestlé. Currently, China's candy industry is mainly dominated by foreign capital. The CR5 of China's candy market is 30.4%, while the CR5 of Japan and the United States candy markets are 41.5% and 46.1% respectively, with a small gap in market concentration compared to Japan and the United States. In addition, compared with baked goods and salty snacks, the market concentration of China's candy market is much higher than these two sub-sectors. Currently, the market structure of China's candy industry is stable, and foreign capital has obvious brand advantages in the candy industry. In terms of market size and growth rate, sugar and chocolate account for 12% of the revenue of leisure food subcategories, making it the second largest subcategory after baked pastries (24%). The existing market size is large, but growth has been slow in recent years. According to Frost & Sullivan estimates, the CAGR of sugar and chocolate from 2013 to 2018 was only 1.1%, far lower than the overall CAGR of 11.8% for the leisure food industry. We believe that the candy industry has high market concentration, and foreign brands have significant advantages. The main consumption scenarios for traditional candy are still weddings and traditional festivals, and the market space in work, leisure, and other scenarios will continue to narrow. The production threshold for candy is low, and sugar-free products in traditional candy are more suitable for large enterprises as an extension of their product lines, not suitable for startups to enter this category. However, the candy market itself has considerable space. As one of the important sweets, people's demand exists. By identifying the specific needs of segmented populations, healthy sugar-free new candy categories have great development space. In candy consumption for consumers, we believe there are two types of segmented populations whose needs deserve attention: one is healthy candy snacks for children; the other is functional candy for urban white-collar workers. According to CBNData consumer big data, functional snacks and children's snacks are growing significantly faster than the overall snack category. ➀ Sugar-Free Snacks for Children In the past, there was no specific concept of children's snacks. With the millennial generation becoming parents and the improvement of economic levels, consumer demand has become increasingly segmented. In May 2020, the China National Food Industry Association released the "General Requirements for Children's Snacks" group standard. As the first group standard for "children's snacks" in China, the concept of "children's snacks" was officially defined—food suitable for children aged 3-12, consumed outside regular meals, to supplement energy, balance nutrition, or increase water intake, and to relax and delight the mood. Parents born in the 80s and 90s have awakened health awareness, are less price-sensitive, and pay attention to brand professionalism and product quality. On the other hand, the "Chinese Children and Adolescents Snack Guide" proposes to reduce the addition of sugar, salt, and oil, and requires setting limits for sodium chloride, sucrose, and fat. In the future, sugar-free healthy snacks for children are an important development direction. Consumers have high safety requirements when choosing children's snacks, so they value brands. Currently, traditional snack brands and internet snack brands such as Three Squirrels and Bestore have launched healthy children's snack brands, and these enterprises have obvious brand advantages. However, there is currently no leading brand for children's healthy snacks in China. Startups that find suitable categories and selling points still have great development space. ➁ Functional Candy for Urban White-Collar Workers Hair loss, vision loss, obesity/weight gain are the three major health problems troubling the post-90s generation; over 90% of post-90s have health awareness, indicating the rise of health needs and awareness among the younger generation. Functional candy has improving effects on certain body functions, combining candy with health products that are not tasty or inconvenient to take, meeting the younger generation's needs for health care and convenience. Currently, the main types of functional candy in the domestic candy market include vitamin candy, sugar-free chewing gum, mint candy, throat lozenges, etc. Many of these functional candy producers are well-known candy brands or health brands, such as Yake V9, By-Health, and Golden Throat. However, among the younger generation, these enterprises have the problem of brand aging, not being "cool" enough, and these enterprises have not yet launched hit functional candy products, so startups still have great development opportunities. Startups entering the market with functional candy have two directions in terms of target groups: one is young consumers, and the other is women's nourishing needs. Health foods targeting young consumers' needs for refreshing, beauty, etc. For example, functional food BUFFX targets young users aged 18-30, launching functional gummies for stress relief and sleep aid, eye care, and daily immunity. Functional brown sugar and black sugar products targeting women's needs, with selling points such as nourishing and no chemical filtration. For example, the brown sugar brand Yungeng Wuzuo, targeting women's menstrual pain, uses "no chemical additives, physical filtration + precise segmented boiling" brown sugar production technology, made purely from sugarcane, without white sugar, sweet but not greasy, can be chewed, convenient.
2. Sugar as a Condiment
Another C-end consumer product model for sugar is as a table sugar condiment. From the perspective of China's condiment segmentation, whether calculated by factory shipment or retail sales, sugar's share is outside the top 7. By factory shipment, the 7th-ranked condiment is cooking wine, with a share of 3.1%; by retail sales amount, the 7th-ranked is monosodium glutamate, with a share of 3%. Based on this, it can be inferred that sugar accounts for a very low proportion in China's condiment subcategories. In terms of channel share, the proportion of condiment consumption in the catering channel continues to increase. In 2018, condiment consumption in the catering channel was nearly 30% more than that in the household channel, and residents' condiment intake when dining out was 1.6 times that of home cooking. The proportion of condiment consumption in the catering channel increased from 51% in 2004 to 56% in 2018; the increment of catering channel consumption compared to household consumption increased from 3.79% in 2004 to 26% in 2018. This shows that the importance of the catering channel in condiment sales is continuously increasing, while sugar's share is extremely low, and its share in the household channel may further narrow in the future. Sugar as a condiment is not as widely used as soy sauce, vinegar, etc., and its market share is small. Therefore, the development space for sugar condiments in the consumer retail market is small. However, with the increase in consumer demand for sugar-free and sugar reduction, this will transmit to the catering scene, forcing the growth of sugar substitute sweetener applications in restaurants. There is some development space for sugar substitute sweeteners targeting small B-end catering scenes. In recent years, handmade baking dessert shops and freshly made beverages such as coffee and tea drinks have developed rapidly, with industry scales in the hundreds of billions. According to the "New Tea Beverage White Paper" released by Nayuki Tea, nearly 70% of customers purchasing new tea beverages choose to reduce sugar levels; the top ingredient is zero-calorie sugar, indicating consumers' awareness and demand for sugar reduction. The demand for sugar-free condiments in these freshly made food and beverage shops has yet to be further released. Sugar condiment enterprises can take small B-end restaurant chains as the main expansion channel, with more potential and room for downward expansion in tea shops, coffee shops, and offline baking. Finally, to summarize, 30,000 Capital mainly favors the following three entrepreneurial directions for sweeteners and sugar:
- Sweeteners as food additives for B-end food and beverage enterprises. Sugar is one of the important food additives for food and beverage producers. The sugar-free trend at the consumer end will force upstream food and beverage manufacturers to accelerate the replacement of sucrose with sweeteners, and the market demand space for sweeteners is yet to be released. Pay attention to emerging, niche, and fragmented sweetener markets, such as neotame, maltitol, and lactitol.
- Functional candy for urban white-collar workers. With high work pressure and fast-paced life, young people's health needs and awareness are rising, and as the main force in the workplace, they have economic foundation. Currently, there is no health candy brand with absolute market advantage targeting the younger generation.
- Sugar substitute condiments for small B-end chain restaurants. The rapid development of handmade baking desserts and freshly made beverages such as coffee and tea drinks, with industry scales in the hundreds of billions, and consumers' significant demand for sugar-free and sugar reduction in freshly made foods. Source: 30,000 Food Research Institute (ID: sanwanshipin) Tips will be paid 400-2000 yuan once adopted.