The Sweetener Wars | Sweet Goes Sour | 2

0:28Hey, Business Wars fans, have you heard?

0:361988, Brooklyn, New York. The headquarters of Cumberland Packing, the company behind Sweet 'n Low. Yeah? Joe Asaro taps gently on the office door of company boss Marvin Eisenstadt. Asaro is a Sicilian immigrant who's lived in New York State for over 25 years. He first got involved with Cumberland as a construction contractor before becoming its vice president of government affairs. Right now, he needs to have a tricky conversation with Marvin, one that's too tricky to conduct inside the company's walls. Ever since Marvin's son Jeffrey began sniffing around, the wheels look like they're coming off Asaro's additional enterprise.

1:17Asaro walks into the office, looking intensely at Marvin with his dark, close-set eyes. Okay, if we have a chat, boss? Outside? Take a walk? Eisenstadt agrees, and both men head out into the Brooklyn sunshine. It's a warm late summer morning, but this won't be a leisurely stroll. Marvin knows exactly what it means when someone wants a walk and talk. Chatting away from the factory? That means trouble. Marvin's son has discovered that a group of shell companies, all operating from the same address, has been siphoning large sums of money from Cumberland. Subpoenas have been filed against Asaro and other contractors.

2:00Marvin is aware there's a problem, but doesn't seem to grasp just how deep it goes. When he heard about the subpoenas, he simply told staff to be squeaky clean and to do everything right. As if this is all some administrative error. As they head toward Fort Greene Park, Asaro almost feels sorry for him. They walk in silence for a few minutes. Then the Sicilian takes a deep breath. Marvin, I need to tell you something. And I just have to tell you straight. Because you're going to find out sooner or later. We've been stealing from the company. Mario, Gil, and me. We've been sending Cumberland fake invoices for stuff.

2:49Marvin nods slowly. Mario and Gil Medeiros are brothers, and Gil is Cumberland's chief financial officer. Marvin knows something's been going on, but he didn't realize the scale of the fraud. He almost doesn't dare ask. How much? A lot. Like a... like a real lot. Cumberland has paid for more equipment that could possibly fit in the factory. You've also had the parking lot paved a dozen times the last two years. Marvin stops in the street, momentarily confused. But we haven't had the parking lot paved. Yeah, I know. I'm sorry. Look, Marvin, I don't know what to say. My house, even my house, it was built with Cumberland money.

3:41Marvin's world is collapsing around him. He trusted these men to do their jobs. Asaro watches him closely, waiting to see how he will respond. Marvin shakes his head as if this will help focus his tumbling thoughts. He's been completely ripped off. And yet, he still feels a loyalty to Asaro and the Medeiros brothers. He should fire all three instantly. He should call the police. This isn't a few thousand dollars. This could be millions, but it's also explosive news. A fraud scandal inside the company behind America's favorite sweetener? That could be a death sentence for both Cumberland and Sweet 'n Lowe, and everything the Eisenstadt family has built.

4:31Marvin looks at Asaro. Joe, I don't want anyone to go to jail. I don't want any trouble. He looks almost pleadingly at Asaro. Is there any way we can keep this quiet?

4:52From Audible Originals, I'm David Brown, and this is Business Wars.

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5:41Cumberland Packing used the U.S. ban on cyclamates to turn Sweet and Low into the leading tabletop sugar substitute. But then Donald Rumsfeld helped aspartame escape regulatory quicksand and become the new market leader under the brands NutraSweet and Equal. Now, fraud threatens to destroy Cumberland from within. But there's an even bigger threat coming. A newcomer called Splenda. And it's about to upend the entire market. This is Episode 2, Sweet Goes Sour.

6:22It's February 1989, less than a year since Joe Asaro's sidewalk confession. Cumberland President Marvin Eisenstadt has chosen to keep the fraud quiet. And for now, the secret holds. But the company can't afford to stand still. because NutraSweet's legal team is on the attack. Their target? Cumberland Packing. Cumberland has just launched a new zero-calorie sugar substitute called SweetOne. It's made with a different chemical than Sweet & Low, something called Ac-Sulfame-K. And Monsanto, the company behind competitors NutraSweet & Equal, isn't happy. But not because of what's in the packet. It's upset about the packaging.

7:06Sweet one comes in baby blue packets, the same color as equal. These colors aren't just packaging choices. They're how millions of people differentiate between these brands. Monsanto believes blue is equals color, just as pink is sweet and low's color. It thinks Cumberland is copying equals blue packets in an attempt to confuse consumers. And Cumberland boss Marvin agrees that's true. But he's not backing down. Instead, he argues that Monsanto can't own the color blue. The case goes to court, where Monsanto loses, appeals, and loses again. Eventually, the clash reaches the Supreme Court. And in 1991, the Supreme Court backs Cumberland, ruling that a company cannot trademark just a color.

7:59To allow that would mean manufacturers would quickly monopolize every color, stifling competition. It's a legal win for Cumberland, but it doesn't help Sweet 'n Lowe's market position. As the 1990s begin, Monsanto and its NutraSweet brand own 70 % of the artificial sweetener market. NutraSweet is used in thousands of products worldwide, including Diet Coke. But inside Monsanto headquarters, its executives know the truth. NutraSweet's days of world domination are running out. NutraSweet is made from aspartame, and Monsanto's patent on that artificial sweetener expires in December 1992. After that, anyone can produce aspartame, and that leaves Monsanto with just two years to shore up customer loyalty.

8:55To do this, Monsanto launches an ad campaign linking NutraSuite with an aspirational lifestyle. Well, now we're celebrating our 10th anniversary, and we thought you might want to know who's here, enjoying the over 4 ,000 products with NutraSuite. Hmm, are there dumb people here? Nope. Alien people? Nope. Mean people? Nope. Active, health-conscious people who care about the way their food tastes? Bingo! But Monsanto knows it's going to take a hit, no matter how much marketing it does. Coca-Cola and Pepsi are already looking for cheaper suppliers of aspartame, and these two companies alone comprise around two-thirds of NutraSweet sales.

9:32So as the expiration date on the patent nears, Monsanto cuts its NutraSweet workforce by more than 15 % and prepares for a 30 % drop in aspartame prices. Cumberland President Marvin Eisenstadt could sit back and watch Monsanto's troubles with some popcorn. if only Cumberland's criminal problems weren't deepening.

10:02It's early morning on February 23, 1993, and in Brooklyn, the temperature isn't much above freezing. Outside the Cumberland packing factory, 24 federal agents are getting into position. They're dressed in jeans and windbreakers to hide their protective gear. Some are armed and carrying handcuffs. They quietly split into three groups of eight. At 8.30 a.m., they announce their arrival with loud bangs on doors. They enter, flashing warrants and racing down the corridors. The factory's already open. Women in hairnet step back from their machines, looking around for someone to tell them what's happening.

10:43The agents block the exits and cut the phone lines, shutting the factory off from the outside world. And then they start to turn the place upside down. One agent finds$10 ,000 in cash in the office of Chief Financial Officer Gil Madero. Another agent finds an incriminating note about falsifying shipments of cream of tartar attached to a Rolodex. As the search continues, a maintenance worker quickly hides a package of corporate ledgers in a hole in the factory wall. Eventually, the agents reach the cramped private office of company president Marvin Eisenstadt and lead him out. He'd waited years for this job.

11:24The top job, the one his father had taken ages to vacate. He'd only just gotten comfortable in the role. And now, it looks like it's all going to be ripped from him in the most brutal of ways.

11:44Marvin, Asaro, the Medeiros brothers and others face criminal charges of fraud and tax evasion. But despite being arrested and charged, Marvin and Cumberland aren't backing down from the sweetener wars. And neither is Equal. It's been two years since Equal failed to stop Cumberland's sweet one from using blue packets. Now, the brand is going on the offensive, launching a TV ad campaign featuring celebrities like Cher, Lauren Hutton, and Raquel Welch. Once I broke the sugar habit, I couldn't go back on. And, I mean, I won't even put that pink stuff on anything. I have to have the equal. That pink stuff?

12:25Equal is taking a direct shot at Sweet 'n Low and its pale pink packets. Marvin tells the New York Times. He finds the comments about his company's flagship brand to be sort of offensive. So in 1994, Cumberland fires back with an ad that mocks Equals's celebrity endorsements. In the ad, a middle-aged actress meets her agent. He's got a great new part for her, promoting Equal as her favorite sweetener. How many of you sweeten love? Yeah, well, that's what they call it acting. Nobody's that good. Cumberland spends an estimated$13 million on advertising that year, more than Equal's$11 million. But it doesn't matter.

13:08Equal still keeps the top spot. The ad war can only distract Marvin from his real troubles for so long. In April 1995, with evidence mounting against them, Marvin and Asaro arrive at Brooklyn Federal Court and plead guilty. Marvin admits to knowingly filing false tax returns and conspiring to impair the operations of the Internal Revenue Service. Osaro pleads guilty to conspiring to defraud the IRS and filing false documents with the Federal Election Commission. He had been encouraging Cumberland's contractors to pad their invoices and then donate the extra money to both Republican and Democratic politicians.

13:52The prosecution says these illegal donations alone amount to over$200 ,000. Asaro also pleads guilty to witness tampering. Four outside contractors and a lawyer plead guilty to a range of other offenses. And both Asaro and Marvin agree to cooperate with the U.S. Attorney's Office in exchange for a leniency. Outside the courtroom, Asaro's attorney handles the scrum of reporters. Mr. Asaro did what he did. He's now taken full responsibility. Nearby, Marvin Eisenstadt paints himself as the victim, a trusting boss who got played by Asaro. He had a very impressive wall of photographs with politicians.

14:35He could have dinner with a pope, at least that was what he told me. Obviously, I was very gullible. When the Medeiros brothers finally go on trial, Lawyers detail how they skimmed millions of dollars from Cumberland using shell corporations and phony invoices. The brothers are found guilty. Mario Medeiros is sentenced to eight years in prison, and Gil Medeiros gets ten years. Asaro and Marvin get probation, and Cumberland Packing is ordered to pay a fine of more than$2 million for conspiracy to defraud the IRS. Marvin managed to avoid prison and Cumberland has survived but its reputation and its bank balance have taken a beating and as it tries to make a fresh start its archenemy Equal is about to find itself in the spotlight for all the wrong reasons because the health fears around Aspartame are back.

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17:08University Medical School in St. Louis. We've found that in the last eight or nine years, which is about three to five years after aspartame was approved, there's been a striking increase in the incidence of malignant brain tumors. Dr. Olney does not say flat out that aspartame is responsible for the rise in brain tumors, but he does believe that his analysis of the data shows that it's the most likely suspect. The aspartame patent may have expired, but this is bad news for Monsanto. Its NutraSweet and Equal brands are still going strong, but with studies linking their core ingredient to brain tumors, it needs to defend the sweetener.

17:56In the same 60 Minutes episode, Monsanto's head of public policy, insists aspartame is one of the safest additives ever approved by the FDA, and that it's safe for everyone. But Dr. Olney argues his findings raise enough of a question mark that it's time to reassess the sweetener's safety. Questions about aspartame aren't new. They date all the way back to the early 1970s, when it first tried to get approval. There have been plenty of studies since then, but there's been a shortage of clear answers. Researchers looked at 164 studies on aspartame. Every single study funded by the sweetener industry concluded it was safe.

18:38Of the remaining 90 independent studies, 83 of them raised concerns. Now, put aside for the moment that this sounds like the science is getting hijacked. You gotta wonder, what's Monsanto trying to protect. The patent's expired, so what's going on here? Basically, well, it's trying to protect public confidence in its product, and by extension, its brands. NutraSweet and Equal may no longer have aspartame to themselves, but they still have brand value, and that's worth protecting, especially when those brands give Monsanto an advantage over every other aspartame manufacturer. Despite the new scare around aspartame, the FDA continues to back the sweetener.

19:23However, the timing of this wave of doubt is about to play into the hands of a new competitor. Splenda. It's made from suclerose, an artificial sweetener that's taken two decades to reach the market.

19:43It's almost 20 years before the 60 Minutes episode, 1975. And at Queen Elizabeth College in London, research chemist Sashikant Fadnes is working on a project sponsored by the British sugar producer Tate & Lyle. The goal is to see whether chlorinated sugar derivatives might work as insecticide. Fadnas takes a call from his boss, who tells him to test the compound they've been creating. Except Fadnas doesn't hear the word test. He thinks he's being asked to taste the potential insecticide. And remarkably, he complies, wincing as he puts the mix of sucralose and chlorine on the tip of his tongue.

20:28But instead of tasting awful, it tastes incredibly sweet. 600 times sweeter than natural sugar. And because of the way the compound works, your tongue can taste it, but your body can't absorb it, making it calorie-free. Welcome to sucralose. Tate and Lyle controls the manufacturing and owns the patents. But in 1980, Johnson & Johnson buys the rights to market it through its subsidiary, McNeil Nutritionals. Over the next several years, sucralose is greenlit for use in Canada and Australia. And in 1998, the FDA approves it in the United States for diet foods and soft drinks. Armed with U.S. rights and FDA approval, Johnson & Johnson approaches Cumberland Packing and offers to sell the sucralose patent.

21:24It sounds like a golden opportunity. A sweetener without the tainted reputation of saccharin or aspartame? A sweetener Cumberland would have exclusive control over? It's a chance to put the company back on top. But the Eisenstats say no. They're worried the cost of the equipment needed to produce the new sugar derivative. could run into the millions. So, Johnson & Johnson goes it alone. You know, this is one of those decisions that only looks obvious in hindsight. Cumberland wasn't just being asked to buy a sweetener. It was being asked to build the factories and the production systems to make it.

22:07Sometimes you see what seems like a good opportunity and have to walk away because you just can't afford everything else that comes with it. Here, the purchase price is almost like a down payment. The true opportunity cost is everything else you'll have to pay to extract the value of what you just purchased. Cumberland, well, they looked at the full picture and walked away, turning Johnson & Johnson into a competitor in the process.

22:39In the year 2000, Johnson & Johnson launches Sucralose as a tabletop sweetener under the brand name Splenda. It comes in pale yellow packets with the word Splenda in bold navy blue and a simple tagline underneath, no calorie sweetener. The yellow packets help Splenda stand out from sweet and low and equal. But Johnson & Johnson also wants to separate Splenda from the artificiality of its competitors. So it hires an ad agency who comes up with a slogan, made from sugar so it tastes like sugar. Splenda enters the market at a moment when its rivals are distracted. In May 2000, Monsanto decides to move away from the sweetener industry entirely.

23:26The company says it's part of a strategic realignment towards agricultural biotech and life sciences. The NutraSweet brand is sold to a private equity firm for$440 million. The tabletop sweetener business, including Equal, goes to an investor group who create a new company called Marisand. Meanwhile, at Cumberland, there's some good news at last. After 20 years of threatened bans and cancer warnings, Sweet & Low's main ingredient, saccharin, has finally been removed from the list of known carcinogens by the National Institutes of Health. It turns out that while saccharin appeared to cause bladder cancer in rats, that finding did not apply to humans after all.

24:12In theory, this should give Sweet 'n Low a boost. There will be no need to include a cancer warning on their packets anymore. But it's not enough. Within two years, Splenda replaces Sweet 'n Low as the number two sweetener brand in America. Within three years, it overtakes equal. And by the end of 2004, Splenda is pulling in more than$170 million in annual sales, having captured around 51 % of the market. You know, Splenda's rise is a reminder that market leaders usually aren't displaced by one single advantage. It wasn't just the advertising. It wasn't just the taste. It wasn't just the health perception either.

24:54It was several small pluses stacked on top of each other until consumers had enough reasons to switch. But a lot of its success comes down to its killer marketing slogan. Made from sugar, so it tastes like sugar. The slogan is technically true, but it's also not quite the full picture. Sucralose, the sweetener in Splenda, does start life as sugar, but that sugar evaporates away during the production process, so what the consumer uses to sweeten their coffee is not sugar. It's a synthetic compound. In 2002, McNeil Nutritionals tempers the wording and amends the slogan to made from sugar so it tastes like sugar, but it's not sugar.

25:39The change backfires and sales drop. So McNeil quickly backpedals and removes the qualifier. And demand rebounds. By late 2004, the demand for Splenda is so high that McNeil Nutritionals starts rationing shipments. It only has a single factory in McIntosh, Alabama. Smaller companies that now rely on Splenda for their own products become anxious. Soft drink companies like Jones Soda and Fuse Beverages worry that rationed supplies will just go to the big soft drink giants. But as Splenda tightens its grip on the market, two unlikely partners unite to take it on. The first is Marisand, the Chicago-based company that now makes equal.

26:28And the second, the Sugar Association, the lobbying group for America's$10 billion natural sugar industry. For years, sugar producers and artificial sweetener manufacturers have been enemies. But Splenda threatens them both. And in two separate lawsuits, they latch on to the same target, Splenda's made-from-sugar claims. In November 2004, Marisant files a lawsuit arguing that the made-from-sugar tagline deliberately deceives customers into believing Splenda is a natural product rather than a synthetic compound. Marisant is seeking more than$170 million in compensation for lost sales. The following month, the Sugar Association also sues, claiming the slogan confuses consumers and is damaging its sales.

27:24McNeil issues a countersuit, accusing the Sugar Association of defamation by running a malicious smear campaign against Splenda. The countersuit points to a website created by the Sugar Association called The Truth About Splenda. On it, there are claims that Johnson & Johnson wants consumers to think sucralose is natural when it's not. It asks visitors, do you know what your children are eating? The site argues that Johnson & Johnson is trying to hide the truth from consumers and trick them into thinking Splenda is real sugar minus the calories. It also suggests Splenda has not been thoroughly tested.