Coca-Cola Co. said yesterday that it has signed an agreement with G. D. Searle & Co. for supplies of the new low-calorie sweetener aspartame, and analysts said Coke probably will be selling soft drinks partially sweetened with the substance by the end of the year.
Industry observers say that aspartame-sweetened drinks could trigger an explosion in the already-fast-growing market for diet soft drinks, accelerating sales beyond their current 10-percent-a-year growth.
"The diet market is going to grow like gangbusters; there's no question about that," said Emanuel Goldman, a beverage-industry analyst for the San Francisco brokerage house Montgomery Securities. "This is really a major development in the industry. . . . It's the first time since the saccharin-cyclamate mixture was banned that you've had a good-tasting diet soft drink."
Analysts said that the agreement--terms of which were not disclosed--is likely to force Pepsi-Cola, Seven-Up and other competitors to hasten their negotiations with Searle to tie up supplies of the sweetener. And the analysts also said that Coke's action appeared to torpedo the National Soft Drink Association's consideration of an attempt to get the Food and Drug Administration, which approved aspartame for use in soft drinks last month, to delay aspartame's introduction for quality control and safety reasons.
Spokesmen for the NSDA, Pepsi and Seven-Up said they are studying their positions in the light of Coca-Cola's announcement. Sherwin-Williams Co., which makes most of the saccharin used in the United States, had no immediate comment, but the company long has held that the introduction of aspartame would expand the market for both that substance and saccharin.
The announcement also was seen as a boon for Searle, a Skokie, Ill.-based pharmaceuticals company that stands to make hundreds of millions of dollars selling aspartame, a natural product created by joining two amino acids.
A Coca-Cola spokesman said the company has not decided when it will begin marketing aspartame-flavored diet drinks. But industry analysts said they expect the company to introduce the products soon, and one, Arthur Kirsch of Drexel Burnham Lambert, speculated that Coke could have the new soft drinks on the shelves within a month.
The Coca-Cola spokesman said Coke would use a combination of aspartame and saccharin to flavor products such as Tab and Diet Coke, reformulating them rather than continuing separate saccharin-flavored lines. He would not discuss the mix of the two sweeteners beyond saying that saccharin would constitute more than half of the combination, but Goldman speculated that Coke probably would use a mixture with between 25 and 30 percent aspartame, depending on the beverage.
Even at that mixture, Goldman said the aspartame-saccharin combination would overcome the major problem each sweetener has: aspartame's inability to stay sweet over long periods of time and saccharin's metallic aftertaste.
"The two together ought to work out very well," a Coke spokesman said. "You can play off the strengths of one versus the weakness of the other."
The combination also nullifies another drawback of aspartame--it costs many times more than saccharin. The Coca-Cola spokesman said that the mixture would allow the company to sell its aspartame-flavored products at the same price as those made with saccharin.
Although the diet-soft-drink business, which holds about 18 percent of the overall U.S. soft-drink market, has been growing much more quickly than the rest of the market in recent years, analysts believe the growth has been held back because of problems with saccharin's taste and fears that the sweetener can cause cancer.
Some analysts believe that diet drinks with aspartame could capture at least half the soda market by the end of the decade.
By striking the first deal with Searle, industry leader Coca-Cola may have gained a competitive advantage over Pepsi, Seven-Up and other competitors, analysts said yesterday. "As far as Coke goes, it is a plus for them from the standpoint that they may have some leads on the competition," Kirsch said.