Case Study: Beta Nutrition Limited

Business Description: Beta Nutrition Limited (BNL) is a privately-held, Australian-based company that is about to a launch a natural beta-carotene ingredient that is manufactured via algae, Dunaliella salina.

Theme: In order to fund further plant expansions BNL is seeking to raise more capital, so it is looking outside its borders to bring in more investors.

Background: BNL has facilities on the west coast of Australia and currently has small scale production that produces products in a pristine environment. Through patented processes the company is able to produce higher concentration beta-carotene and expect a significant cost benefit to current market products. BNL grows the algae in salty ponds (with higher salinity than sea water), which places stress on the algae, therefore producing more beta-carotene. To date, the operation has been funded through a group of local investors, but as it approaches commercialization, it is seeking international and strategic investors. The beta-carotene ingredient market varies across a few dimensions, but it mostly comes down to the source of material. The market is typically segmented around natural versus synthetic sources. And the natural segment can be broken down even further. Natural beta-carotene represents about 15% of the market on a volume basis, while the balance is derived from synthetic sources. As with most natural material, there is a price premium; natural represents almost 19% of the market on a dollar basis. Of the natural beta-carotene sources, 58% of the market value comes from algae, while 33% comes from fermentation. The balance of the market comes from various extraction processes.

Situation Assessment: The current global beta-carotene ingredient market is valued at $300 million and on a volume basis is about 400 metric tons. The U.S. market is the largest region on the globe, consuming over 41% of supply, while Europe is a close second at 38%. Competition is concentrated, particularly in the natural market with two players representing over 90% of the market. About 80% of natural beta-carotene is used in dietary supplements, and it hits the shelves in multivitamins 57% of the time. Finished goods with beta-carotene that are sold through natural health food stores are natural 70% of the time, while mass market products are dominated by synthetic beta-carotene. Though most current applications in the U.S. are in dietary supplements, natural beta-carotene is of significant interest to the food and beverage market, as companies continue to look at technology and product enhancements. However, as an ingredient provider, servicing the dietary supplement market is much simpler than the food industry, as its requirements are more rigid and complex.

Opportunities: A distinct and attractive market opportunity exists for BNL to enter the natural beta-carotene market. The market is established and experiencing strong growth, which for the foreseeable future will remain sustainable. In the battle between synthetic and natural, the natural market is growing at a substantially faster clip and is expected to double within the next four years. As with any company seeking capital infusion, BNL must be able to clearly articulate its value proposition and how it will enable them to connect to the market opportunity. To help their efforts in the U.S. market, they are working with a local company, Xsto Solutions. It appears that BNL’s advantages are centered on the product itself. Through the combination of location, environment and technology, the company expects to produce unique material with a lower cost position. Unlike other algae producers, BNL’s process produces material in a crystal, which then offers the company more flexibility as it converts the beta-carotene to the desired customer forms. BNL is not expected to use a price-based competitive strategy, but rather they’ll push a superior value proposition through better pricing, more purity, less contamination, and a more holistic story.

Lessons Learned: (1) Most businesses that require hard assets are in a “catch-22” situation. They need capital to go into markets, but they can’t raise capital without being in markets. An intermediate solution is to ensure that market entry vehicles are in place, such as distributors, small scale products, development projects,which will give investors a feel for how the company is positioned. (2) Coupling investors with markets will help BNL gain traction, so as they enter the U.S. market, they can seek U.S. investors. Particularly with strategic investors, it’s easier to invest in markets that one understands. Local investors will need more education on the opportunity than others. (3) It’s critical to ensure that one’s value proposition focuses on a sustainable uniqueness. BNL has a strong opportunity in specific parts of the market, and it’s important that the company focus on where it can win and avoid straying from target markets.