Shugr may find being sweet isn't enough to compete.

Never a fan of the sugar substitutes, Loren Miles decided to do something about it.

The veteran marketing executive, and then-owner of a firm selling weight loss products, contracted with a cadre of independent scientists to develop a new no-cal sweetener.

It wasn't easy. Some of the mixtures clumped upon exposure to air, others had a funny consistency, still others weren't appealing looking. Most importantly, many didn't taste any better than the products he was trying to replace.

"We went through literally thousands of rejected samples," recalled Miles, whose small firm, Swiss Research, was recently acquired by Los Angeles-based Health Sciences Group Inc. "And then we hit on one that was absolutely fantastic."

That formula--a combination of erythritol, a sugar found in fruits and vegetables, several other naturally occurring substances and sucralose, a chemically altered sugar--is about to hit the market under the brand name Shugr.

But the future of Shugr, which is supposed to hold its shape like real sugar with similar tiny crystals, is far from certain. Market heavyweight Splenda is produced by McNeil Nutritionals LLC, a Johnson & Johnson company. There also are long-time sugar alternatives Equal, an aspartame product, and saccharin-based Sweet N' Low that still command substantial market share.

Cathy Grayson-Roper, a spokeswoman for McNeil, would only acknowledge familiarity with Shugr. "We don't comment on competitive products or any of their statements."

Despite the competition, Shugr does have a shot, given the growth in the artificial sweetener market from low-carbohydrate diets and concerns about obesity and diabetes.

Sales of sucralose, Splenda's main ingredient, increased 136.2 percent, to $137 million, from 2002 to 2004. Over the same period, sales of granulated white sugar at food, drug and discount stores, excluding Wal-Mart Stores Inc., decreased nearly 5 percent to $915 million, according to market research firm Mintel International Group Ltd.

For Shugr to get into that mix, the product must be positioned as a favorable alternative for consumers who are picky about the taste, consistency and side effects of sweeteners. (Health Sciences says the sugar substitute is derived from Food and Drug Administration-approved ingredients.)

The kitchen

Marcia Mogelonsky, a senior research analyst at Mintel, doubts that new entrants will make much headway against Splenda. But Mike Richardson, an industry analyst with Cleveland-based Freedonia Group Inc., said the largest chunk of sales for sweeteners isn't in retail, but in selling the ingredient to food manufacturers.

He projects that annual sales of sweeteners as a food additive will grow 8 percent during each of the next few years, and that manufacturers are always trolling the marketplace for new ingredients.

Another sales avenue: the kitchen. Sweeteners have just begun to be used in baking, where sugar has long reigned supreme. Duke Best, Health Science's controller, said considerable effort was spent making sure that one cup of Shugr was equivalent to one cup of sugar.

The same is true for Splenda, which has a five-pound bag on the market for baking and has introduced sugar/Splenda blends to make the sweetener a more appealing cooking product.

"If it (Shugr) tasted better cooked, that could be an angle," said Mogelonsky.

Health Sciences recently secured its first retail client, Bear, Stearns & Co. Inc.-owned Vitamin Shoppe, which has more than 250 U.S. stores. Vitamin Shoppe is selling 2.47-ounce and 1.3-pound shakers of Shugr for $6.99 and $19.99, respectively.

New factories

Health Sciences cut the deal with Vitamin Shoppe, partly because it is a relatively small chain and doesn't require as many units as a larger chain. Shugr is currently manufactured in Los Angeles, and to ramp up distribution the company is readying factories in New York and China.

Health Sciences, which is traded over the-counter, went public in 2001 after the company discarded hopes of becoming an online retailer of natural products operating under the name iGoHealthy.com Inc. The company now acts as nutritional goods incubator by acquiring health-related companies, such as Swiss Research, seeking funding to jumpstart product development.

The company lost $10.4 million last year on revenue of $3.3 million, but it projects that Shugr's market introduction could raise revenues to $25 million. According to a Securities and Exchange Commission filing, the company has access to funds totaling $7.5 million from an unnamed investment group.

One other worry for Shugr: its name could be a target for the Sugar Assocation, which launched a legal challenge against Splenda's tagline, "Made from sugar, so it tastes like sugar." McNeil is now countersuing the association, but Miles downplayed the prospect.