Starbucks Corporation (SBUX), Sensient Technologies Corporation (SXT): Consumers Still Seeing Red Over Food Coloring

Hearing of a case of head lice is enough to give anyone the heebie-jeebies, but the thought of eating lice is really enough to make the skin crawl — yet unknown to most people, we do that almost every day.

Whenever we eat food or drink a beverage that’s red in color, if it’s not tinted by Red Dye No. 40 then there’s a good chance it’s colored with carmine, a natural colorant derived from the female cochineal insect, a type of lice that’s generally found in Peru (though it lives on a cactus, and not on your head). While carmine is all-natural and perfectly safe to consume (unless, of course, you’re allergic to it) once people learn about its presence, the “ick factor” goes up exponentially and it becomes difficult to swallow.

Food and drink makers from yogurt king Danone SA (ADR) (OTCMKTS:DANOY) to java slinger Starbucks Corporation (NASDAQ:SBUX) have been hit by a customer backlash following revelations their products contained the ingredient. While Starbucks Corporation (NASDAQ:SBUX) folded faster than Superman on laundry day, as comedian Jerry Seinfeld says, and switched its recipes from the natural carmine to a lycopene-based coloring that’s more palatable than the artificial Red Dye No. 40, the Dannon yogurt maker has dug its heels in, saying the bugs are a safe ingredient and it has no plans to change.

While carmine is still present in foods from General Mills and drinks from PepsiCo, among many others, the world’s biggest producer of the colorant, Danish bioscience company Chr. Hansen, is still feeling the effects of the ingredient’s higher profile. Recently, it lowered its full-year guidance as it lost a major customer in South America and the pricing surrounding carmine remains volatile. According to Reuters, whereas carmine had traded at $15 per kilogram as recently as 2010, it shot up to over $120 per kilogram in 2011, but has since returned to the $15 level.

Organic revenue growth is now projected to be between 7% to 10% for the next five years compared to its previous estimates of 8% to 10%, and more customer losses could make the lower end of its new range the more realistic outcome.

Sensient Technologies Corporation (NYSE:SXT), a U.S.-based producer of carmine and artificial colors, has also seen its operations affected. In its quarter ending on June 30, the food color specialist reported a 4% decline in profits on a 2% drop in segment sales. While much of that was related to the loss of a customer in its non-food business, revenues of food and beverage colors also fell by more than $1 million.