Nestle's U.S. Chocolate Standing Melted by Lindt Deal

Daily Herald (Arlington Heights, IL), July 19, 2014 | Go to article overview

Nestle's U.S. Chocolate Standing Melted by Lindt Deal


Byline: Bloomberg News

Nestle SA typically seeks to be first or second in all its businesses, yet isn't even close in the U.S. chocolate candy market, where the Swiss company is dwarfed by Mars Inc. and Hershey Co. When No. 3 Lindt & Spruengli AG completes its planned purchase of Russell Stover Candies Inc., Nestle will fall even deeper into fourth place.

Mars and Hershey together control 65 percent of U.S. chocolate sales, researcher Euromonitor estimates, versus 5.2 percent for Lindt and 4.8 percent for Nestle. The combined spending on U.S. television advertising by Mars and Hershey is roughly equivalent to Nestle's total American chocolate revenue, the Swiss company says.

To drum up sales in the $18 billion market, the world's largest food company has added limited-edition Girl Scout Crunch bars and Skinny Cow reduced-calorie chocolate. That's not enough to really challenge the leaders, said Urs Beck, a fund manager at EFG Asset Management in Zurich. The most obvious countermove, he said: Buy Lindt.

In U.S. chocolate, Nestle "needs to play harder and smarter as an underdog," Beck said. "Otherwise, exiting the market is an option worth thinking about."

While Nestle is far bigger than the American market leaders, it's unlikely to buy either. Mars is private and has long said it's not for sale, and Nestle shareholders would balk at a Hershey purchase because it wouldn't be a good fit with the company's push into higher-end, healthier products, Beck said.

Desperate Situation

Lindt Chief Executive Officer Ernst Tanner said July 14 that the company intends to stay independent. Nestle declined to comment on whether it has ever considered buying Stover or Lindt, but executives have long said the company aims to be No. 1 or No. 2 in the categories and markets it operates in.

Nestle, based in Vevey, Switzerland, considered exiting U.S. confectionery about six or seven years ago, when the category was "desperate," Nestle USA CEO Paul Grimwood said at an investor conference last month in Boston. Instead, Nestle is focusing on key brands, and may pursue acquisitions and joint ventures, he said.

After Lindt's purchase of Stover, announced July 14, the company will have 7.4 percent of the U.S. chocolate confection market, mostly at the high end. That's what Nestle should focus on in the U.S., said Gillian Hollenstein, chief investment officer at Labha Investment Advisors SA in Zurich.

Saturated Chocolate

"Growing in the U.S. chocolate mass market will be quite a challenge for Nestle because it's so saturated," Hollenstein said. …

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