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Leaf Brands challenges Mondelēz and Hershey to buy Nestlé's US candy business

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Douglas Yu

By Douglas Yu+

30-Aug-2017
Last updated on 30-Aug-2017 at 15:25 GMT2017-08-30T15:25:29Z

Wacky Wafer was previously owned by Nestlé, and is currently manufactured by Leaf Brands.  Photo: Leaf Brands
Wacky Wafer was previously owned by Nestlé, and is currently manufactured by Leaf Brands. Photo: Leaf Brands

Nestlé is currently auctioning off its US candy business mostly to private equity firms, and major confectioners, including Hershey, Mars, Mondelēz and Tootsie Roll, a source familiar with the matter says. 

The deal is likely to close in the next three months depending on how quickly Nestlé can get through the bidding process, the source, who prefers to remain anonymous said. 

The source said major players such as Hershey, Mars, Mondelēz and Tootsie Roll all received a message encouraging them to bid. But it is unknown if these firms have entered the bidding process.

Nestlé said earlier this year, it would sell its US confectionery business to focus on other categories where it has a stronger presence. Some of the products the company manufactures within the US include Butterfinger, BabyRuth, and Chunky.

Nestlé's US Confectionery Brands

Nestlé’s US confectionery business posted CHF 900m ($924m) in sales in 2016 and comprises the brands:

Source: PRNewswire/Nestlé

Chocolate
Crunch, Butterfinger, BabyRuth, 100Grand, SkinnyCow, Raisinets, Chunky, OhHenry! and SnoCaps

Sugar Confectionery
SweeTarts, LaffyTaffy, Nerds, FunDip, PixyStix, Gobstopper, BottleCaps, Spree and Runts

Leaf Brands’ bid

Leaf Brands is one of the privately held confectionery firms eyeing Nestlé's US candy business, a senior executive at the company told ConfectioneryNews.

Leaf has been through multiple acquisitions since it started more than 40 years ago, according to its website. Leaf Brands made its debut at the 2011 Sweets and Snacks Expo in Chicago, and it is best known for manufacturing retro candies, including Tart n’ Tinys and Wacky Wafers – both of which were previously owned by Nestlé.

Leaf Brands is currently experiencing 350% year-on-year growth as it expands its footprint from specialty food stores across the US to national retail chains such as Kroger.

“We expect 45% to 65% sales increase in the next four to five months [if we succeed in purchasing Nestlé’s US candy unit] because we will get everything out to their distribution networks,” the executive said.

“We’re not saying we’re going to merge the company, but we’ll definitely have a licensing agreement to sell through their distribution channels,” the source added.

Stepping up innovation

As many CPG companies are acquiring smaller brands to step up their product innovation, it is rare to see the acquisitions from the opposite direction, Leaf Brands said.

“Our goal is to be the most innovative candy company in the US,” the company said. “There are three to four companies dominating the confectionery market… But their innovation is gone, because they have to focus on what makes financial sense to put a new product on the market versus making something fun that would drive revenue and growth.”

“Consumers know that those companies have been cheapening their products over the years in order to increase profit,” Leaf Brands added. “We’re able to exploit Nestlé differently, and capitalize some of their underutilized brands in a different way.”

The company said its Farts Candy won the Most Innovative Product Award at Sweets and Snacks Expo in 2014, and it would innovate with Nestlé’s candy products if the deal comes through.

Nestlé chose to review its US confectionery business after seeing limited prospects to bring its US brands – such as SweeTarts, Nerds and Skinny Cow – to international markets.

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[Infographic: Oliver Nieburg]

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