Lindt’s Russell Stover acquisition gives it a stronger US foothold, but only in a declining category, say analysts, who argue expansion in emerging premium chocolate markets may have been a better choice.
Lindt yesterday acquired boxed chocolate player Russell Stover to become the third largest confectionery company in the US behind Hershey and Mars, leapfrogging Nestlé.
“Strategically it probably makes sense,” Jon Cox, head of European consumer equities at Kepler Cheuvreux told ConfectioneryNews.
He said that the deal would build on Lindt's US success with Ghirardelli, but added that other markets may have been more attractive. “I would have preferred them to go for a Brazil or Russia where they don’t have so much penetration.”
US Boxed chocolate decline
According to Euromonitor International, boxed chocolate sales in the US fell $51m in the last five years, while the domestic bite-sized chocolate market grew by $380m.
The research organization valued the US boxed chocolate market at $1.95bn in 2013, representing around 11% of all US chocolate sales. The boxed sector is forecast to decline to $1.9bn by 2018.
US already a key market for Lindt
Lauren Bandy, ingredients analyst for Euromonitor International, said the Lindt’s US acquisition made sense as 40% of its total global growth over the last five years had come in the US
“…It is a key market for the company and with chocolate confectionery sales expected to increase by $1.2bn over the next five years, you can see why Lindt wants to expand in this market.”
Lindt in emerging markets
- +6% to CHF 1.2bn ($1.3bn)
- Expects full year sales growth of 6-8%
According to Bandy, mass market players such as Mars were better placed to expand in emerging markets due to lower unit prices.
“Perhaps Lindt's not quite so well positioned to tap into the emerging markets, whereas in the US it’s already in a strong position.”
“It’s not like it’s not doing anything in emerging markets,” she added.
Lindt recently opened announced plans to open three retail stores in Brazil through a joint venture with Brazilian premium chocolate firm the CRM Group. The Swiss firm also established a Russian subsidiary in mid-2013.
Lindt did not disclose the acquisition price for Rusell Stover, but Robbie Vorhaus, a spokesperson for the boxed chocolate firm, told this site in February that Stover would consider offers around $1.3bn.
“The deal does look a bit expensive given that Russell Stover isn’t the same quality as a Lindt & Sprüngli’,” said Cox.
However, the analyst said that the acquisition gave Lindt a lower price point and new channels of distribution. Bandy added that Russell Stover provided Lindt a platform to tap into the mass-market or alternatively to premiumize Russell Stover’s portfolio.
Marcia Mogelonsky, Mintel food and drink director of insight said: “Between Lindt/Lindor, Ghirardelli, and Russell Stover, Lindt now has great coverage across the chocolate spectrum in the US.”
She added that although Russell Stover products were targeted at older consumers “the company has been expanding its offerings of ‘cute’ and ‘fun’ products”.
“By continuing to expand the line to make products that appeal to older people looking for gifts for younger people, Lindt will find that Russell Stover will continue to have a market," she said.
Russell Stover distribution
Russell Stover’s products are sold at major retailers including Walmart, Walgreens and CVS. It also operates around 40 company-owned retail stores.
The company was privately held by the Ward family and employs around 2,700 people across two factories in Kansas, a plant in Colorado and another in Texas.
Datamonitor Consumer’s innovation insights director Tom Vierhile previously said that any new owner for Russell Stover may look to move production overseas due to uncompetitive sugar prices from US quotas.
Russell Stover posted $475m sales in chocolate confectionery in the US in 2013, according to Euromonitor International, while Lindt recorded $900m.