Is Adams right for Cadbury?
confectionery business by the UK's Cadbury Schweppes. While such a
bid would undoubtedly strengthen the British group's market
position, analysts at Euromonitor are not convinced that it is the
best way forward for the company.
Rumours have surfaced again this week of potential bids for the Adams sugar confectionery unit owned by the US-based pharmaceutical group Pfizer. As before, the UK's Cadbury Schweppes and Switzerland's Nestle are top of the list of potential buyers, although neither company has confirmed an interest in the business.
Cadbury has been expanding its confectionery business over the last few years, adding a number of sugar confectionery companies to its portfolio, and on paper Adams looks like a good match. But a closer investigation reveals that the business may not be the cash cow that Cadbury hopes it will be.
An analysis of the possible acquisition by Euromonitor shows that Adams would certainly fit well with Cadbury Schweppes' long-term strategy of focusing on growth sectors, such as gum, and developing markets including Eastern Europe and Latin America. It would also bring a portfolio of strong brands, such as Trident and Halls, world leaders in gum and sugar confectionery respectively, other gum brand Dentyne and Chiclets, Body Smarts chews and snack bars and Viaredin, a Romanian slimming drink.
According to Euromonitor, Adams' core strength lies in Latin American gum, where it dominates the market with a 55 per cent share. This is the result of being one of only a handful of companies to have a presence in all six key countries in the region. Furthermore, Adams has benefited from a strong increase in gum sales in the region, coupled with a growing interest in healthier options, such as the sugar-free gum brand Trident : regional sales of regular sugar-free gum increased 35 per cent between 1997 and 2002.
As well as Latin America, Adams would allow Cadbury to increase its presence in North America as well. That region accounts for 31 per cent of Adams' gum sales, with its functional gum brands particularly strong there after the extension of the core Trident brand into whitening and recaldent-enhanced variants.
At the same time, the Halls brand is well positioned in most markets - in North America and Northern Europe it is positioned as a cold relief product, while in Latin America, Asia and Southern Europe it is regarded as a refreshing sugar confectionery product. Adams holds shares of over 40 per cent in both the North and Latin American medicated confectionery markets, as well as a very strong share in the small Eastern European market. However, the medicated confectionery market is in steady decline, Euromonitor said.
"As a result of any acquisition, Cadbury Schweppes would more than double its share of the global sugar confectionery market, resulting in a leading share of 6 per cent. The key effects of the acquisition would, however, be felt in gum where, in addition to the purchase of Dandy and Kent earlier this year, Adams' sales would allow Cadbury Schweppes to challenge Wrigley's global dominance," Euromonitor said.
"Moreover, the acquisition would allow Cadbury Schweppes to leap-frog confectionery market leaders Nestle and Mars to take pole position in the global confectionery market with a share of well over 9 per cent. The acquisition would be clearly beneficial to Cadbury Schweppes as Adams had higher sales than it in a number of key regions, including Eastern European sugar, Latin American sugar and gum, and crucially, in North America where Cadbury has no appreciable presence in gum and only a 1 per cent share in sugar confectionery."
So, should Cadbury make an offer then? Well, not necessarily, according to Euromonitor. The market analysts point out that nearly 50 per cent of Adams' sales are in the declining sugarised gum and bubble gum sectors. Sugarised gum is forecast to decline overall between 2002 and 2007. Although some regions will continue to post value growth for this sector, Adams is either weak in, or entirely absent from them - principally Asia Pacific and Australasia.
The picture is more positive for bubble gum, Euromonitor said, with nearly 8 per cent growth projected over the period to 2007, particularly in Asia Pacific where Adams has a significant share. However, in terms of total potential, bubble gum sales are likely to be smaller than the more profitable functional gum sector by 2007, a sector where Adams has failed to build on its strengths.
"Despite owning the hugely successful trident gum brands, Adams has not launched functional brands in Latin America, leaving the 'first mover' advantage to Perfetti Van Melle and Cadbury itself.
"Furthermore, Adams' reliance on Latin America exposes it to risk, as although the region is set to see positive forecast growth, economic uncertainty and civil unrest may reverse these trends at short notice, as was been seen in Argentina earlier this year and Brazil in 2001," Euromonitor said.
"It is possible therefore, that Adams may go to a bigger player more able to absorb loss-making sectors, or that, despite Pfizer's unwillingness to do so, may have to be sold off piecemeal. Whatever ultimately happens to Adams, its sale will have taken longer than expected."
