Gum sales at the British confectionary maker increased only 2 per cent in the second quarter of this year, and in the first quarter, they fell 2 per cent. Meanwhile, chocolate sales grew 10 per cent during the first half of the year.
Impact of innovation
This is in sharp contrast to previous years. Since the acquisition of Adams in 2003, gum has been one of the big success stories for Cadbury.
Bernstein Research analyst Andrew Wood said: “Long-term market share trends confirm Cadbury’s success.
“Since 2003, Cadbury has gained 5.2 per cent of share in the US, or 1 per cent per annum through 2008. Gains have mostly come at the expense of smaller brands/companies (e.g. Hershey’s) but Cadbury has also taken some share from Wrigley.”
Gum represents about 35 per cent of North American sales and 8 per cent of total company sales, and offers Cadbury higher margins that are available in chocolate.
It is therefore worrying that sales have dropped off in recent quarters, but Wood said Cadbury is set to reverse the decline.
Wood said: “We do not think there is a structural issue…and expect to see improving performance, largely attributable to some upcoming innovation and increased advertising and promotion support.”
He said the launch of Trident Splash in 2005 and Splash the following year helped feed growth and led to market share gains for Cadbury.
But, over the past three years, Wood said there has been a lack of gum innovation at Cadbury, and that this was largely to blame for its recent lacklustre performance.
Now that Cadbury plans to launch new gums on the market, he expects performance to improve.
The first new product due for release in the US is Trident Layer, a sugar-free gum that has two sticks surrounding a ‘flavour layer’.
At a presentation in London last week CEO Todd Stitzer described the product as a ‘gum sandwich,’ held together with real fruit flavouring.
In conclusion Wood said: “If history serves as a benchmark, Trident Layers should help Cadbury to reverse recent trends.”