Premium chocolate brands missing from Nestlé’s locker, says Euromonitor

By Oliver Nieburg contact

- Last updated on GMT

Nestlé needs to get off quality street and onto premium boulevard, says Euromonitor
Nestlé needs to get off quality street and onto premium boulevard, says Euromonitor
Nestlé must look to acquire premium chocolate brands as its mass market products are underperforming, says Euromonitor.

Last week, Nestlé reported a 24% drop in first half confectionery operating profits​, which it blamed on spiraling cocoa costs and intense competition.

Speaking to ConfectioneryNews, Pinar Hosafci, food analyst at Euromonitor said: “Nestlé is definitely trying to move into premium because their mass market brands just aren’t cutting it.”

The company recently opened​ a $16m chocolate molding and packaging line in Ecuador that will make use of fine flavor Arriba cocoa beans for Nestlé’s UK Quality Street brand, which will move to single origin cocoa only.

What’s out there?

Hosafci said the Ecuadorian line was a bold move considering Nestlé lacked premium brands to go with fine chocolate. She said the firm needed to shop around to strengthen its premium proposition.

“There are a couple of premium brands that the company can look into.” ​She flagged Lebanese chocolate brand Patchi. The company is present in 29 countries mostly in the Middle East, Africa and Asia-Pacific, albeit only in its own boutique stores.

The analyst also noted North American brand Vosges Haut Chocolat, which uses exotic flavors such as Mexican chilies and paprika, as another possibility that would give Nestlé a stronger footing in the US, where consumers are switching to premium products.

Ferrero and Lindt out

Nestlé recently lost third place in the US chocolate confectionery market to Lindt after its Swiss counterpart acquired Russell Stover in July.

Nestlé had previously been linked with a move for Lindt​, but the latter’s Russell Stover acquisition suggests it’s not for sale, said Hosafci.

Nestlé reportedly made an offer for Ferrero in October last year. However, the Italian confectioner denied any approach had been made and said the firm was “not for sale to anyone”.

Hosafci said alternatives for Nestlé were Hotel Chocolat in the UK, Confisserie Sprüngli in Switzerland, Lotte’s Belgian brand Guylian or Yildiz Holding’s Godiva business.

Existing premium portfolio

Nestlé confectionery range features mostly mass market brands such as Kit Kat, Aero, Butterfinger and Crunch. The company’s only truly premium product is Swiss chocolate brand Cailler.

“It’s a really niche brand and not really known outside of France and Switzerland. Nestlé doesn’t really invest in the brand as part of its international expansion strategy,” ​said Hosafci.

Cailler holds a 6% market share in the Swiss chocolate market, which has been stagnant for the past five years, according to Euromonitor figures.

Premimizing Kit Kat

Nestlé has premiumized Kit Kat in both Asia Pacfic and Latin America. The firm recently opened Kit Kat stores in Japan, which sell premium Kit Kat products. It also launched Kit Kat in Brazil in 2011 as a premium product, which has proved successful to date.

Asked if Nestlé could do the same in developed markets, Hosafci said: “It’s risky because Kit Kat is known to be mass market – it works better in developing markets.”

UPDATE: The company's Indian subsidiary today (8/13/14) launched a series of advertisements for its Alpino brand to increase its competitiveness in India’s premium chocolate market.

Related topics: Manufacturers, Chocolate, Nestlé, Premium

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2 comments

Well said Cocoda

Posted by Akimbojoe,

As I read the article I couldn't imagine Godiva or Ferrero selling out as these are very successful brands, Godiva catering to the boutique crowd and Ferrero peddling quality on the mass market. As Cocoda said, the real test of the brands ability to compete in the premium market would be to properly market and utilize the lines they have. If they can't do that I don't suspect they're going to do much better attempting to buy and manage another established competitor.

The real problem as Cocoda pointed out is the difficulty trying to outcompete an entire world's worth of competitors in a multitude of markets... it's a daunting challenge for ANY company and the bigger your company gets the more cumbersome it becomes. I wish Nestle luck but if premium is what they're after they might consider using that new facility to launch a new, premium line under the good old Nestle banner... it's worked for other chocolate makers in North America (Hershey's Special Dark, Pot of Gold, Cacao Reserve and Supreme lines complete with faux Lindt packaging lol).

Success is not complicated. Make a quality product, market and package it properly, match production to demand and provide a quality to price ratio that consumers will find enticing... of course I can understand why any company would be fearful of making such a gambit.

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Really? No Premium brands?

Posted by Cocoda,

As well as Cailler, Nestle owns the Italian Perugina brand and invested significantly to leverage the Pierre Marcolini brand.

While these aren't as premium as Vosges or Hotel Chocolat, the fact Nestle can't make progress with those brands does not inspire confidence in them being able to manage any other acquired premium brands any better.

A key part of the problem is that large multinational corporations are too cumbersome and inflexible to handle the specific dynamic marketing and management requirements of specialist premium brands, which need passions and not committees for success.

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