Nestlé last week said it was conducting a strategic review of its US confectionery division “including a potential sale”.
‘Little merit’ for Hershey to buy Nestlé’s US brands
Pablo Zuanic, senior equity analyst at SIG, said in a note: “We see little merit in Hershey buying Nestlé’s US confectionery business but, on the other hand, would suggest Hershey engage Nestlé in buying the entire global confectionery business.”
Nestlé's US Confectionery Brands
Nestlé’s US confectionery business posted CHF 900m ($924m) in sales in 2016 and comprises the brands:
Crunch, Butterfinger, BabyRuth, 100Grand, SkinnyCow, Raisinets, Chunky, OhHenry! and SnoCaps
SweeTarts, LaffyTaffy, Nerds, FunDip, PixyStix, Gobstopper, BottleCaps, Spree and Runts
Zuanic said Hershey could face anti-trust issues if it sought to acquire any of Nestlé’s US chocolate brands.
Hershey has a 36% share in US chocolate, while Nestlé’s chocolate brands such as Butterfinger hold a 3.3% US share, he estimates.
Hershey would retain US licensing rights for Nestlé’s Rolo and KitKat brands in the US, even if Nestlé sells its US confectionery division, the analyst said.
Rolo and KitKat in the US together are worth $480m in annual sales, accounting for a 4.4% share of US chocolate, according to SIG.
‘Strategic move’ for the global business
Zuanic suggested Nestlé may move in a new direction and decide to get out of confectionery entirely globally after appointing new CEO Ulf Mark Schneider from health care group Fresenius in January this year.
But the Swiss group said in a statement last week: “Nestlé remains fully committed to growing its leading international confectionery activities around the world, particularly its global brand KitKat.”
Zuanic said Nestlé’s entire global confectionery division could be a “more attractive opportunity and certainly a strategic move” for Hershey.
Zuanic said a $17bn deal “should be doable” for the Hershey Trust, the company's owners.
Euromonitor data indicates Nestlé’s global confectionery division generates annual sales of $7.4bn with $530m coming in the US. Nestlé said last week its US confectionery arm posted CHF 900m ($924m) in 2016 sales.
[Infographic compiled by ConfectioneryNews]
Suitors for US brands
SIG suggested Lindt and Mondelēz were the likeliest buyers for Nestlé’s US confectionery brands.
Speaking to ConfectioneryNews, Marcia Mogelonsky, director of insight at Mintel, said Hershey’s more “healthful” strategy, emphasizing wellness over indulgence, make it an unlikely bidder for Nestlé confectionery brands.
Hershey’s most recent acquisitions have been for meat snacks firm Krave and chocolate snacking company BarkThins , while the company is currently implementing a simple, familiar Ingredients strategy across its range.
Mogelonsky added that Mondelēz may “avoiding making a big splash” now amid leadership uncertainty.
In April this year, Mondelēz said its CEO Irene Rosenfeld would remain in place after reports speculated the firm was searching a successor.
“I am not sure why Lindt would be interested since Nestlé's US holdings are not especially compatible. They are not especially ‘premium,’” she added.
The insights director said Ferrero’s recent acquisition of Fanny Mae shows it is intent on building a US presence and could be a contender for Nestlé brands.
Ferrero also plans to bring Tic Tac Gum and Kinder Joy eggs to the US next year.
Mogelonsky suggested private company Tootsie Roll may be interested in Nestlé sugar confectionery brands Laffy Taffy and Pixy Stix, but said Amazon’s expected acquisition of Whole Foods may change the competitive landscape and mean even a private label such as Walmart may see opportunities for Nestlé's US candy brands.
Nestlé’s is expected to be complete the review of its US confectionery arm by the end of the year.