Ferrero would become ‘third largest player’ in global chocolate if it acquires Nestlé’s US candy business, says analyst

Ferrero is currently the fifth largest chocolate brand in the US, but its market share is only around 3%, compared to Nestlé at 7.9%, Lindt & Sprüngli at 9.3%, and Mars and Hershey make up the majority of the market with 27.1% and 31.5% shares respectively, according to Euromonitor data.

“Nestlé has performed in line with its rivals over the years with a CAGR of 3.5% in overall packaged food. Yet, for confectionery, it relies heavily on the US, representing 15% of the company’s sales in 2016,”​ said Euromonitor’s senior food and nutrition analyst, Raphael Moreau.

However, “in this market (US), Nestlé in fact suffered from disappointing sales in 2016, impacted by the competitive environment and low growth in the mainstream chocolate market,”​ he explained.

Moreau believes Ferrero is more competitive than Hershey and other private equity firms in the Nestlé deal. “It is likely that Ferrero would be willing to pay a higher price premium in order to achieve its strategic goal of boosting its presence in the US,”​ he said.

The Italian chocolate giant, who owns brands such as Nutella, Tic Tac fresh mints, and Ferrero Rocher, has made several acquisitions in the past two years to expand its footprint in the US: it purchased Delacre biscuits​​ from Yildiz Holding in 2016 before swallowing Chicago-native premium chocolate brand Fannie May​​ and gummy maker Ferrara​​ last year.

What about Hershey?

On the other hand, Edward Jones’ consumer analyst, Brittany Weissman, previously said Hershey​​ “would still be interested in doing the right deal in the confectionery space,”​ and Nestlé’s candy brands could give the company “scales and synergies.”​

“As Hershey recently made a large acquisition outside chocolate confectionery to diversify into other type of snacks by buying the Skinny Pop popcorn brand, it is also less likely than Ferrero to be willing to engage in a bidding war,”​ Moreau argued.

“However, as Nestlé’s brands are not positioned as premium as Ferrero’s brands, their turnaround and a successful integration into Ferrero’s brand portfolio would be uncertain,”​ he said.