Which five markets hold 'enormous potential' for Lindt?

The company today reported a 7% net profit growth in financial year 2017 (January 1 to December 31, 2017).

Lindt previously announced​​ group sales growth of 4.8% to CHF 4.1bn ($4.25bn) for the fiscal year in January. 

This represented 3.7% organic growth, which fell short of its 6% to 8% growth target due to challenges in the US market (See factbox for further details).

US struggles

Lindt’s organic growth in its NAFTA region declined 1.6% in fiscal 2017. This was mainly due to challenges in the US where drug stores – an important channel for chocolate – are revising their product mix, and department stores seeing less footfall. Lindt has also been repositioning Russell Stover from a gifting brand to everyday brand and trimming its portfolio, which further dragged down US sales.

Five growth markets​

But the Lindor maker highlighted “five exciting markets”​, mainly in its ‘Rest of the World’ segment that are driving growth.

“The markets of Japan, China, South Africa and Brazil, as well as Russia (actually part of the ‘Europe’ segment) will be important for the expansion of our Group in the years ahead, as the chocolate markets in all these countries hold enormous potential,”​ Lindt CEO Dr Dieter Weisskopf and company executive chairman Ernst Tanner, said in a joint letter to shareholders.

Lindt’s Rest of the World division outpaced other segments with 12.4% organic growth in fiscal 2017.

“This positive trend is being fueled by consumers’ growing demand for quality, greater purchasing power and also a growing desire for chocolate with a high cocoa content. For Lindt & Sprüngli, this is an excellent foundation,”​ said Weisskopf and Tanner.

Shops for Japan; E-commerce for China​

The pair said Lindt is tailoring its strategies to trends in each market.

For example, it is focusing on opening Lindt shops in South Africa and Japan, while instead concentrating on e-commerce and distribution in Shanghai and Beijing for China.

Lindt’s ‘Rest of the World’

The Swiss firm’s Rest of the World segment - comprised of Asia Pacific, South Africa and Brazil – made up around 13% of group sales (CHF 0.52bn / $0.55bn) in fiscal 2017, compared to 12% the prior year. Group sales in fiscal 2017 came in:

• Europe: 47%
• NAFTA: 40%
• Rest of the World: 13%

Lindt reported “unusually high growth”​ in Chinese e-commerce in fiscal 2017 due to high visibility of the Lindt e-store on online marketplaces Tmall and JD.

Lindt’s Excellence and Lindor brand propped up growth in Russia in 2017, while a joint venture signed in 2014 with CRM Group​​ is helping the Swiss firm increase sales in Brazil.

Mexico and Hungary offices​

Lindt is now eyeing new markets.

The company will establish a subsidiary in Mexico towards the end of this month.

It also registered a regional office in Hungary - a branch of its Czech subsidiary Lindt & Sprüngli (CEE) - last month to support expansion into other Central Eastern European countries.

Lindt today reaffirmed its mid-to long-term guidance of 6-8% and a 20-40 basis point increase in EBIT margin for fiscal 2018.

In an analyst’s note, Alain Oberhuber of MainFirst Schweiz, said he expects organic growth of 6.6% for the current fiscal year.