Lindt will ‘most certainly come back to growth’ in US as Clif Bar and KIND Snacks slow down, says Vontobel
Lindt also anticipates an approximately 10% duty free sales increase, and a 5.1% organic growth overall this year, according to the investment management firm’s latest report.
“Although some raw material prices increased significantly in recent weeks, Lindt is expected to benefit from tailwinds in fiscal 2018 as the company is covered for the most part,” Vontobel explained.
“Synergies with Russell Stover [which Lindt acquired in 2014] are expected to kick in, in 2H18,” it added. “Overall, the savings will be invested in future growth.”
Is the US chocolate market dead?
Vontobel analyst, Jean-Philippe Bertschy, originally suspected “the chocolate market in the US is dead,” especially after Nestlé’s disposal of its US confectionery business.
The perception is further strengthened by the fact drug stores are cutting back their confectionery aisle due to healthy snacking trends, he added.
However, the view may not be accurate, Bertschy noted.
According to Euromonitor, retail value sales in US chocolate confectionery posted a CAGR of 2.8% since 2012, reaching $19bn in 2017.
“Hershey remains the clear number one with a 29.5% market share [in 2017] ahead of Mars with 24.5% and Lindt 9.3%,” said Vontobel.
“The only player in the top five (Hershey, Mars, Lindt, Nestlé and Ferrero) to gain market share last year was Ferrero – increased from 3% in 2016 to 3.3% in 2017 thanks to the acquisition of Fannie May (a Chicago-based premium chocolate brand),” it continued.
That leads analysts to believe there is still a significant upside for premium chocolate in the US.
“Lindt remains a high-profile, premium, niche player in the food and beverage sector,” said Vontobel.
“For the coming years, Euromonitor forecast the [US chocolate] market will continue to grow at a CAGR of 1.4% up to 2022. The premium segment is expected to clearly outperform overall market growth.”
Snack bars ‘lost some steam’
The other factor that made Vontobel project Lindt’s upcoming growth is the fact the US healthy snacking market now appears to have reached a point of saturation.
Many of these better-for-you snack brands are also the investment targets of mass-produced chocolate giants like Hershey and Mars.
“Although still growing and attractive, as seen with the price paid by Mars for a minority stake in KIND, valuing the company at more than $4bn from $730m 10 years ago, the category lost some steam last year,” said Vontobel.
“The combined market share of Clif Bar and KIND in the sweet biscuits, snack bars and fruit snack category increased from 4.8% in 2013 to 8.2% last year.
“However, the pace of market share gains slowed down massively in the past two years,” added Vontobel. “Consumers are confused by the multitude of mixed messages, and they seem less and less prepared to pay premium prices for these bars.
“Overall, we remain confident that consumers in the US will continue to indulge, and eat high-quality chocolate products. Lindt is well positioned to gain significant market share on the back of its strong premium and clean label profile,” Vontobel concluded.