Dive Brief:
- Pladis, the Turkish company that owns U.S.-based Godiva Chocolatier and McVitie's biscuits in the U.K., has decided against bidding for Nestle's confectionery business, according to Reuters. Pladis CEO Cem Karakas said the company intends to focus on premium chocolate, which he called "the only continuously growing segment in recent years" in North America and Western Europe.
- Nestle announced in June that it would entertain offers for its U.S. candy portfolio — including Butterfinger, Crunch, BabyRuth and others — with an estimated value of $925 million. Slumping sales and a desire to consolidate and achieve cost savings were given as reasons for the move.
- Still out there as potential bidders are Ferrara Candy Co. — the maker of Lemonheads and Red Hots, among others — and long-shot Leaf Brands, a relatively small company that makes Hydrox sandwich cookies and owns a couple of former Nestle brands.
Dive Insight:
One reason that Pladis — which has Godiva, United Biscuits and DeMet's under its corporate umbrella — may not want to move forward with Nestle's confectionery business is that consumers increasingly consider high-quality premium and dark chocolate a healthier choice. That trend is reflected in growing sales. While Nestle's U.S. candy products have their fans, they aren't likely to be the top pick for someone looking to buy high-quality premium and dark chocolate.
Pladis' CEO signaled another reason when he said the company plans to double its chocolate sales by the end of 2019 and turn Godiva into a £2 billion ($2.69 billion) a year brand by 2021 by adding blood orange, hazelnut and caramel flavors. Such products do well in Asia, the Middle East and the U.K., where Pladis intends to move Godiva away from luxury boutique and department store settings and expand distribution to Sainsbury's and other supermarkets. Chocolate consumption in the Asia Pacific region is projected to grow 2% faster than either Europe or North America, so it makes sense to concentrate on that area in expansion plans.
Confectioners with a less premium reputation — including Hershey, Mars and a host of other smaller European candy makers such as Lindt/Ghirardelli and Ferrero — are being tossed about as prospective buyers for Nestle's U.S. confectionery business. Any of them could gain increased synergies and economies of scale from that kind of deal. Greater size and scale could be just what’s needed as grocers and c-stores push vendors for lower prices and promotional discounts as competition grows and demand for candy wanes.
And while it's possible that No. 1 market player Hershey may have designs on Nestle — if for no other reason than to thwart another takeover attempt by Mondelez International — this sort of merger, with the potential of one company controlling more than 50% of all market share, would inevitably draw scrutiny from the Federal Trade Commission.
The future of the segment has been much of a guessing game since June, when Nestle first made its announcement. However, there may be answers soon; the company indicated that it expected a review of where its U.S. candy business is headed to be completed by the end of this year.