- Last week Nestle announced plans to sell its $925 million U.S. confectionery business, which analysts speculate could lead to industry consolidation, according to Food Business News.
- The confection giant's decision to sell “represents a compelling opportunity for U.S. candy companies to consolidate the category at a critical moment. Consumers have cut back on sugar-based snacks and shifted more of their shopping online,” Robert Moskow of Credit Suisse wrote in a note.
- For the 52 weeks ended October 8, U.S. confectionery market share data from Nielsen places Nestle (4.5%) in fifth place behind Hershey (31%), Mars (29.1%), Mondelez International (5.3%) and Lindt/Ghirardelli (5.3%).
It shouldn't come as much of a surprise that Nestle is shopping around its U.S. confectionery business. For a company that aims to have a #1 or #2 category position, Nestle’s U.S. candy operation captures just 5% market share, ranking it fifth behind bigger competitors. As consumer preferences shift toward healthier snacking and retailers such as CVS rework front-end impulse areas to de-emphasize sweets and other unhealthy treats, the candy outlook doesn't appear too sweet. Companies in the industry may have little choice but to consolidate and squeeze out cost savings from a deal.
Hershey, Mars and a host of other smaller European candy makers such as Lindt/Ghirardelli and Ferrero are being tossed about as prospective buyers, any of which are likely to gain increased synergies and scalar economies should a deal happen. 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.
Should a prospective buyer come from within the candy sector, a further shakeout of marginal brands becomes a distinct possibility. There also is the potential that one merger spurs consolidation among the remaining players who are forced to combine in order to remain competitive against the newly formed, more nimble player.
It's possible Hershey could have an interest in Nestle, if for no other reason than to thwart another takeover attempt by Mondelez International. But a Hershey/Nestle combination, with market share potential approaching 50% or higher, would undoubtedly be scrutinized by the Federal Trade Commission.
With Mondelez's high interest level in Hershey, Nestle could easily become its next target for a fraction of the price. The snack maker has already demonstrated interest in penetrating the candy market with its recent Oreo chocolate bar introduction.
Whoever buys Nestle's U.S. candy operations, they will add several perennial brand favorites, including Nestle’s Crunch, Butterfinger, BabyRuth, and its Willy Wonka franchise, to its portfolio.