BRICs and beyond: Hershey hopes for sweeter future in India
Hershey faces entrenched competitors in India, including Kraft Foods and Perfetti van Melle
Hershey's passage into India has proved anything but smooth but clearly the US confectionery giant is a believer in perseverance.
The likes of Kraft Foods, Perfetti van Melle and Nestle may have developed strong positions in India's confectionery markets but Hershey, after a troubled five years in the market, believes it can thrive by going solo in what is forecast to remain a fast-growing sector.
Hershey has taken full control of its Indian venture after five years working with local conglomerate Godrej. The Godrej Hershey business has found the going tough despite booming confectionery consumption in India. The loss-making venture generated just US$80m in sales in 2011 (Hershey says the market as a whole is worth $2bn) and analysts at Euromonitor claim the venture's major brands have seen their market share sink in the five years of the business.
However, Hershey, which wants to boost its sales outside the US, which accounts for the bulk of its revenue and is eyeing generating $1bn in revenue in overseas markets by the end of 2015. It has turned to the emerging markets of Brazil, China, Mexico and India and, despite its challenges in the latter market, thinks it can prosper with the new Hershey India subsidiary.
"India is a rapidly growing market and one we believe will help Hershey achieve its global growth objectives," a spokesperson tells just-food. "In 2011, estimated retail sales in India for sugar and chocolate was nearly $2bn – with a compound annual growth rate of more than 20%. China and India will account for close to 50% of the world's middle class population by 2013. This middle class is the sweet spot for our portfolio. In India, the confectionery category is still forming which provides us an opportunity to shape and drive the category, establishing ourselves as a leader."
Kraft Foods leads India's confectionery market thanks to its 2010 acquisition of Cadbury. According to Euromonitor, it accounts for 33% of sales. However, Perfetti van Melle and Nestle have carved out strong positions in the sector, while Ferrero has enjoyed success in the chocolate segment.
Some analysts agree that, despite the entrenched competition, the market offers enough growth for Hershey to tap into. "The market, over the 2012 to 2017 forecast period, is going to expand by $1.9bn in value terms, so even if Hershey captures a small proportion of the absolute value, it's going to be a very good addition to its revenue," Euromonitor analyst Ildiko Szalai tells just-food.
In India, Kaushik Madhavan, a partner at FMCG and retail consultants A.T. Kearney insists consumption remains low but will grow rapidly as incomes increase and more people move to urban centres.
"India is a very under-penetrated chocolate market. If you look at per capita consumption, India would be among the lowest consumers of chocolate and chocolate-based products. Unlike in China, where I understand the Chinese are not fond of chocolate, in India, chocolate is a category that people like and it is considered a premium indulgence product," Madhavan says. "As disposable incomes have grown, lifestyles have moved towards more urban-centric living and awareness of international products is triggering a lot of growth in consumption in these categories."
He adds: "All the players that have a presence in the chocolate market are doing well. The overall market is growing pretty rapidly. It's not a mature market where you are taking on entrenched companies. India is absolutely a growth market in this category. It's a growth market for all categories but the size is so small and growth is much larger in confectionery."
That said, Hershey is starting with a business that has struggled. Sales of US$80m hardly makes a dent in a market worth $2bn. Hershey has so far not managed to launch any of its international brands in India. The only product on sale in the country with the US company's brand name so far has been Hershey Chocolate Syrup.
At Euromonitor, Szalai says all four of the venture's brands lost market share between 2007 and 2012. "Each of the brands have seen very strong market value share erosion since 2007," she says.
Maha Lacto toffees accounted for 2.2% of India's confectionery sales by value in 2007, Szalai says. By 2012, that fell to 0.9%. Sugar confectionery brand Nutrine also had a market share of 2.2% five years ago. Now, it languishes at 0.7%.
Szalai says the venture managed to increase the sales of both brands but was outpaced by the market. "The revenue of these confectionery brands grew but the market way outperformed them," she says.
Hershey, for the meantime, says it will continue with the current brands in the portfolio but admits it sees an opportunity in India for its international products.
"At this time we will continue with our current product portfolio including Nutrine, Maha Lacto, Jumpin and Sofit, as well as Hershey's Syrup. We see tremendous opportunity for our global brands in India and are evaluating our portfolio as part of the strategic planning process," the spokesperson says. However, she adds: "We do not have anything additional to announce at this time."
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