Dean Best

Comment: Hershey makes serious move in China

By Dean Best | 2 January 2014

Hershey set to triple sales in China through acquisition

Hershey set to triple sales in China through acquisition

The final full week before Christmas saw another notable international move from Hershey, with the US confectionery giant underlining the seriousness of its ambitions in China.

Hershey struck a deal to buy 80% of local confectioner Shanghai Golden Monkey. The privately-owned business manufactures Golden Monkey candy, chocolates, protein-based products and snack foods from five plants. The company's net sales, Hershey said, "have been growing double digits" and it is expected to report a top line of US$225m for 2013.

The deal is Hershey's latest investment in China, a market where it has enjoyed recent success after a slow start. Historically, Hershey was a company that generated the bulk of its sales in the US and, compared to its rivals, did not focus as much on building operations outside its domestic market.

Hershey did enter China in 1995 but failed to make significant inroads. However, at the start of the Noughties, Hershey identified a set of international markets where it believed its prospects were strong and in which it would target its overseas investment - including China. It has invested heavily in sales and distribution to boost its business in a country that it believes will be its second-largest market within the next five years.

That investment has paid off, with Hershey's sales in China growing and its market share increasing.

This year, Hershey has sought to build on that success with the opening of an R&D centre in Shanghai and the launch of its first brand developed specifically for an international market in China.

That said, the acquisition of Shanghai Golden Monkey (Hershey plans to take full control of the business in 2015) is a more significant move. It will, according to Barclays Capital estimates, triple the US firm's sales in China. It should also give Hershey a wider product portfolio, particularly in non-chocolate confectionery, particularly important for the Chinese market.

Chocolate sales in China were up 12% over the first nine months of 2013 and Hershey has said its sales were in line with a target to grow "at least four to five times greater" than the category over the whole of the year.

However, chocolate is not the largest category in China's confectionery sector - an obvious factor in Hershey's launch of Lancaster milk candies - and the addition of Shanghai Golden Monkey's products into its portfolio will give the US group a stronger presence in the segment. According to Barclays Capital, around US$8bn of non-chocolate confectionery is sold in China a year, around four times the value of chocolate sales.

Shanghai Golden Monkey's 130 sales offices in China should also benefit Hershey, notably giving the company better access to the country's traditional retail outlets. "It has distribution into channels where Hershey products have yet to penetrate," Bert Alfonso, the head of Hershey's international operations, said when the deal was announced.

Hershey had long been a business criticised by some industry watchers for being too slow in expanding outside the US. In recent years, it has undertaken a series of initiatives to slowly but tactically build its operations in markets like Mexico, India and China and has won praise in doing so.

However, the acquisition of Shanghai Golden Monkey is its most serious inorganic move, offering the company a wider portfolio in larger categories and wider distribution in a growing market.

Sectors: Confectionery, Emerging markets, Mergers & acquisitions

Companies: Hershey

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