Blog: Is Hershey hungry for Cadbury?
Dean Best | 27 April 2007
Times are bittersweet right now for US confectionery giant Hershey.
The company has seen profits tumble in recent months after not investing enough behind its core products and not being fast enough to tap into growing demand Stateside for upmarket chocolate.
In response, Hershey has embarked on a streamlining programme that will axe 1,500 jobs and cut its production lines by a third, freeing up more cash, the company hopes, to breathe fresh life into its brands. What’s more, Hershey hopes that the launch late last year of premium chocolate like Cacao Reserve will start to pay off as we move through 2007.
Outside the US, Hershey has moved to catch up with rivals like Cadbury and Nestlé with partnerships in small, but potential high-growth markets like India and China. And now, Hershey has signed a deal with chocolate producer Barry Callebaut to team up on supply and innovation across the Americas.
Nevertheless, it seems that 2007 – and perhaps 2008 – will be a time of transition for the 107-year-old Hershey. Core brands like Reese’s have already received much needed investment in a bid to regain share from Hershey’s competitors. However, it will be months at least before Hershey reaps sustained benefits from that investment.
The deal with Barry Callebaut is vital for Hershey. Demand for standard chocolate in the US is stagnant and Hershey is pinning its hopes on the Barry Callebaut partnership to strengthen its position in the premium end of the market.
However, analysts are concerned that Hershey is at risk of being too dependent on its home market. The majority of Hershey’s business is in chocolate and its biggest market is the US, where despite growth in niche segments, there remains scepticism over the long-term growth of the chocolate category.
And despite Hershey’s investment into markets like China, India and Mexico, there remains a belief that the company is too reliant on the US. For its part, Hershey is keen to expand globally but it could be argued the company needs a “transformational” deal to really move forward. It will be a while before it enjoys earnings growth in China and India.
Hershey executives may remain tight-lipped on the issue but talk of a Hershey bid for Cadbury’s chocolate and gum business is not going away.
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