Blog: Dean Best"Mounting pressure" for Hershey to expand into emerging markets

Dean Best | 6 January 2012

It has been one of the most regular assertions in the confectionery sector in recent years - and one US analyst has repeated it again today (6 January). 

Hershey, so the argument goes, needs to expand further into emerging markets - and quick.

There is no doubt the US confectioner has lagged its peers in investing in international markets. Compared to the likes of Kraft Foods, Mars Inc and Nestle, Hershey is far too dependent on its domestic market, which, despite seeing sales growth tick along nicely, is far more mature than the likes of Brazil, India and China.

Hershey is building its presence in markets like Mexico, India, China and Brazil and the company is looking to meet a target of generating US$1bn in sales outside the US by 2015.

However, Sanford Bernstein analyst Alexia Howard believes that, after the recent consolidation in the confectionery sector (Mars' acquisition of Wrigley, Kraft's mvoe to buy Cadbury and Nestle's purchase of a majority stake in Chinese candy maker Hsu Fu Chi), there is "mounting pressure" on Hershey generate more growth outside the US.

Of course, last month, Hershey acquired Canadian confectioner Brookside Foods but the focus of analysts is on the company's position in emerging markets.

Hershey, Howard says, has been "striving" to build its international business organically but she argues it needs to acquire local operators or form joint ventures to gain significant market share overseas.

"While Hershey has been striving to grow organically in international markets, these markets are dominated by Kraft, Nestlé, and Mars, and it is more likely that Hershey will need a strong international partner or pick up a few local players to increase penetration," Howard wrote in a note to clients.

The world's largest confectioners believe emerging markets will drive top-line growth and have made moves accordingly. Howard is correct that Hershey needs to do the same but argues large acquisitions could be hard to come by - and indicates that bolt-on deals joint ventures could be another option for the Reese's maker.

Hershey has said it could look to acquisitions to build its international business but Howard is quick to note that the company's management have not commented on specific targets.

She does, however, put forward partners that Hershey could team up with in particular markets - Argentina's Arcor in Brazil and Grupo Bimbo in Mexico, where the local food giant is the fifth-largest confectioner.

Howard says one possible venture, with Nestle, could be less of a possibility after the Swiss group's deal with Hsu Fu Chi.

Hershey reports its annual results to the market - and attends annual US analyst conference CAGNY - next month. Could it divulge more on its international ambitions and assuage possible concerns among investors?


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