The bid for Dutch sugar confectioner Van Melle by its Italian counterpart Perfetti has prompted speculation that the international confectionery industry is awaiting a new wave of consolidation. Some analysts believe that the new Italian-Dutch group could be an attractive acquisition target for multinational confectioners like Cadbury, Nestlé and Kraft. This may be so, but Van Melle is being taken off the stock exchange by Perfetti which, for the moment at least, makes it rather more difficult to acquire.

Indeed, the most likely reason why Van Melle invited the Perfetti bid at this time is to prevent being swallowed up by the Cadburys and Nestlés of this world. Only 35% of Van Melle shares are free-floating on the Amsterdam stock exchange. Twenty percent of the shares are in the hands of a US investment fund, 7% are owned by the Van Melle family and 38% are owned by Perfetti. For years, Van Melle has been one of the most defensive companies on the Amsterdam Stock Exchange, protecting itself in every possible way against a hostile takeover.

However, in recent times, as a result of new trading rules, such defensive tactics have become increasingly difficult to maintain. Van Melle knew, therefore, that its days as an independent company were numbered, especially with chairman Izaak van Melle stepping down after having led the company for 25 years. What the Dutch company particularly feared was being bought and subsequently dismantled by a larger producer, which would most likely be interested only in Van Melle's top brands, notably Mentos. Hence, to preserve the company as much as possible, it chose to surrender itself to family company and long-time collaborator Perfetti. If or when the new Perfetti Van Melle combination will come on the market, is a question that only the chairman, Mr A. Perfetti, can answer.


"A clear distinction should be drawn between the chocolate confectionery and sugar confectionery markets"
Of course, this is not to deny that concentration in the confectionery industry will continue. The underlying trends that favour concentration - the continuing internationalisation of markets, spiralling consolidation among retailers, ever-increasing marketing and distribution costs - remain in place. The question is, in what way will concentration develop, and how far will it go? A clear distinction should be drawn between the chocolate confectionery market and the sugar confectionery (and chewing gum) market.

Sugar confectionery is generally easier to produce and products tend to be lower in price than chocolate. As a result, the sugar confectionery market is highly fragmented - it is essentially a nickel and dime business, dominated by non-branded, local products made by local suppliers. Obtaining a strong market position in this environment requires local production (to keep down costs) as well as an extremely versatile and flexible distribution organization.

Chocolate products tend to require heavier investment in manufacturing and higher prices, with many of the products aimed at the high end of the confectionery market. As a result, although the international chocolate market is quite fragmented, compared to the snacks or beverage markets, for instance, it is still much more concentrated than the sugar confectionery market. It is no coincidence that the six largest confectionery producers in the world (Nestlé, Mars, Hershey, Ferrero, Cadbury, Kraft) are all primarily chocolate producers. In addition, it is noteworthy that the 'big six' all engage in sugar confectionery production, whereas the leading sugar confectioners (Adams, Wrigley, Perfetti Van Melle, Haribo, CSM) are not active in the chocolate market.


"It is no coincidence that the six largest confectioners in the world are primarily chocolate producers"
Thus, what we see is big chocolate producers, faced with a saturated market, trying to expand in sugar confectionery ? a strategy that seems to make sense, in view of the obvious parallels between the two categories - but is fraught with difficulties, as a result of the peculiar nature of the sugar confectionery market. These difficulties were highlighted last year by an analyst from Credit Suisse-First Boston, Martin Dolan, who noted that the return on investment from international confectionery acquisitions was often quite disappointing.

One problem for chocolate producers is the scarcity of international power brands in sugar confectionery. Of these only a handful exist: Halls, Mentos, Wrigley. In the children's market, there are none, except Chupa Chups. To be successful in sugar confectionery, chocolate companies must learn to operate locally and be satisfied with strong local brands. Recent acquisitions in sugar confectionery pertained mostly to non-branded products and/or strictly local brands (for instance, Kraft's sugar confectionery and chewing gum activities in France, acquired by Cadbury; Nabisco's chewing gum and breath fresheners activities, bought by Hershey; non-branded specialist Continental Sweets, bought by brand-focused CSM).

Still, there are some interesting acquisition targets left in sugar confectionery. The biggest fish is Adams, which came into the hands of Pfizer early in 2000 when this pharmaceutical company acquired Warner Lambert. Legal rules make it impossible for Pfizer to divest Adams within two years after this acquisition, but it is expected that Adams, which records annual sales of some €1.9bn and boasts the world's number one sugar confectionery brand (Halls), will come on the market early in 2002.


"ROI from international confectionery acquisitions is often disappointing" - Martin Dolan, Credit Suisse-First Boston
Another highly interesting target will be Chupa Chups. This Spanish company, with sales of some €500m, has made a huge success of its two international power brands (Chupa Chups and Smint) and is even attempting to establish an international brand (Crazy Planet) in the notoriously difficult children's category. Chupa Chups is still a family company, but it has announced its intention to go public within the next few years.

A third big target is LifeSavers, which last year came into possession of Kraft (Philip Morris) through its acquisition of Nabisco. Nabisco is known for its strong presence in biscuits, but it also had a substantial sugar confectionery division, with sales of some US$540m. Half of this turnover (in particular chewing gum and breath fresheners) has already been sold to Hershey. The other half, including LifeSavers, is still in the hands of Kraft, which, however, has displayed no intention of expanding in sugar confectionery. Other large European sugar confectioners are Cloetta Fazer and General de Confiteria (Joyco).

Who are the most likely buyers of all these sweet goods? Cadbury, Nestlé and CSM seem the most obvious candidates. In contrast, Mars, Ferrero and Haribo are family companies, which tend to rely on building their own brands. Whatever the outcome of this confectionery reshuffle, it will be a long time before this market becomes a truly global one - if ever.

By Karel Beckman, just-food.com correspondent