Confectionery makers Hershey and Ferrero are to work together on logistics in North America and there are hints they could one day take this partnership into other markets. However, as Sam Webb reports, industry watchers believe the venture could be the first stage of a wider relationship in the future. 

On Wednesday (5 October) confectionery giants Hershey and Ferrero announced they had an entered into an “alliance” to improve their supply chain through a joint warehousing and transportation initiative in North America.

The deal is ostensibly to reduce both costs and carbon emissions, but, considering some of the language used in the press releases and the fact that the two companies were linked over a joint bid for the UK confectioner Cadbury, analysts have wondered at the wider implications of the announcement.

John Bilbrey, Hershey’s president and CEO, said: “Although we are initially focusing on one region of our business, we are excited about the full potential of this project.”

However, Hershey’s statement about the partnership also pointed out the alliance “does not encompass manufacturing, selling or marketing activities”.

Officials at Hershey could not be reached for further comment. However, a spokesperson for Ferrero was quick to dismiss a wider working partnership outside the realm of deliveries and storage, saying Bilbrey was solely referring to expanding the logistics initiative.

Ferrero was glowing about its “ideal” new partner, but equally at pains to underline that this is just about the supply chain.

“This alliance pertains only to supply chain processes. It does not involve manufacturing, selling or marketing activities”, a statement said.

“The goal is to enable both companies to service their customers in a more efficient and sustainable way, for example, through shared warehousing facilities and transport.”

Doth the ladies protest too much? Andrew Lazar, an analyst at Barclays Capital, says maybe.

“Ultimately, in our view, this could mark the first step towards a potentially more comprehensive strategic relationship geared to exploit potential cost-savings opportunities – without going the traditional M&A route”, he said.

Lazar added that productivity stemming from this initiative is likely to be “very modest” at first, but will ultimately be worth it. Lazar also thinks other businesses will follow suit.

He said: “With a continually challenged consumer environment, we have long written that, in order to succeed, the most forward-thinking of minds must play a part, and we are encouraged to see Hershey’s and Ferrero’s management teams’ openness to this forward thinking.

“Most importantly, we would not be surprised to see still more CPG players follow suit and explore similar strategic options.”

What he did find surprising was that the pair chose to work with a direct competitor, although he believes confectionery competitors in Europe have been sharing distribution and warehousing facilities for some time.

Erin Lash, from investment research company Morningstar, said the collaboration was “interesting” and feels further collaboration is possible, similar to HJ Heinz and Coca-Cola Co.’s agreement to work together on plant ketchup bottles earlier this year. However, she does not expect “meaningful changes” over the near term.

Rivals working together for mutual benefit is a trend that is predicted to gather pace. Who knows what unlikely alliances will spring up in the future?