Hershey has insisted it is not under “great pressure” to boost its international expansion via acquisitions.
The US confectionery giant, long criticised for being slow to expand outside its home market, is building its business outside North America. It has identified China as a “win-now” market and is also making inroads in countries including Mexico and Brazil. The Kisses and Reese’s owner has set a target of generating up to US$2bn in sales outside the US and Canada in 2017, when it wants to have group sales of $10bn.
Hershey’s plans for growth are built on organic expansion and on M&A but, speaking at the Consumer Analyst Group of Europe conference in London this week, the company was relaxed about securing deals.
“We’re very engaged in looking at all markets we have interest in. At the same time, we’re quite selective around our acquisition strategy. We’re acquisitive-minded but at the same time we don’t feel under great pressure,” Hershey CEO J.P. Bilbrey said. “We’ve looked at a number of things that once we’ve got under the hood and had a good look we felt differently about it. We really look at things that might offer brands, capability in distribution or capability in manufacturing.”
Hershey’s most recent deal was in India. Last September, it bought venture partner Godrej Industries’ stake in what was a loss-making business and one that had seen its market share fall in the last five years. India, however, is a market Hershey sees as offering an “opportunities… but over the longer-term horizon”, Bilbrey told investors and analysts at CAGE.
The parts of Bilbrey’s presentation that focused on Hershey’s international operations focused largely on China. Bilbrey reiterated what the company said in February at the Consumer Analyst Group of New York presentation in Florida. He said Hershey was “placing a big bet” on China, which he said would be the company’s number two market over the next five years.
Hershey is looking to launch more products in China after seeing success with its Kisses brand in the country. It is building its distribution in China and opened an innovation centre in the country last autumn.
While FMCG companies are expanding into emerging markets, investors and analysts are keen to hear whether the operations, while enjoying sales growth, are profitable – or when they will be.
At CAGE, Hershey said its international operations were in “build out or invest mode” but it has set a profitability target for 2017.
“Asia really is a reinvest market for us, there we’re much more focused on the top line,” CFO Bert Alfonso said. “We’re really pleased with the results we’re getting from those investments. What we see is the opportunity to gain leverage over the next five years, including SG&A leverage and take advantage of those infrastructure investments and become profitable. Our target is, combined outside of the US and Canada, to have operating margins in the low double-digits over the next several years.”