Blog: Dean BestHsu Fu Chi products can help Nestle compete in China

Dean Best | 8 July 2011

Nestle's interest in Chinese confectioner Hsu Fu Chi has certainly got that sector talking, as well as business analysts in China, one of whom contacted just-food to provide his insight on the potential deal.

News of the talks between Nestle and Hsu Fu Chi comes as the world's largest food maker looks to generate more of its sales from the world's emerging markets.

As we reported yesterday (7 July), Hsu Fu Chi's China-wide distribution network and the national recognition of its brands are seen by local analysts as key reasons for Nestle's interest in the business.

Another analyst, Torsten Stocker, a China-based partner at US strategy consulting firm Monitor Group, wrote in and outlined why he believed a deal could help Nestle's confectionery business in China.

Stocker questioned whether Hsu Fu Chi's distribution would be a key driver for Nestle. "Of course, acquiring Hsu Fu Chi will provide access to their channel footprint but I am not sure how much of a driver this is, i.e. to what extent Nestle really needs this. My impression is that Nestle is quite deep in China with at least some of their categories, e.g. instant coffee."

He emphasised how a deal with Hsu Fu Chi would expand Nestle's confectionery product portfolio in China, give its range a more local flavour and enable it to more effectively compete with some of the other multinationals present in the sector.

"Looking at China and the confectionery category in particular, [a deal] would also address Nestle's relative weakness in the confectionery aisle and help expand its footprint, scale and negotiation power through a range of very local snacks," Stocker wrote.

He pointed to Hsu Fu Chi's candy, jello cups ("mostly non-chilled, sold in multi-packs or as single packs in the very popular pick n mix counters) and its sachima cake ("a bar-sized/flour concoction that will stick to your teeth forever").

Stocker said: "These can supplement Nestle's wafer, (limited) chocolate and mint range and help it compete on a more equal footing with leaders Mars & Wrigley, which are chocolate and gum leaders and are also in hard and soft candy, Perfetti Van Melle (gum, candy, choclairs), Lotte (gum, chocolate, biscuits), Kraft-Cadbury, Ferrero and the usual 'long tail' of domestic players."

Nestle's admission that it is in talks with Hsu Fu Chi - and admissions like that are rare from Vevey, the company prefers to comment only when a deal is done - has certainly given the confectionery industry plenty to chew over.


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