Nestlé faces the bitter truth of luxury chocolate

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Nestle+XXXNESTLÉ CE Paul Bulcke who oversees an empire stretching from baby food to wrinkle treatment, admits to finding one of its oldest businesses, chocolate, a source of frustration.

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Nestlé is one of many consumer goods companies trying to tap interest in high-end, natural, artisan, exclusive or organic goods to augment packaged food sales that have been sluggish in Europe and North America since the global recession.

Its Nespresso brand enjoys a comfortable position at the high end of the coffee market, helped by exclusive distribution, break-through technology and ads with George Clooney. But the company has not done the same in chocolate.

“Premium chocolate is my small intimate frustration,” Mr Bulcke told investors at a conference in Boston last week where he also discussed the company’s shrinking appetite for underperforming brands.

His revelation prompted renewed speculation that the firm, known for mass-market chocolate, may seek to buy its way into a bigger role in the premium sector, particularly in the US. A Nestlé spokesman declined to comment on any plans.

“I think there will be some sort of premium chocolate initiative on a global basis for the company over coming months and quarters,” said Kepler Cheuvreux analyst Jon Cox.

Nestlé sold about $8.39bn of chocolate last year, accounting for about 8% of group sales. Its confectionery business is in third place behind Mondelez International and Mars in a global market with more than $196bn in retail sales, according to Euromonitor International.

Over the past seven years, Nestlé’s confectionery business has grown at an average rate of 5.7%, below the group average of 6.3%, says Vontobel analysts.

Gourmet chocolate, often made with higher cacao content and exotic flavours such as chilli or ginger, is a small part of the market and boasts a range of independent players such as La Maison du Chocolat and Vosges. However, multinationals are increasingly present.

Mondelez owns Green and Black’s, South Korea’s Lotte owns Belgium’s Guylian, Mars owns Pure Dark and Hershey owns Scharffen Berger.

Nestlé also sells premium brands — Switzerland’s Cailler and Italy’s Baci Perugina — but the vast majority of sales come from brands such as Kit Kat, Aero, Crunch and Butterfinger.

“Super-premium luxury chocolate brands should be monolithic worldwide, like Nespresso is.

“That goes against the DNA of our organisation, so we’re going to have to find ways to go around that,” Mr Bulcke said.

The easiest way for Nestlé to move upmarket in chocolate would be an acquisition, and rumours of its interest in Switzerland’s Lindt & Spruengli and Italy’s Ferrero have recurred over the years.

“What’s interesting about both Lindt and Ferrero is both of those companies would fit beautifully into any of the other four big players,” EY global consumer products practice lead analyst Andrew Cosgrove says. “But neither asset looks affordable or available in the short term.”

Any buyer of Lindt, the maker of Lindor and Ghirardelli chocolates, would have to offer a hefty premium to its market value of $12.8bn, paying for the luxury positioning that lets Lindt generate high single-digit sales growth in developed markets, where mainstream peers see flat or low single-digit increases.

Last October, Italian media said Nestlé had offered to buy Ferrero, the maker of Kinder chocolate, which bankers value at more than €10bn. Ferrero denied the report. Yet Mr Bulcke’s comments last week led analysts to believe acquisitions may be back on the agenda.

Nestlé remains open to bolt-on acquisitions, announcing a $1.4bn deal last month to expand in injectible wrinkle treatments.

Other targets in chocolate could include Godiva, through its owner Turkish conglomerate Yildiz Holdings.

Reuters

Babatunde Akinsola
Babatunde Akinsolahttps://naija247news.com
Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

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