Nestlé explores sale of US confectionery business

Swiss food giant Nestlé is to explore strategic options for its US confectionery business, including a potential sale.

The review, the company says, covers the US market only and is expected to be completed by the end of this year.

Nestlé’s US confectionery business had sales of around CHF900 million ($926.1m) in 2016. It includes local chocolate brands such as Butterfinger, BabyRuth, 100Grand, SkinnyCow, Raisinets, Chunky, OhHenry! and SnoCaps, as well as local sugar brands such as SweeTarts, LaffyTaffy, Nerds, FunDip, PixyStix, Gobstopper, BottleCaps, Spree and Runts. It also comprises the international chocolate brand Crunch.

The strategic review does not cover Nestlé’s Toll House baking products, a strategic growth brand which the company will continue to develop in the US market.

Nestlé says it remains fully committed to growing its international confectionery activities around the world, particularly its global brand KitKat. Nestlé’s global confectionery sales amounted to CHF8.8bn in 2016.

With sales of CHF26.7bn in 2016, the US is Nestlé’s largest market. The confectionery business represents about 3% of US sales. The company employs over 51,000 people in more than 120 locations across the US, including 77 factories and 10 R&D centres.

Commenting on the announcement, Lianne van den Bos, senior food analyst at Euromonitor International, says Nestlé’s growth strategy has been centred on its aim to reposition itself to become the world’s leading wellness and nutrition company.

With a wide range of packaged food operations and a strong presence in categories that do not easily accommodate health trends, such as confectionery and ice cream, she believes Nestlé faces a number of challenges to build its health and wellness image.

She notes, “Nestlé has performed in line with its rivals over the years with a CAGR of 3.5% in overall packaged food. Yet, for confectionery it relies heavily on the US, representing 15% of the company’s sales in 2016. In this market, Nestlé in fact suffered from disappointing sales in 2016, impacted by the competitive environment and low growth in the mainstream chocolate market. In the US, health-focused shoppers have increasingly turned to snack bars over confectionery bars, as brands, such as Kind, have innovated with sweet and salty flavours that satisfy sugar cravings (and even use chocolate) but enjoy a healthier positioning.

“At the same time, manufacturers have innovated with products that incorporate dark chocolate, fruit, nuts or other ingredients that provide a more nutritious or lower-calorie indulgence. New brands, such as Brookside, Snappers and BarkThins, have emerged as major new competitors. This signals that the traditional ‘snacking landscape’ is widening and products, such as yogurt and milk drinks, will end up competing with conventional snacks, such as crisps and chocolate confectionery, and redefine the competitive landscape.”

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