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The Candy Man

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‘Who can take a sunrise, sprinkle it with dew
Cover it in chocolate and a miracle or two
The candy man, the candy man can
The candy man can ’cause he mixes it with love
And makes the world taste good.

Who can take a rainbow, wrap it in a sigh
Soak it in the sun and make strawberry-lemon pie
The candy man, the candy man can
The candy man can ’cause he mixes it with love
And makes the world taste good.’

– The Candy Man (written by Anthony Newley) from Willy Wonka & The Chocolate Factory.

Towards the end of last week, Mark Schneider, the new CEO of Nestle, announced that the Swiss company will explore ‘strategic options’ for its US confectionary operations. The US division includes brands such as Butterfinger and Baby-Ruth among others, but not KitKat whose production in the US has historically been licensed to Hershey. Nestle stated that whilst exploring options for the division, it would seek to retain its Tollhouse brand that is geared more towards baking rather than snack foods.

The announcement makes sense for several reasons. Firstly, despite having strong brand names, the unit is relatively small (around $932m in revenue) and has been losing market share over the years. Both Hershey and Mars control over 50% of the confectionary market in the US. Nestle currently has a market share of around 8.4% and sits behind Lindt & Spruengli, who became the third largest chocolate producer in the US with its 2014 acquisition of Russell Stover. Coupled with this, Nestle has also had to battle a growing trend in weaker confectionary consumption in the US as Americans start to turn towards fresher and healthier snack options.

Secondly, Mark Schneider is not a candy man! Rather than rising through the ranks of oompa loompas at Nestle, Schneider spent 16 years as CEO of Fresnius Group, a global healthcare company based in Germany, before receiving his golden ticket and taking the helm at Nestle.

It is clear that Schneider’s background in healthcare will have some influence over the direction he wishes to take Nestle in. Nestle has been investing heavily in a health-science unit since 2011, in which it hopes to develop food-related products that will help to prevent obesity and other critical medical conditions. Schneider himself is also keen on pursuing a health-based strategy, whilst also focusing on business areas that are growing the fastest, such as coffee and pet food. The Swiss company’s announcement concerning its US confectionary division is a clear signal of intent from a Schneider led Nestle, where focus is set to shift away from the traditional yet slower growth areas and towards newer and innovative areas that offer faster growth and that take into account shifting consumer trends.

Analysts have estimated Nestle’s US confectionary business value at around $1.5bn-$3bn making a sale much more likely than the possibility of a spin-off. Several of Nestle’s US competitors could be interested in gaining access to Nestle’s chocolate factory. Mondelez, for instance, might find a Nestle deal more manageable to complete than its failed attempt to buy Hershey for $25bn, which it was forced to drop under intense pressure from activist investors. Otherwise, Nestle could sell individual brands off to Mars and Hershey, both of which could easily internalise new brands into their distribution channels in a seamless and cost effective manner.

Nestle has said that it will complete its strategic review by the end of the year. Options are open to the Swiss company with regards to its US confectionary business and direction it wishes to take from now on. However, it is clear that Schneider is aiming to be much more than just the candy man that can make the world taste good. In the words of Mr Wonka himself; ‘invention, my dear friends, is 93% perspiration, 6% electricity, 4% evaporation, and 2% butterscotch ripple’.

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