Launching in a flat market is a risk for any company. But for iconic US confectionery giant Hershey, the challenge of breaking into the UK chocolate market may be even greater as it will be up against the deep pockets and entrenched brands of Mars, Cadbury Schweppes and Nestlé.
The number one US chocolate manufacturer is about to mount a major UK offensive with the launch of its Reese’s Nutrageous chocolate bar, which contains layers of peanuts, caramel and peanut butter (MW last week). The company has also confirmed that it intends to sell Reese’s Peanut Butter Cups and Reese Sticks in the UK.
The last large foreign company to take on the big three was Chupa Chups, whose lollipops are now ubiquitous in UK newsagents. Last year, the company announced plans for branded shops (MW March 14, 2002). Chupa Chups’ task was arguably easier than Hershey’s because it was entering the growing sugar-based confectionery market, with innovative products displayed in eye-catching racks that required retailers to put them on their counters.
In the chocolate market, Ferrero has managed to carve out a niche since it first launched Tic Tac and Kinder Surprise in 1973. This was followed a decade later by Ferrero Rocher. In 2001, the Kinder Bueno bar was launched in the UK and it is holding its own in a crowded market. All the products have been supported by heavy advertising campaigns that have continued beyond the launch phase.
German chocolate manufacturer Storck bought up Bendicks of Mayfair to provide a launch pad in the UK for its products, particularly Riesen, which launched in 1996 supported by a &£5m ad campaign. Riesen is still available in the UK, but it has failed to dent sales of the more established brands.
The company’s Werther’s Original brand – which had less support than Riesen – is still going strong. It has been in the UK since 1992. According to AC Nielsen, it is worth more than &£25m. Sales were up 52 per cent year on year to August 2002.
Hershey’s Cookies ‘n’ Creme chocolate bar has been on sale in the UK, but only through some independent outlets. Now Hershey’s UK distributors Food Brokers has managed to get the Nutrageous bar listed by buyers at Safeway, Woolworths and Asda. But one supermarket buyer who received a presentation on the bar has declined to stock it: “It isn’t really made for UK tastebuds. I found it very salty; it wasn’t really my cup of tea.”
Whether UK consumers as a whole can stomach Nutrageous remains to be seen. It is a widely held belief in the industry that UK consumers’ tastebuds are more suited to sweeter chocolate and that they will not like the powdery consistency of US products. Combine this with the mix of peanut butter, caramel and nuts, and Nutrageous could be a recipe for disaster.
Hershey also faces a stagnant chocolate market. Between 1997 and 2002 Mintel estimates that total sales in the sector rose by only one per cent. Concerns over healthy eating, lack of innovation, competition from the biscuit sector, a decline in impulse outlets and changes in spending habits by children are some of the reasons for this trend given by industry observers.
Nevertheless, it is worth remembering that the confectionery market is valued at more than &£3bn in the UK and even a small share in it could prove to be extremely lucrative for Hershey.
A spokesman from Hershey comments: “Even in a flat market, consumers are interested in new products, especially products that are truly different from those that are currently available. The Reese’s brand, with its combination of chocolate and peanut butter, is indeed a unique experience for the UK consumer.”
UK consumers have a tendency to at least experiment and try new products. The chocolate market has responded to this with various launches, such as Nestlé’s Double Cream, Cadbury’s Dream and the relaunch of Masterfoods’ Mars bar, in bid to boost consumption.
But Hershey has no intention of launching Nutrageous with a big bang: “Our objective is to introduce Nutrageous to consumers and build trial and awareness through a merchandising [point-of-sale and in-store promotion] and sampling programme. At this point we see this as a niche business in a very competitive market.”
But the brand may well remain niche if insufficient investment is put behind it. Jonathan Rigby, head of account management at Lowe, a Nestlé roster agency, says his client may have had a success at launch with Double Cream, but it will be hard to sustain that: “Double Cream took and will continue to take a significant commitment by Nestlé. The UK chocolate market is very established. Breaking into the segment requires a significant amount of effort.”
Mike Horne, managing director of EHS Brann, Cadbury’s direct marketing agency, warns: “The Nutrageous brand is going to have to stand for something and be very clear about its values. It will not be able to trade on the brand equity it has in the US over here.”
Hershey may be forced to reassess its approach. In the US, it has reached maturity in a similarly flat market. Growth through expansion overseas seems the only option open to the company now that plans for its sale have been quashed. In July 2002, the charitable trust that controls Hershey put the company up for sale for more than $10bn (&£6bn), attracting interest from Wrigley, Kraft and, in partnership, Nestlé and Cadbury Schweppes. But in September, after protests from local inhabitants, Pennsylvania’s attorney general won a temporary injunction blocking a sale and the trust abandoned the auction completely.
If recent history had taken a different twist, Hershey products may well have been carrying the names of the companies it now finds itself competing against.