Cadbury prospects slated by City bank

Morgan Stanley/MORI briefing suggests Nestlé Rowntree is ahead in confectionery war

Leading City securities house Morgan Stanley has lost confidence in Cadbury Schweppes and has downgraded its rating of the confectioner in favour of rival Nestlé Rowntree. Morgan Stanley believes that Cadbury’s growth potential is diminishing following a strong 12 months.

In an investor briefing report seen by Marketing Week, a Morgan Stanley analyst recommends that investors take their money out of Cadbury and switch to Nestlé. It says that although Cadbury Dairy Milk remains the “best-positioned brand”, Kit Kat is seeing strong medium-term growth owing to new product development and increased marketing spend.

The report, which draws on research from MORI, shows that, although consumers tend to be loyal to Dairy Milk, Nestl̩ has succeeded in generating interest in Kit Kat with new products Рsuch as limited-edition flavours Рand a new ad campaign. The MORI research showed that 47 per cent of consumers had bought a Kit Kat in the last month, compared with 40 per cent who had bought Dairy Milk.

The Morgan Stanley thesis is supported by a senior food industry analyst who agrees that Nestlé’s branding has been stronger this year. But he adds that Cadbury is likely to mount a counter attack next year. “Cadbury has been working to take costs out by shutting factories and sourcing products from abroad. Nestlé, on the other hand, has been putting huge resources behind Kit Kat – but it may be doing that at the expense of its margins.”

The report will be welcomed by Nestlé managing director Chris White, who admitted earlier this year that the Kit Kat brand was in decline. White, who joined a year ago, restructured the marketing department and scrapped the strategy put in place by former marketing director Andrew Harrison (MW February 12).

Cadbury was unavailable for comment as Marketing Week went to press.

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