Ferrero rumoured to be buying Nestle’s US chocolate business
The Ferrero Group is close to acquiring Nestle’s US chocolate business an unnamed source is claiming.
If the acquisition becomes reality, the Italy headquartered Ferrero will own the rights to US confectionery brands including Baby Ruth, Nerds, Raisinets, Crunch and Butterfinger.
The Ferrero Group already owns a number of confectionery brands including Ferrero Rocher, Nutella chocolate hazelnut spread, Kinder Surprise and Tic Tac.
Both Nestle and Ferrero are yet to offer comment on the matter.
Speculation on reasons for sell-off
Food industry commentators are giving differing explanations for such a deed:
- Brand value investment versus investment in farms
There are longer term investments over the stability and assurance of supply without heavy investment in suitable farmland. Nestle and other chocolate processors might prefer investing in their own brand market development rather than becoming vertical suppliers.
Although cocoa prices have global over-supply, long-term supplies of coca may push long-term chocolate prices much higher scaling margins.
Ivory Coast in West Africa is responsible for a large amount of the world’s cocoa supply and worry about the age of the area’s trees and farmers have been raise.
Over recent years, the cocoa industry has had to spend millions of dollars in increasing production in Cote d’lvoire in the Ivory Coast.
- Growing competition in a mature market
With the increasing influence of social media, boutique chocolate producers are gaining traction and establish sales through online shopping.
A recent Euromonitor report has also suggested that with the health concerns of consumers today, some may be more happy to spend more money on higher quality chocolate sand chocolate that is perceived to be better. Traditional ‘candy’ and chocolate lines that do not have associated health qualities will suffer a greater loss of margin.
- “Healthier Food Trend
As health becomes more of a concern for many consumers, US consumption of chocolate has been predicted to fall over the next few years.
According to Euromonitor International data released in July 2016, it is expected North American consumers will eat four chocolate bars less a year by 2021.
US Department of Department of Agriculture data released in January 2017 also found Americans are eating 14 per cent less sugar each year than they were in 2000.
Due to this fall in sugar and chocolate consumption, Nestle may be looking to off load its confectionery business and concentrate on health-focused snacks and foods.
- Focus on Nespresso and other emerging Nestle brands
Nestle has found success with its Nespresso coffee system whilst avoiding having to sell its pods through supermarkets.
With Nespresso, customers purchase pods directly through Nespresso boutique or through Nespresso’s website and accordingly Nestle does not have to hand any profit over to supermarkets. As coffee is a beverage many people drink at least once a day, Nestle has locked in steady revenue without the supermarkets.
Nestle may be wanting to concentrate on such a solid revenue stream, and setting up similar style business ventures, with a health focus, appealing to the modern consumer.
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