Cardboard Flavored Chocolate; Russell Stover, Has Been Purchased By Lindt | #SoPhi #Business

by • July 14, 2014 • Business, FeaturedComments (0)1531

Chocoladefabriken Lindt & Spruengli is betting the U.S. chocolate market will remain the world’s sweetest for years to come.

On Monday, the Zurich-based maker of high-end confections said it was buyingRussell Stover Candies for an undisclosed sum. When the deal closes, Lindt will be the third-biggest chocolate maker in the U.S., behind Hershey and privately held Mars Inc.

Mintel Group, a market research company, estimates the combined company would have had roughly 11 percent of the U.S. market last year.

The deal, which Lindt says is the biggest in its history, breaks with the prevailing trends in the chocolate industry, where manufacturers are tapping into fast-growing emerging markets. Growing middle classes in those countries have extra cash and are beginning to spend it on small luxuries, like candy bars. Both Mars and Hershey have targeted China in recent years, while Mondelez International, the owner of the Cadbury brand, has turned to India for growth.

Despite slower growth, Lindt is doubling down on American sweet tooths. The company already has a strong presence in the U.S. through its 1998 purchase of Ghirardelli Chocolate Co., the historic San Francisco Bay Area chocolatier whose first factory is now a tourist attraction.

“Compared to what the other chocolate makers are doing, this seems counterintuitive,” said Lauren Bandy, food analyst at Euromonitor International, a market research company. But Ms. Bandy says it makes sense for Lindt to try to grab more of a “massive market” than bet on new markets that are growing fast but will still take years to develop.

Over the past five years, the market for chocolate in India has grown 17.6 percent annually, while China has grown 8.8 percent. By comparison, the U.S. posted a 1.8 percent average growth rate and is expected to slow to an average of 1.3 percent over the next three years.

But Lindt is reckoning the size — rather than growth — of the U.S. market makes it worth the investment. Even with slower growth rates by 2018, the U.S. market will still be nearly three times the size of India and China combined.

The U.S. chocolate market is expected to grow to $20.92 billion in 2018 from $17.44 billion in 2013, according to estimates from Euromonitor. By comparison, China is estimated to grow to $3.94 billion from $2.42 billion, and India to $3.84 billion from $1.48 billion.

Analysts also say Lindt, which specializes in high-end chocolates rather than mass-market sweets, would find it harder to compete in India, China and other emerging markets, where its relatively higher prices would prevent many potential customers from buying their products.

Though Russell Stover’s Whitman Samplers are decidedly more middle market than Lindt’s truffles and pralines, the Swiss chocolate giant will also benefit from the broad distribution Russell Stover has in North America. Russell Stover’s candies are sold in roughly 70,000 pharmacies across the U.S. and Canada.

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