Market share of Hershey in
China
Hershey's and
Reese's are stock chocolates in most convenience stores in China. It has a huge
presence in China, with Reese's and Hershey's being a standard offering in most
convenience stores in China. It also has a large store on People's Square in
Shanghai, which offers the full range of Hershey's confectioneries.
However, at the moment, the market is dominated by Mars, Nestle and Ferrero,
who hold 70% market share.
As the middle
class grows, confectionery consumption is growing along with it. Hershey's is
growing in popularity, Kisses especially have been getting a boost. As part of
its growth strategy, expansion into China is key.
Product launches for China
It's
predicted that China could become Hershey's second biggest market by 2017. In
the last five years, China has grown from Hershey's 7th to 3rd largest
chocolate market. Hershey launched its first new brand outside the US iin
120 years, specifically "Lancaster," which is a rich milk-based candy
designed specifically for the Chinese markets. It's also the first new candy in
30 years. The milk candy market is worth $1.2 billion, which is roughly 25% of
China's confectionery market.
In addition to
new candies, Hershey's efforts to expand into Asia (particularly China) have
resulted in a new production facility being created in Malaysia. We can presume
that the growing labor costs in China played a role in their decision
to build their facility in Malaysia and not China. They do, however, have an
innovation centre which opened in 2013 in Shanghai.
Acquisition of Golden Monkey
Hershey's plan
to expand its operations in China hinges on the acquisition of Shanghai Golden
Monkey Food Joint stock Co Ltd. The Shanghai company focuses on protein-based
snacking products, employs more than 5,000 people and has annual sales of at
least $225 million. It has access to over 1,000 distributors, especially in
second- and third-tier cities. Established in 1996, it is currently the ninth
in the confectionary market and sixth in the chocolate market in China.
Both companies
believe that the combination of Hershey's advertising and brand with Golden
Monkey's distribution, logistics and sales strength will combine to help
Hershey's achieve their $10 billion dollar revenue goal by 2015.
They've
completed the purchase of 80% of the Shanghai company for $584 million dollars.
It's the biggest acquisition in Hershey's history, all previous deals have been
worth less than $200 million. This shows the seriousness with which Hershey is
approaching the issue.
Recently,
Hershey's has experienced a bit of a downturn. Expectations for 2014 have been
lowered from 5 to 7 percent net sales to about 4.75 percent, and 2015 is
expected to be a bit downbeat as well. The main reasons for this has been a
negative overall macroeconomic environment, with dairy prices remaining
volatile. In addition, some problems are being reported
with unfavorable "product mixes." Product prices have been
raised an average of 8% due to utility and transportation costs, as well as
cocoa, dairy and nut prices.
There has also
been a problem with the launch of its Cool Blasts chews, which have been moved
to early 2015 because there were some issues with manufacturing, and more
orders than expected were received.
Conclusion
Hershey is
making a serious and concerted entry into China. Although India is growing at a
rapid pace and there is a general growth trend in Asia, China remains Hershey's
number one priority.
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