The joint venture was first announced in June, when Nestlé said that the plan was to develop Colgate's existing Dental Gum range, currently available in the UK, Ireland and Canada, into a global player in the functional confectionery market. The two groups will also pool their expertise and know how to develop other "portable oral care products" if the partnership proves successful.
The venture will focus initially on the British and Irish markets, the companies said. Colgate launched its Colgate Dental Gum brand in the UK in 2001, and by the end of 2002, sales amounted to over £10 million, according to market analysts Euromonitor. The aim was to build on the growing popularity of breath freshening gum by offering a product which also helped fight plaque and stains.
Retailing at a premium and packaged in a flip top box to distinguish it from other gums, the brand has proved very successful in terms of value sales, even if its volumes are not particularly significant when compared to the overall size of the functional gum market.
The joint venture will clearly look to build on this good start, leveraging Nestlé's expertise in the confectionery (albeit chocolate confectionery) market to increase market share. But this will not be an easy task, not least because of the dominance of one company - Wrigley - on the UK market.
Wrigley has been the driving force behind growth in the functional gum market in the UK over the last few years, accounting for a massive 86 per cent share of sales in 2002. This dominance is also reflected in the erratic growth of the UK market for functional gum over the last few years. Euromonitor estimates that the British market will reach around 11,050 tons in 2003, an increase of 4.7 per cent compared to the previous year, but growth has slowed steadily over the last few years as Wrigley has tightened its grip on the market through new product launches such as X-cite or line extensions such as Airwaves Spicy Cocktail.
The situation in Ireland is similar to that in the UK, with Wrigley holding an 89 per cent share of a functional gum market set to reach 39.9 tonnes or €0.9 million this year, a tiny share of an overall gum market worth €23.6 million but one which is growing steadily - volume sales are set to rise 10.8 per cent in 2003, while value sales should grow by 12.5 per cent, according to Euromonitor.
Wrigley has in fact all but created the functional gum market in Ireland over the last few years with brands such as Ice White (rebranded as Orbit White), Airwaves and Activ8.
Although Wrigley ranks fourth behind Nestlé in terms of overall value share of the UK confectionery market in 2002, its focus on gum makes it a formidable competitor in this sector, according to Euromonitor.
"The main obstacle that these companies [Nestlé and Colgate] might face is the strong agreements that Wrigley holds with the distribution channel, especially within impulse sales," Euromonitor analyst Francisco Redruello told FoodandDrinkEurope.com.
"However, Nestlé might benefit from Colgate's strong brand image of its dental friendly gums within supermarkets. Colgate, on the other hand, might benefit from Nestlé's 'power' to expand its presence within the grocery channel, as well as from its financial capacity to support new developments through mass media advertising."
The two companies could also face competition in the future from another company with excellent UK distribution - Cadbury Schweppes. Although Cadbury is best known to most British consumers as a chocolate manufacturer, in other countries it has significant gum operations (such as Hollywood in France) and has been increasing its presence in this market.
But with the acquisition of the Adams group a year ago, Cadbury also became a major player in the functional confectionery market, where it owns brands such as Halls and Clorets. Admittedly, the group is still weak in the functional gum sector, but it would not be surprising if Cadbury were to go down this route in the near future (although it still has the weighty task of integrating the Adams business to complete first), especially as the market continues to grow.