Hershey sees international glitch driven by China's weak chocolate appetite

Retail sales for Hershey's chocolate China declined about 13% in Q4, the company’s CEO, John Bilbrey said during a conference call, far greater than he expected.

Hershey’s overall - domestic and international - fourth-quarter net sales declined 5% compared to 2014 and its full-year net sales declined 0.5%.

Hershey’s may lose a generation of Chinese consumers​

Even though Hershey generates 84% of its confectionery sales through North America, Euromonitor analyst Jack Skelly said the current sales sclerosis in China is damaging since China is central to Hershey’s aim to transition from an American to an international business.

“The company, admirably, no longer wants to live or die based on chocolate sales in the US.”​

In addition, losing market share in China could have long-term implications as well, as Hershey’s competitors, such as Mars and Ferrero, have cornered earlier generations of chocolate consumers.

Ferrero and Mars have over half the chocolate market share in China, according to Skelly. He suggested Hershey entered China, trying to appeal to earlier waves of middle-class consumers, who have already built loyalty to Mars and Ferrero.

Skelly said: “If it were to continue to lose market share, it would signify that Hershey is losing out on a generation of chocolate consumers.”​

On top of that, the recent economic slowdown in China affects consumer expenditure, Skelly said.

“To sum up, Hershey appears to have jumped on the bandwagon without checking if the wheels are on properly," ​he alleged.

Business growth from acquiring Golden Monkey hasn’t appeared yet​

Hershey acquired Shanghai-based Golden Monkey in 2014, and it’s expected to be important to the company’s future growth, Bilbrey said.

As the Chinese New Year – the year of Monkey—is just around the corner, Bilbrey said Hershey’s kicked off the year of Golden Monkey campaign earlier this month, key elements of which include TV and mobile initiatives.

Skelly said the Hershey’s attempt to expand its distribution capacity in China through the acquisition appears to not have happened at this point.

“Hershey may also have thought that this acquisition would mean they could sell more chocolate to the Chinese market, but chocolate is still a nascent good in the market – it is not a traditional sweet in China,” ​he said.

However, targeting events, such as Chinese New Year, via gifting products could certainly help Hershey’s business grow, Skelly said.

E-commerce is a crucial​

Hershey’s Q4 report shows its sales performance has affected sell-in which will restrict Hershey presence on store shelves.

Therefore, Skelly said, “[Hershey’s] does not have much choice but to focus on e-commerce at present.”​

Skelly thinks Hershey’s decision to focus on e-commerce is a smart move.

“Online retailing become the de facto way of shopping for groceries in China, so achieving an early lead in this market could be crucial,”​ he said.