The company previously identified China as its “number one international priority”, but in its Q2 conference call yesterday, it hinted that Mexico and Brazil were also high on its expansion agenda.
Hershey CEO John P Bilbrey said: “Outside of the US, our international business was relatively in line with our forecast. China, Mexico and Brazil were standouts, with net sales up solid double digits on a percentage basis versus last year.”
He said the chocolate category in China was up 11% so far this year and was continuing to grow.
“The category is developing nicely, with instant consumable and take-home pack types accelerating and outpacing gifting.”
China slowdown?
An analyst from JP Morgan suggested during the conference call that the Chinese chocolate market had registered a slowdown down after a growth rate of 15% last year.
Bilbrey said: “I wouldn't read frankly anything into it and it certainly doesn't change in any way how we think about the potential of the market.”
He said that chocolate had penetration among 300-400m people in China and with a population of 1.3bn there was plenty of scope to grow.
The CEO said that growth in China would be gradual as Hershey needed to respect its, “very precious North American business”.
“We don't want to get out of balance or ahead of ourselves in a way that we can't recover.”
Launches for China
Hershey recently launched its first China-exclusive brand earlier this year with premium milk candy product Lancaster.
“We estimate today that the milk candy segment in China is about $1.2 billion. Today, we'll target largely the modern trade with the Lancaster product, but we also believe it should have legs with deeper penetration, and as an example, you might think of chocolate,” said Bilbrey.
Hershey recently opened a new R&D facility in China to create products tailored to domestic tastes.
It is planning to launch Kisses Deluxe and Hershey's Drops chocolates in China in Q4 this year.
The company’s China output comes from a factory held in a joint venture with Korean confectioner Lotte.
This factory has reached capacity and Hershey hopes to build a new plant in Asia, with China the likeliest destination.
Mexico & Brazil
Mexico and Brazil also present future prospects for the company.
“In Mexico, we continue to see strong growth in the Hershey's and Kisses franchises. In the modern trade, our year-to-date chocolate retail takeaway was almost double the category rate, resulting in a market share gain of 1.2 points,” said Bilbrey.
He added that Hershey bars and tablets were ahead of targets in Brazil, where sales for the firm have grown in low double-digits in the first of the this year.
The company plans to launch Hershey's Mais candy in Brazil in Q4.