Will Nestle Make Investors Sour on Hershey?


You have to wonder what took so long for this to happen. Chocolate maker Hershey has dominated one corner of the confectionery market for so long and by such a wide margin that you'd think the profit potential would have attracted someone. Well, now it has.

Source: Nestle press release.

Nestle has announced it was going where no major candy maker has gone before: It will be producing a Butterfinger-inspired peanut butter cup to challenge the biggest-selling confection of all time, Reese's Peanut Butter Cup.

These are some sweet numbers: Reese's generated over $1.5 billion for Hershey's last year, putting it ahead of every other candy made. In fact, the market researchers at Nielsen say no other candy even topped $1 billion in sales. When Wal-Mart introduced the cups into Japan last year through its Seiyu supermarket subsidiary, they outsold Nestle's KitKat Mini bars by 1.7 times in the first month alone. It could be that that was the genesis of the Butterfinger cup.

Although there are a few pretenders to the throne -- Wal-Mart apparently sells a house brand, as does Trader Joe's, and Unreal Brands makes an all-natural, non-GMO version -- there's hardly been any candy maker that has tried to take a bite out of the Hershey's Reese's cup.

But Nestle thinks it's got the right recipe to do so. With Butterfingers already used in ice cream and on cakes, it sees the cup as a means of expanding the bar's reach, and is banking on a big Super Bowl splash to kick off the product's launch. One major difference between the two cups is that the Butterfinger version will, of course, be crunchy compared to Reese's smoothness. And, as the image above indicates, there are four cups in the "share pack."

But the Butterfinger cup has a long way to go before it has its own day, as May 18 was declared National "I Love Reese's" Day several years ago.

Yet it's still a good time to introduce a new chocolate snack. Although cocoa prices are rising, up 21% in the third quarter, chocolate sales are higher too, rising for the first time in the U.S. since 2008. While some of that has been due to an increased preference for dark chocolate, which now accounts for one-fifth of the U.S. chocolate market, milk chocolate remains the overall market leader, with just over 50% of all consumers preferring it.

Nestle is the first major chocolate company to make a sustained effort at stealing from Reese's, and from a novelty aspect alone, it will likely record some strong sales when launched in January. But as even Butterfinger's people admit, the super-sweet treat can only be tolerated in small doses, so I don't think Hershey has anything to worry about here, OK, buttercup?

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The article Will Nestle Make Investors Sour on Hershey? originally appeared on Fool.com.

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