When famed American chocolate maker, Hershey acquired an 80% stake in the Shanghai Golden Monkey brand for approximately $394 million, the company had huge plans for China. At the time of the acquisition, Hershey said it expected China would become its second largest market. It expected net sales of approximately $500 million. However, things haven’t worked that way – weaknesses in the Chinese market has forced the iconic brand to lower its fiscal outlook for this year.
Addressing the Issues
By acquiring the Golden Monkey business, Hershey aimed to broaden it’s footprint in China, but results have been disappointing. To some extent, this was due to the softness in the Chinese market. There were also significant issues within the Golden Monkey business that were hindering performance. The company makes Golden Monkey candy, chocolates, protein-based products and snack foods which are marketed in cities and rural areas, but an assessment of the distributor network revealed it was not as stable as believed, and thus the related retail customer reach not as broad.
Despite this, Hershey says its committed to long-term success. As a result, the company has lowered its expectations. It has accepted the challenges and trends that are affecting consumer shopping behavior which have resulted in continued softness within the China modern trade, particularly the tier one hypermarkets where the company generates the majority of its chocolate sales, and is now focused on a broader roll-out of Brookside chocolates, distribution into smaller format stores and an acceleration of the e-commerce business.
It has also named a new chairman and general manager for Golden Monkey who has strong China consumer packaged foods experience and is evaluating cost structure and different integration strategies to improve the business’ performance, as its works towards acquiring the remaining 20% stake an offer for the Shanghai Golden Monkey brand.
A Tougher and Tighter Work Force
Despite a poor showing in China, Hershey executives believe financial results will improve through the remainder of the year on higher prices for chocolate products. The company has been encouraged by results in the US which have been slightly better than expected because of an increase in year-to-date candy, mint and gum market share offset by snacks and grocery softness due to increased competitive activity in spreads and baking chips. Halloween and holiday seasonal programs, and new product innovation, including the continued roll-out of Kit Kat White Minis, Hershey’s Caramels and Ice Breakers Cool Blasts, as well as the launches of Brookside Fruit and Nut Bars, Hershey’s Kisses Deluxe, Reese’s Snack Mix and Hershey’s Snack Bites.
To respond to the situation in China, Hershey has made several changes to its global leadership team. Steven Schiller, regional president of AEMEA for Hershey, has been named president of China and Asia for the company, a newly created position. Patricia Little, chief financial officer, now has the added responsibilities for corporate development and mergers and acquisitions. Hershey also announced new productivity efforts that will result in the reduction of some 300 jobs by the end of 2015.