After seeing its work to boost its business in China pay off, Hershey turns its attention to another emerging market that has initially been challenging for the US confectioner – India.
A year since Hershey took full control of its venture in India – a business that after four years was generating just US$80m in sales and was still losing money – the company has launched its US candy brand Jolly Rancher in the country.
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Hershey is selling three flavours of Jolly Rancher lollipops, manufactured at its plant in Chittoor in the south of the country.
The move is Hershey’s latest initiative to build its business outside the US. It is eyeing $1bn in revenue from its overseas markets by the end of 2015 and has been stepping up its investment, particularly in China, Mexico and Brazil.
Despite its struggles in India, and the small size of its business compared to some strong domestic and international competitors in India, Hershey believes it can prosper in a country where demand for confectionery is growing strongly.
Announcing the launch yesterday, Hershey said the Indian confectionery sector is “one of the fastest-growing in the world” with a “strong” double-digit annual compound growth rate of about 18%.
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By GlobalDataHershey also believes the Indian confectionery market is still developing, meaning even after its early problems in the country, it can gain a foothold there.
Part of its efforts in India now includes Jolly Rancher, one of five products Hershey has chosen as “global brands” it is pushing outside the US. So far, Hershey’s product portfolio in India has focused on local brands; the only product on sale in the country with the US company’s brand name so far has been Hershey Chocolate Syrup. And the performance of Hershey’s local brands in India has lagged the market.
Maha Lacto toffees accounted for 2.2% of India’s confectionery sales by value in 2007, according to data from Euromonitor. By 2012, that fell to 0.9%. Sugar confectionery brand Nutrine also had a market share of 2.2% in 2007. In 2012, that languished at 0.7%.
Hershey has turned to its US portfolio but said it had developed lollipop flavours specifically for the Indian market. “We’ve tailored our new Jolly Rancher products for India to appeal, specifically, to local palates with bold, fruity flavours that are unlike any other candy available in the market,” Atul Razdan, general manager, marketing, sweets and refreshments, for Hershey India, said.
For Anil Talreja, partner at Deloitte Haskins & Sells in Mumbai, price and packaging will also be critical. He supports the INR5 price tag placed on the Jolly Rancher lollipops. “What is extremely important is pricing. People in India are very driven by price,” he tells just-food. Price becomes an even more critical factor when one considers the pressure confectioners in India have seen on their raw material bill in recent quarters.
It is the relative cheaper price of sugar confectionery, especially when compared to other snack products like ice cream or snack bars, that has been key to the growth of the sector in India.
Talreja, however, suggests Indian consumers could assume an international brand like Jolly Rancher will be more expensive than domestic products, meaning Hershey must back its launch with marketing.
Hershey is entering a lollipop segment worth INR1bn in sales in 2012, up 9.6% on 2011, according to Euromonitor. The data, however, shows it is the smaller sugar confectionery segment, with a growth rate half that of the largest segment of boiled sweets. Euromonitor also forecasts growth in the lollipop segment will be slower than boiled sweets. Lollipop sales are forecast to grow at a compound annual growth rate of 1.5% between 2012 and 2017, compared to 8.7% in the boiled sweets segment.
Nevertheless, Talreja supports Hershey’s move to bring Jolly Rancher to India. “I think it’s a good start. It’s a good strategy.”
It is a tentative first step for the newly independent Hershey in India. The country’s confectionery sector is, like many categories in the market, is growing rapidly and not yet mature, suggesting even after Hershey’s faltering start there, it is possible for it to slowly build its business, as it has in China. However, it is vital to remember India is very much a long-term play for Hershey and one where it will take some years for the company to construct a fruitful business.
