Cadbury has been building its portfolio of confectionery brands in recent years but it is now getting stuck into chewing gum, which the chocolate maker believes offers greater potential than its mature markets. David Robertson brings us the latest news on Cadbury’s foray into gum – and what it is doing to achieve growth in its core confectionery markets.


Two years ago UK soft drinks and confectionery company Cadbury Schweppes bought the French chewing gum maker Hollywood. It built on that deal with the £201m (US$307m) acquisition of Dandy, a Danish company, in June. From nothing, Cadbury has become the second largest gum maker in Europe and third biggest in the world after Wrigley and Adams. And if, as expected, Pfizer decides to sell Adams, which makes Trident and Dentyne, in a deal forecast to cost about £3bn, it will make Cadbury a dominating force in a surprisingly active market.


The chewing gum market is attractive to Cadbury because its traditional core markets are experiencing largely flat sales. Although the company’s confectionery is sold around the world, 90% of profits come from just a handful of key markets – North America, Europe and Australasia. Unfortunately for Cadbury it is becoming increasingly difficult to make large advances in these mature markets.


Dental health benefits of sugar-free gum


As a result it has chosen to move sideways into a new food segment – gum.
Sales of sugar-free gum are growing by about 15% a year making it one of the hottest areas in confectionery. This is in large part due to its perceived health benefits as dental associations around the world have endorsed products because of their anti-bacteria potential.

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And this is only the start. Tooth whitening gum has becoming a roaring success – so much so that the toothpaste manufacturers are now looking to move into this area. Wrigley has already teamed up with Procter & Gamble’s Crest brand to develop new products. Other products available include antacid gums and even a calcium-enriched gum.


John Sunderland, chief executive of Cadbury Schweppes, told just-food.com: “Sugar-free gum is getting the endorsement of dental associations which means that its functional use has increased. It is becoming a delivery mechanism for other added value features like tooth-whitening, antacid and calcium. This is important because it will stimulate future growth.”


Organic growth and innovation in confectionery


Although chewing gum offers Cadbury new growth opportunities it is still enjoying a healthy cash flow from its traditional confectionery business. The company has made a number of acquisitions like Mother Earth last year and Wuxi in 2000 but it is now focusing on building organic growth.


Sunderland is impressed at the way Cadbury’s Australian business grew sales by up to 6% over the last couple of years in a flat market by bombarding consumers with new buying opportunities.


As a result Cadbury is looking to place vending machines in areas where traffic can sustain it, particularly in factories and offices. It also wants to develop its restaurant and pub business and cites the success of the McDonald’s Creme Egg McFlurry as an example of the new opportunities it is looking at.


“In the US one out of every two dollars spent on food is spent outside the home,” Sunderland adds. “It is going the same way in the UK and in Europe so we want to be in a position to benefit.”


London Underground vending machine contract


Of particular interest is Cadbury’s contract with London Underground. There are now vending machines on tube platforms in a deal that gave Cadbury’s the sort of impulse buying territories that were previously virgin sales areas. But what marks out the London Underground deal as different is that Cadbury has bucked the trend of manufacturers outsourcing distribution and it is doing it itself. This was because London Underground only wanted to deal with one company but it has opened Cadbury’s eyes to another new opportunity: filling its own vending machines.


“With London Underground it was a case of us wanting to be in the driving seat and it is going very well,” says Sunderland. “It is a new arrangement to us but we see an opportunity to take that elsewhere.”


Mixed fortunes overseas


In new markets like Poland, where Cadbury bought the leading manufacturer Wedel in 1999, there has been significant growth in confectionery sales and Russia is finally beginning to look attractive. Cadbury built a factory in Russia in 1997 but the economy promptly collapsed.


“The next two years were difficult,” admits Sunderland. “But we have seen it pick up since then.”












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The obvious question facing Cadbury at the moment is whether it will be involved in the auction process for Hershey Foods. Not surprisingly with such a major confectionery company coming up for sale (Hershey has a 31% market share in the US) Cadbury is looking at the options. But analysts believe that the £7bn estimated price tag would be too much for a company with a market capitalisation of £9bn. Realistically, any deal would have to be a merger and the charitable trust that owns Hershey has indicated that it wants the cash.


Analysts have also questioned whether Hershey would offer a company like Cadbury any new global opportunities. Because of the peculiar chocolate tastes of the Americans there is likely to be little interest in developing Hershey in the UK or Europe.


Cadbury has signalled its intention to continuing buying its way into new markets and new geographic regions. If it can pick up Adams it will have a portfolio of products that will look very attractive. But whether there will be any benefit in it grappling with the daily grind of filling thousands of vending machines will have to be seen in the future.


By David Robertson, just-food.com correspondent