Russell Stover has been up for auction since February, under the stewardship of financial consultancy Goldman Sachs Group (GSG). Hershey and Yildiz are among those believed to have filed bids.
Speaking to ConfectioneryNews about the post-takeover fate of the Kansas-headquartered boxed chocolate specialist, Datamonitor Consumer’s innovation insights director Tom Vierhile said US sugar quotas could spur new owners to take production overseas.
“Sugar quotas have made production of chocolate in the US very expensive relative to production based in other places. I do not expect a new owner to outsource production immediately, but it would not shock me if some baby steps were taken in that direction,” he said.
However, he warned that this production shift could hurt the company. “The issue with this is that the Russell Stover brand is woven into the fabric of America, and overseas production could rattle the firm’s core consumers.”
Attractive buy, but further US growth won’t be easy
Vierhile said Russell Stover was an attractive proposition for buyers wanting to break into the US boxed chocolates market – with its 50% market share. However, he added that further growth may be hard to come by.
The compound annual growth rate for boxed chocolate in the US is expected to be half that of chocolate overall for the period from 2012 to 2016 and the market is expected to grow at a rate of well under 1% per year, according to Datamonitor Consumer data.
“The problem a buyer may face is that Russell Stover already bought up its primary competitors in boxed chocolates – Whitman’s and Pangburn’s – so much of the low lying fruit has already been picked. The boxed chocolate market isn’t growing nearly as fast as the chocolate market overall,” Vierhile explained.
However, he said a buyer with international reach may be able to expand Russell Stover’s footprint globally. “The brand is currently sold in over 20 countries around the world, and there is considerable room for improvement there.”
Rich pickings for buyers
Hershey is the current frontrunner for Russell Stover, according to analysts, although the confectionery major has refused to comment on “rumors or speculation” about its possible $1bn bid.
Vierhile said an acquisition by Hershey could boost Russell Stover’s weak international sales without any risk of cannibalization and reinforce its distribution network in the US.
Meanwhile rival challenger, Turkish producer Yildiz, could strengthen its position in the US market and expand the retail distribution of its upmarket chocolate brand Godiva.
“Yildiz is clearly in an acquisitive state of mind, having purchased DenMet and its Turtles and Flipz brands earlier this year. The purchase of Russell Stover could move the company closer to the critical mass it may believe it needs to compete more strongly in the US market,” said Vierhile.
The sale also offers rich pickings for other less prominent US companies, like Warren Buffet’s Berkshire Hathaway which owns See’s Candies, he said, and any of a number of private equity firms.
“The latter would not surprise me at all since borrowed money is as cheap as it is ever going to get and private equity’s usual playbook is to pressurise acquired companies into being more efficient.”
Russell Stover has a strong distribution network across the US and Canada, currently supplying to more than 70,000 retail outlets, including Wal-Mart and the Walgreen Company.