Confectionery giant Nestle has agreed to sell the US branch of its confectionary business to Italian confectionery company Ferrero for a staggering $2.8 billion.This move will be the first major sale made by the company’s current CEO Mark Schneider, and it is thought that is will help the company achieve its aim of producing healthier products in the future.
Nestle is the largest packaged-food business in the world. However, its business in the USA has been weak for a while now, with the company tailing behind competitors such as Mars, Lindt and Hershey’s, which is why the company have decided that now is a good time to make the deal.
Ferrero, which is a family business, hope that this mega cash deal will enable them to upscale their business quickly in one of their target markets. They have already signed two similar deals since 2017 to this end. However, as well known CEO Jozef Opdeweegh points out, it can be difficult for private equity acquirers to make inroads and integrate with new leadership teams, which could prove difficult for the Italian business, who are probably best known for their Ferrero Rocher praline chocolates and Nutella chocolate and hazelnut spread. They may now be the third-biggest chocolate company in the world, but they are still likely to face many challenges along the way.
Nestle, who have been selling chocolate since the late 19th Century, will have their own struggles to deal with, despite this boost to their coffers, due to the increasing awareness of the damage that sugary chocolates and junk foods can do. They do plan to move away from the sugary stuff towards healthier foodstuffs, but this will be a completely new direction for them, and it’s anyone’s guess how well it will go for the Swiss-based company.
Still Committed to the US
Despite selling its US confectionery business, Nestle claims that it is still committed to its other enterprises in the company. However, various financial analysts have suggested that we could soon be hearing another announcement that the company has gotten rid of other popular brands that it owns, with some speculating that it could partner up with one of its rivals, Hershey, who already own the Nestle KitKat product.
Although the deal sounds huge, it only actually accounts for 1 percent of the confectionary giant’s sales. It is, however, a small part of a bigger drive by Nestle to shake things up, produce more growth in an environment that is increasingly tough for food companies to thrive in, and better compete with the ever-increasing competition.
Many of the most popular Nestle products, such as Butterfinger, Baby Ruth and Crunch bars have been outperformed by the competition for many years as more consumers have turned to healthier options and luxury chocolate brands like Lindt. Since Ferrero is seen as a more upmarket brand – well it’s Ferrero Rocher chocolates are certainly viewed that way – it could be an excellent move for them if they are able to transform those old favorites into something a little more upmarket, and therefore more appealing – only time will tell.