Will Nestle Make Investors Sour on Hershey?

You have to wonder what took so long for this to happen. Chocolate maker Hershey (NYSE: HSY  ) has dominated one corner of the confectionery market for so long and by such a wide margin that you'd think the profit potential would have attracted someone. Well, now it has.

Source: Nestle press release.

Nestle (NASDAQOTH: NSRGY  )  has announced it was going where no major candy maker has gone before: It will be producing a Butterfinger-inspired peanut butter cup to challenge the biggest-selling confection of all time, Reese's Peanut Butter Cup.

These are some sweet numbers: Reese's generated over $1.5 billion for Hershey's last year, putting it ahead of every other candy made. In fact, the market researchers at Nielsen say no other candy even topped $1 billion in sales. When Wal-Mart introduced the cups into Japan last year through its Seiyu supermarket subsidiary, they outsold Nestle's KitKat Mini bars by 1.7 times in the first month alone. It could be that that was the genesis of the Butterfinger cup.

Although there are a few pretenders to the throne -- Wal-Mart apparently sells a house brand, as does Trader Joe's, and Unreal Brands makes an all-natural, non-GMO version -- there's hardly been any candy maker that has tried to take a bite out of the Hershey's Reese's cup.

But Nestle thinks it's got the right recipe to do so. With Butterfingers already used in ice cream and on cakes, it sees the cup as a means of expanding the bar's reach, and is banking on a big Super Bowl splash to kick off the product's launch. One major difference between the two cups is that the Butterfinger version will, of course, be crunchy compared to Reese's smoothness. And, as the image above indicates, there are four cups in the "share pack."

But the Butterfinger cup has a long way to go before it has its own day, as May 18 was declared National "I Love Reese's" Day several years ago.

Yet it's still a good time to introduce a new chocolate snack. Although cocoa prices are rising, up 21% in the third quarter, chocolate sales are higher too, rising for the first time in the U.S. since 2008. While some of that has been due to an increased preference for dark chocolate, which now accounts for one-fifth of the U.S. chocolate market, milk chocolate remains the overall market leader, with just over 50% of all consumers preferring it.

Nestle is the first major chocolate company to make a sustained effort at stealing from Reese's, and from a novelty aspect alone, it will likely record some strong sales when launched in January. But as even Butterfinger's people admit, the super-sweet treat can only be tolerated in small doses, so I don't think Hershey has anything to worry about here, OK, buttercup?

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  • Report this Comment On October 18, 2013, at 12:31 PM, BradReeseCom wrote:

    Hi Rich,

    My grandfather, H.B. Reese (a former employee of Mr. Hershey) invented Reese's Peanut Butter Cups in 1928 and founded the Hershey, PA based H.B. Reese Candy Company in 1923.

    On July 2, 1963 seven years after the May 16, 1956 death of H. B. Reese, his six sons Robert, John, Ed, Ralph, Harry and my dad - Charles Richard Reese (sole owners of the company) merged the H.B. Reese Candy Company with the Hershey Chocolate Corporation in a tax free stock-for-stock merger with the 6 Reese Brothers receiving 666,316 Hershey commons shares valued in 1963 at $23.5 million (in 2013 after 50-years of stock splits those original 666,316 shares now represent 16 million Hershey common shares valued in excess of $1 billion paying $31 million in annual cash dividends).

    Finally according to Advertising Age and Euromonitor International, as of September 20, 2012 Reese's is the #1 selling candy brand in the United States with sales of $2.603 billion and is the #4 selling candy brand globally with sales of $2.679 billion (amazingly, the Reese's brand is ranked #4 globally with just a mere $76 million of its sales outside the United States). Additionally, the non-union H.B. Reese Candy Company manufactures the Kit Kat in the United States which had 2012 U.S. sales of $948 million. Reese's is by far the most popular Hershey's brand on Facebook with over 10 million likes.

    Personally, I'm a big fan of Butterfinger!

    Sincerely,

    Brad Reese

  • Report this Comment On October 18, 2013, at 6:13 PM, TMFCop wrote:

    Brad,

    Thanks for reading! Your grandfather's history is fascinating. I read the book by Andrew, I've been interested in all Hershey history ever since visiting their factories when I was a kid. Back then, the chocolate mixing vats were open, and perhaps because I was young everything seemed so much bigger, but I recall huge vats with really large paddles mixing the chocolate. When I returned a few years ago, I see they had everything enclosed, no doubt in compliance with regulations.

    But I also see the Reese's Peanut Butter Cup is an even better seller than I thought. While I look forward to sampling the Butterfinger cup, I find it hard to imagine it can top the Reese's cup, though I admit I'm somewhat biased towards.

    Thanks again.

    Rich

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