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Hershey looks to establish R&D facility in Asia, reports strong Q2

By Jane Byrne , 28-Jul-2011
Last updated on 28-Jul-2011 at 14:29 GMT2011-07-28T14:29:18Z

US chocolate giant Hershey reported net income of $130.12m for the second quarter, with net income for the period up o $129.56m from $117.05m in the same quarter in 2010.

Net sales for the maker of Hershey's Kisses and Reese's peanut butter cups in the quarter climbed 7.5 per cent to $1.33bn from $1.23bn in the same period last year.

Growth was primarily due to volume gains in both the US and the international markets, notes Hershey. Accelerated marketing campaigns and new product development also helped, it said, driven by “the solid performance of Reese’s Minis and Hershey's Drops.”

“Combined with our strong first half performance, we now expect 2011 earnings per share diluted to be greater than the company's long-term 6 to 8 per cent objective, and increase to about 10 per cent for the full year,” notes recently appointed Hershey CEO John Bilbrey in a conference call on the results.

According to the new boss, commodity markets will remain volatile. However, to offset some of this Hershey said it has kick-started productivity and cost savings initiatives.

International business ‘on track’

The US chocolate giant said that its international business is on track and performing well, despite recent comment from confectionery market watchers that Hershey was not “at the races” in terms of global penetration.

“Year-to-date, our focused markets, including Mexico, China, Brazil and India, are ahead of plan and forecast to grow a combined 20 to 25 per cent in 2011,” continued Bilbery.

The new boss did not confirm in the call if Hershey had dissolved its joint venture in India with Godrej.

“Sales growth in these focus markets is solid and we are optimistic about the potential to accelerate our international presence behind our disciplined approach to organic investments, acquisitions or joint ventures.”

On-site R&D

In Mexico, Hershey said it has a proven model involving a diversified product line that includes chocolate candy, sugar confections and drinks, supported by an on-site R&D facility.

“We plan to replicate [that] success in other geographies, especially in China, our fastest growing international market. As such, we're in the process of determining the location, scope and size of an Asia R&D facility that will support our businesses in that region,” he added.

Bilbery claims an R&D centre closest to our fastest growing regions will enable it to collaborate with in-country sales, marketing, operations and research universities, which will lead “to a sustainable core brand growth and innovation relevant to local consumers.”

China

In terms of Hershey`s entry strategy in China, confectionery market insider Lawrence Allen recently noted that the US confectioner "tripped up" in 2004 based on management issues where its employee count fell from 200 to 10 and products were pulled from the shelves.

But, continued the industry specialist and author of Chocolate Fortunes, its joint venture with Lotte seems to be getting them "back in the game."

He said that Hershey initially got the balling rolling with its Hershey bars but soon "realised that its bite-sized Kisses product was more attuned to consumer needs."

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