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Hershey’s Chocolate Spread Aims to Take on Ferrero in the US

2/2/2014
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Hershey’s launch of a chocolate spread under its iconic Hershey’s label at the end of 2013 marked its entry into a fast growing category in the US. Chocolate spreads in the US is anticipated a near 7% CAGR over the 2013-2018 forecast period, but the category is heavily dominated by Ferrero’s Nutella brand, which held around a 70% value share in 2013. In the US, the chocolate spreads category grew rapidly over the 2008-2013 review period as consumers were increasingly drawn to chocolate spreads with hazelnut. This move is a good one for Hershey given its strength in chocolate confectionery and strong brand equity. The challenge will be how to tackle the competition and claim share from the well-established Nutella brand.

Hershey spreads.jpg

Source: Hershey Co

Chocolate Spreads a Well-Fitting Expansion Target Category for Hershey

The new range from Hershey is wider than that offered by Nutella, with the company having launched chocolate, chocolate with hazelnuts and chocolate with almond variants, while Nutella is available in only one flavour. Hershey has a strong association with baking in the US thanks to its syrups, cocoa powder and chocolate chips. The launch of a chocolate spread range fits well with this heritage.

In addition, Hershey should consider launching on-the-go snack variants in the US, similar to Ferrero’s Nutella & Go, which was launched in 2012. Its single-serve packaging, which combines a pot of Nutella with breadsticks, to target on-the-go snacking has helped the brand to continue to post strong growth. Ferrero has also been highlighting the fact that hazelnuts are the product’s primary ingredient, which dovetails well with growing interest in nuts as a high protein and natural snack. However, marketing a chocolate spread on the back of health claims might not be the best strategy, with strong and still rising demand for indulgence remaining the key growth driver in the snacks category.

In addition, the US market is showing interest in new brands/products in chocolate spreads. In 2012, JM Smucker launched its Jif brand in the category, and by 2013 its value share had exceeded 20%. Hershey is in a good position to drive further fragmentation in chocolate spreads.

Hershey Needs to Look to International Markets for Longer-Term Prospects

Chocolate spreads in the US was a well-identified and well-fitting category for Hershey to expand into. However, over the longer term, with its wider strategy of international expansion, Hershey must look for new target markets for the product.

Given the fact that Hershey has already established a subsidiary in India, the country could be a potential target market for the product. Chocolate spreads in India is forecast a CAGR of 24% over 2013-2018, although Nutella’s dominance there is even stronger than in the US, with the brand commanding nearly a 90% value share in 2013.

Another attractive international target market could be Turkey, although, unlike in India, Hershey does not have an established foothold in the country as yet. Turkey will lead growth globally in chocolate spreads. Nutella is the leading brand there too, although there remains considerable scope to consolidate this position against local brand Cokokrem from Yildiz, which ranked second in 2013. Given the category’s strong growth prospects there, Hershey should look at making Turkey part of its international expansion strategy over the long term.

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