Lindt's big bet on the American sweet tooth

The Swiss company is buying Russell Stover Candies, becoming the No. 3 chocolate maker in the US.

By MSN Money Partner Jul 14, 2014 12:07PM
Credit: © Gianluca Colla/Bloomberg via Getty Images

Caption: Lindt chocolate products sit on display
By John Revill, The Wall Street Journal

Chocoladefabriken Lindt & Spruengli is betting the U.S. chocolate market will remain the world's sweetest for years to come.

On Monday, the Zurich-based maker of high-end confections said it was buying Russell Stover Candies for an undisclosed sum. When the deal closes, Lindt will be the third-biggest chocolate maker in the U.S., behind Hershey (HSY) and privately held Mars Inc


Mintel Group, a market research company, estimates the combined company would have had roughly 11 percent of the U.S. market last year.


The deal, which Lindt says is the biggest in its history, breaks with the prevailing trends in the chocolate industry, where manufacturers are tapping into fast-growing emerging markets. Growing middle classes in those countries have extra cash and are beginning to spend it on small luxuries, like candy bars. Both Mars and Hershey have targeted China in recent years, while Mondelez International (MDLZ), the owner of the Cadbury brand, has turned to India for growth.


Despite slower growth, Lindt is doubling down on American sweet tooths. The company already has a strong presence in the U.S. through its 1998 purchase of Ghirardelli Chocolate Co., the historic San Francisco Bay Area chocolatier whose first factory is now a tourist attraction.


"Compared to what the other chocolate makers are doing, this seems counterintuitive," said Lauren Bandy, food analyst at Euromonitor International, a market research company. But Ms. Bandy says it makes sense for Lindt to try to grab more of a "massive market" than bet on new markets that are growing fast but will still take years to develop.


Over the past five years, the market for chocolate in India has grown 17.6 percent annually, while China has grown 8.8 percent. By comparison, the U.S. posted a 1.8 percent average growth rate and is expected to slow to an average of 1.3 percent over the next three years.


But Lindt is reckoning the size -- rather than growth -- of the U.S. market makes it worth the investment. Even with slower growth rates by 2018, the U.S. market will still be nearly three times the size of India and China combined.


The U.S. chocolate market is expected to grow to $20.92 billion in 2018 from $17.44 billion in 2013, according to estimates from Euromonitor. By comparison, China is estimated to grow to $3.94 billion from $2.42 billion, and India to $3.84 billion from $1.48 billion.


Analysts also say Lindt, which specializes in high-end chocolates rather than mass-market sweets, would find it harder to compete in India, China and other emerging markets, where its relatively higher prices would prevent many potential customers from buying their products.


Though Russell Stover's Whitman Samplers are decidedly more middle market than Lindt's truffles and pralines, the Swiss chocolate giant will also benefit from the broad distribution Russell Stover has in North America. Russell Stover's candies are sold in roughly 70,000 pharmacies across the U.S. and Canada.


More from The Wall Street Journal


Tags: HSYMDLZ
32Comments
Jul 14, 2014 3:05PM
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At least it wasn't sold to China.

Switzerland is known for chocolate.

Good luck!

Love my chocolate!

Jul 14, 2014 4:00PM
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Yeah, if it had gone to China, we'd have to worry about Arsenic, Formaldehyde and Bleach in our candy.
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Lindt makes good stuff so no issue with this buyout.

Jul 14, 2014 4:18PM
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Before long, EVERY business will be owned by foreigners. We are already being bred out, so we might as well sell out, too.
Jul 14, 2014 4:13PM
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Maybe it would be good for Lindt to introduce Whitman's Samplers in Europe. Their candy bars are expensive, but oh so good. They are not as sweet as Hersey bars are too. They taste creamier.
Jul 14, 2014 4:07PM
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I do not like Lindt Chocolates--it has a "funny" after taste.  Russell Stover was a very decent commercial chocolate maker for a very fair price---let's hope Lindt does not change the original Russell Stover presentation, or change their formula (comparable to the in store Chocolate, i.e., See's Candies) for a very good chocolate that was affordable to most everyone-- 

 

Whitman's Chocolate Candy is the worst, and also the least expensive; they need a "re haul" from some other Choc. maker.

Jul 14, 2014 4:08PM
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Many, many years ago I worked as a beginning worker at Russell Stovers Candies in KCMO!  I shall miss them!
Jul 14, 2014 4:26PM
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pca911 are you just naturally an a-hole or do you practice? Pharmacies. i.e Walgreens and CVS, etc. sell a lot more than medications. Guess you just hang with the other rednecks at Walmart.
Jul 14, 2014 4:23PM
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Both Stover and Lindt just aren't what they used to be. A Christmas box, last year, was absolutely vile. Nasty tasting stuff.

Perhaps between the two companies, they can figure out the salt crystals and chili in chocolate is never a good idea. And Stovers chocolates should never taste like the box that they are packed in.

And I am a serious chocoholic, too. That's why I am at the gym for eight hours a week. So that I can eat more chocolate!
Jul 14, 2014 4:33PM
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Wish they had stayed a U.S. Company , but if you want to keep making and selling excellent chocolate , a Swiss company is an excellent choice .  Glad they didn't sell to China .

Jul 14, 2014 4:45PM
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Just as long as Russell Stover's still tastes the same, I will be happy. I have never liked Lindt chocolates, but I absolutely LOVE a huge assortment of RS time to time. They are better tasting that the similar chocolates for the same price.  
Jul 14, 2014 4:28PM
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Yummy! Dark Chocolate is the best! This should work well!
Jul 14, 2014 4:29PM
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So another product and another candy maker walks off to another country to be made in another country and sell the product back to americans so the profits also leave the country, I stopped eating Hershey (haven't bothered with Mars in a long time) and now get to wave goodbye the sugar free candies of RS. You want it? Then let the people of Mexico and Switzerland enjoy all they want! It means I eat a lot less sweets.
Jul 14, 2014 4:56PM
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Good time to buy, what with more states legalizing pot. Munchies and chocolate sales should see growth.
Jul 14, 2014 4:42PM
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The Swiss company, Givaudan, has long been the worlds supplier of artificial flavorings and fragrances. Pretty much everything you eat, drink, or smell, is loaded with myriad chemicals, many of them dangerous to your health, produced by this company to as closely as is possible, addict you. And it works. Forget natural flavorings. They are also artificial. Thousands of chemicals which are not regulated by any agency, enter your bodies every day. No surprise that Russel Stovers has been acquired. They were already in hoc with this company, loading their concoctions with Givaudans witches brews. If you don't believe this, research them yourselves.
Jul 14, 2014 4:28PM
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To quote the late and great Jackie Gleason, "how sweet it is!"
Jul 14, 2014 10:20PM
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Who the hell doesn't like chocolate, except those that might be allergic to it...?

ummmm!!!

Jul 14, 2014 4:53PM
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Ahhhhh, Chocolate, more chocolate for us, emmmm.
Jul 14, 2014 4:31PM
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eliminate the competition and set whatever prices you want just like the big oil companies
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