Hershey Foods Looks for Overseas Ventures
After shedding Friendly Ice Cream Corp. this summer, Hershey Foods Corp. is looking for new ventures, particularly in Europe, Chief Executive Officer Richard Zimmerman said.
“The sale of Friendly gives us a new piece of work to do. I’d like to think there’d be opportunity for new ventures and work with people in international markets, especially Europe,” Zimmerman said in an interview.
He said the company will look for overseas ventures in consumer food products and in the confectionery market.
Historically, Hershey’s international sales have accounted for less than 5% of total sales, according to analysts.
Zimmerman said Hershey expects to reap an extraordinary gain of $50 million in 1988, due to its sale of Friendly Ice Cream Corp. for $375 million in August to Chicago-based Tennessee Restaurant Co.
He said the company will issue a restatement of 1987 and 1988 earnings in early to mid-November when it records its third quarter. The restatements will reflect both the sale of Friendly and the company’s purchase of the U.S. confectionery operations of Cadbury Schweppes Plc in July for $270 million in cash and $30 million in debt.
In 1987, Hershey reported earnings of $148.2 million on sales of $2.4 billion.
Hershey has agreed to pay Cadbury an additional $11 million as part of a royalty and technical agreement. It will pay $5 million per year for technical assistance over 10 years and $6 million this year in royalty fees for Cadbury’s various candy brands.
“We’ve focused our attention pretty heavily on a few European confectionery businesses in the recent past, but prices are very high and returns have not been good in Europe,” Zimmerman said.
He noted that growth in U.S. confectionery consumption has been slow, totaling 19 pounds per capita in 1986, according to the Department of Commerce. Chocolate consumption was 55% of total U.S. confectionery consumption in 1986.
“There is not vigorous growth in confectionery. It’s rather level with no discernible trend, and they don’t know whether it will end up or down in 1987 and 1988,” Zimmerman said.
He said the current consolidation within the U.S. and European confectionery industry will make the “market sharper and stronger year by year” due to increased marketing promotions by fewer, bigger players.
“I think Jacobs Suchard AG will give us more competition than we’ve had,” he said. Last year the Swiss-based Suchard bought E.J. Brach & Sons, a big U.S. seller of hard candy.
Other market observers also believe Suchard will use Brach’s U.S. distribution system to push its chocolates, which include Toblerone, Andes Candies and Cote d’Or brands.
“I fully expect the market to increase in the future with the amount of money we’re spending to try to persuade people that confections are good for you and ought to be enjoyed every day,” Zimmerman said.
In 1987, Hershey spent $279.7 million in advertising and promotion. Its U.S. market share has grown to 44%, eclipsing the 37% share held by Mars Inc., the previous market leader, analysts said.
“We put more money into promoting categories in 1988 and plan to increase spending again in 1989,” Zimmerman said .
He also said cost benefits resulting from sharply lower cocoa prices will be realized in 1989 and will be passed through to consumers via price cuts, promotions and coupons.
Although there has been concern about the availability of quality cocoas due to the Ivory Coast sales embargo, Zimmerman said he and most manufacturers were confident “the cocoa will find its way to the market in the near future.”