Swiss food group Nestlé hopes to sweeten the outlook for its global confectionery business by launching versions of its popular KitKat bars made out of newly developed “ruby” chocolate.
Ruby KitKats, which will be sold initially in Japan and South Korea before being rolled out to other countries, are part of the company’s efforts to boost chocolate sales as consumers switch to healthier snacks. The new KitKats will be the first consumer products to use the first new type of chocolate since Nestlé pioneered white chocolate in the late 1930s.
Ruby chocolate, which is pink and has a berry taste, is being pitched at millennial consumers, especially in Asia. It was developed by Zurich-based Barry Callebaut, the world's biggest supplier of chocolate and cocoa products.
Nestlé, the world’s largest food and drinks business, is under pressure to boost sales and profitability in its international chocolate and sweets businesses after this week announcing the sale of its US confectionery unit to Italian rival Ferrero for $2.8 billion (€2.3 billion).
Mark Schneider, who became chief executive a year ago, wants the group to focus on higher-growth markets such as for coffee, pet food, bottled waters and baby food.
Upmarket
But Nestlé still sees opportunities to boost confectionery sales outside the US, especially by a strategy of “premium-isation”, or taking products upmarket. The launch of ruby KitKats is part of that campaign.
“The main issue for Nestlé is that it doesn’t have any global brands apart from KitKat. The other brands are local, in highly competitive markets, such as Cailler in Switzerland,” said Jean-Philippe Bertschy, analyst at Vontobel in Zurich.
KitKat bars were first produced in 1935 by UK sweets manufacturer Rowntree, which Nestlé acquired in 1988. Among global chocolate brands, KitKat ranks sixth by retail value after Cadbury, Kinder, M&M's, Hershey's and Snickers, according to Euromonitor.
So far, Nestlé’s efforts to “premium-ise” KitKat have been focused in Asian markets including Japan, Australia, South Korea and Thailand, where it has tested exotic flavoured KitKat bars ranging from green tea to strawberry cheesecake versions. It has also developed “KitKat Chocolatory” shops, where customers can snap up personalised KitKat gifts.
The launch of ruby KitKats "shows that KitKat has edge, sets the trend. It will keep KitKat as a cool brand that interests millennials," said Sandra Martinez, head of confectionery strategy at Nestlé.
“In Europe, we’re still on a journey to bring KitKat into a more value-added proposition - we have a nice momentum in Europe,” said Ms Martinez.
Globally, KitKat revenues were growing by more than 6 per cent a year, she added.
Tension
Ruby chocolate is made from ruby cocoa beans grown in countries such as Ecuador, Brazil and Ivory Coast. Barry Callebaut says the flavour, which it describes as “a tension between berry-fruitiness and luscious smoothness”, is the result of innovation in the manufacturing process, without giving details.
Nestlé reported confectionery sales of SFr8.7bn (€7.4 billion) in 2016. But like-for-like sales growth in confectionery products, at 1.8 per cent in 2016, has lagged behind other divisions such as pet food, and compared with 3.2 per cent overall at the Swiss group. The trading operating profit margin in confectionery of 13.7 per cent compared with Nestlé’s overall margin of 15.3 per cent.
– Copyright The Financial Times Limited 2018
