Cadbury Schweppes announced on Friday the acquisition of the branded chewing gum business of Dandy A/S for €310 million. Danish company Dandy, wholly owned by the Bagger-Sørensen family, boasts core brands Stimorol, Dirol and V6, which together accounted for almost 4% of global sales of chewing gum in 2001.
The acquisition by Cadbury is part of the company’s longer-term strategy to diversify its confectionery business. Chocolate and sugar confectionery, which currently form the core of Cadbury’s interests in the market, are relatively mature. Gum offers more dynamic growth opportunities: globally, sales are forecast to grow by 21% in real terms between 2002 and 2007, driven by increasing demand for sugar-free products and innovation in the functional gum subsector.
This deal not only brings functional gum variants of Stimorol and V6 into Cadbury’s portfolio, but also allows the company to exploit Dandy’s significant R&D expertise in functional products. Given increasing consumer interest in this area there is scope for Cadbury to exploit this in other product subsectors. Applying this know-how to medicated confectionery, a dynamic subsector in which Cadbury has only a marginal presence, is just one possibility.
In line with its recent spate of branded chewing gum purchases, the most recent being that of Turkish player Kent in February 2002, the Dandy deal highlights Cadbury intent to build its global gum business step-by-step. By carefully targeting strong local and regional brands the company is building a portfolio which now includes high profile names in various countries around the world, including France (Hollywood), Argentina (Beldent), and China (Sportlife). Likewise this latest acquisition complements Cadbury’s existing presence by offering a route into other exciting markets.
With strengths in Scandinavia and Benelux, Dandy broadens Cadbury’s Western European reach and propels it above Perfetti Van Melle to rank second in the region. Furthermore with only a minimal presence in Eastern Europe pre-acquisition, the company will again now rank second, taking advantage of Dandy’s well established presence in Russia. The acquisition makes Cadbury the fourth biggest player in the world, with 7.5% of global retail sales.
This strategy of growth through acquisition is unlikely to stop just yet for Cadbury, with clear advantages to be had in purchasing the Adams confectionery business from US pharmaceutical company Pfizer. Pfizer is known to be reviewing its consumer products businesses, including Adams, which it picked up during its purchase of Warner Lambert in 2000. Not part of its core business, regulations have thus far precluded the sale of Adams, although this is likely to take place later in 2002.
Any Cadbury deal with Pfizer would include the world’s single largest selling brand of gum, Trident, as well as Dentyne. Given Cadbury’s absence from the lucrative US gum market this would not only give balance to its geographic coverage, but most importantly put it within a few percentage points of the world’s leading gum manufacturer, Wrigley.
However, Cadbury is by no means certain of closing such a deal. Although Nestlé has been rationalising its confectionery portfolio, divesting low added value businesses such as Fox in the UK and Kid’s in Brazil during the last financial year, the acquisition of Adams would be in line with its efforts to refocus. Industry insiders believe it would reap the greatest cost benefits, while Kraft and Hershey are also strong contenders.
Given the rivalry between the world’s largest players, the sale of Adams takes on added significance. Its acquisition by one of either Cadbury, Nestlé or Hershey would take the new owner to the top of global confectionery rankings. And while it’s lonely at the top, at least there’s plenty of chocolate to eat.