Hershey's still in the red, even as loss reduced to Rs 850 mn in 2017-18

The contribution of Hershey's India remains less than 0.6% to its global Rs 545 bn (US$ 7.5 bn) revenue

Having made its foray through a joint venture with the Godrej group way back in 2007, the Pennsylvania-headquartered chocolate major that has a town named after it is still struggling to expand its brand footprint in the country.

It has been four years in the red, as per filings with the Registrar of Companies, and revenue from chocolates is still below the 2014-15 level. Now with a range of cookies under Sofit, a label it acquired from Godrej when the two partners went their separate ways, Hershey’s is hoping for a bigger share of the consumers’ wallet and a way back into the black. It is also looking at a more aggressive play in the chocolates market, having introduced its iconic tear-drop shaped Kisses brand into the country last month.

According to Herjit S Bhalla, managing director, Hershey India, the urban market for biscuits is over two times that for chocolates. “Further growth is expected to come from the snacking business. The strategy is to drive profitable growth for the global company with a more profitable portfolio mix,” said Bhalla.

In crafting an India specific strategy, the company has sought to retain the brand differentiation between the chocolates and snacks products in the portfolio. While Hershey’s is the chocolate brand, Sofit is being used to lead the snack business.

All of this is part of the company’s plan to invest $50 million in the country. Speaking to the media at the launch of the Kisses brand in October this year, The Hershey Company president and CEO Michele Buck had said that the company was going to focus more intensely on the Indian market where the company’s focused brands had grown nearly 50 per cent in 2017.

However, there are two big challenges here: one is the brand’s inability to crack open the chocolate market in India that is growing at close to 11 per cent a year could dog its efforts in the snacks market too. And secondly, will Brand Sofit’s association with soya milk be a hindrance when it comes to its extension into protein cookies?

While answers to both will be a while coming in, for Hershey India, the local subsidiary of The Hershey Company, it is a make-or-break situation in the country. In 2014-15, it had posted Rs 3.64 billion net loss, against Rs 3.85 billion operating revenue. During the past four years, its bottom-line has remained in the red. Losses, however, have come down steadily to Rs 850 million in 2017-18, according to a filing with the Registrar of Companies.

Despite new launches in the past two years, under its focus brands Sofit and Hershey, its 2017-18 operating revenue remained lower than 2014-15 levels. After a sharp drop of 23 per cent in 2015-16, revenue further slid to Rs 2.69 billion in 2016-17 — nine per cent year on year. Last year, however, operating revenue recovered to Rs 3.18 billion.

The contribution of Hershey’s India remains less than 0.6 per cent to its global Rs 545 billion (US$ 7.5 billion) revenue. The company despite its decade-plus presence in the Indian market has spent just the past 5-6 years running solo and has only recently intensified its pursuit of the Indian consumer. The parent company considers the market a focus area, Bhalla said.

The company is now looking to go past its past stumbles in the chocolate market, finally bringing its most popular product into the country. It is also keen to play into the health-wellness card by assigning a larger role for Sofit. As per its recent launch announcement, the soya milk brand will now be available as Sofit cookies in three flavours, natural cocoa with flax seeds, mango with almond, and raisins with flax seeds. They will be priced at Rs 45 and Rs 65 for 100 gm and 150 gm packs respectively.

While both — chocolates and biscuits — categories are growing at 11 per cent a year, analysts point out that the strong presence of Mondelez with its Cadbury brand that holds over 65 per cent of the local chocolates market, has kept most other players at bay. Nestle, another global major in chocolates, holds the second spot with a 14 per cent market share due to its leadership in white chocolates and wafers categories. The firm holds over 64 per cent share in these two segments, as per a report by AC Nielsen.

According to Bhalla, unique and differentiated products is the key to success in a market like India. Unlike other markets, in India, Hershey’s business is equally dependent on all its four key brands—Sofit, Hershey’s, Jolly Ranchers and Brookside—for revenue growth. He said, both of its two snacking brands are performing well for the past decade.

The Indian market is critical for the company that has taken a big hit in China where it acquired local chocolatier Shanghai Golden Monkey in 2014 and thereafter took a big write-down for the acquisition.  It has struggled to improve sales in that country where most of the shopping for chocolate happens online.