Hershey restructures Brazilian operation and sets off new phase

American chocolate manufacturer Hershey is restructuring its business in Brazil, having ended a seven-year partnership with Brazilian cookies and cakes brand Bauducco. Hershey makes in the country only about R$300 million ($78 million) of its $7.1 billion in global sales.

The company strengthened its local team and plans investments in its São Roque, São Paulo plant to accelerate its pace of expansion in the coming years, becoming Brazil’s third brand in sales volume. It aims to triple its revenue by 2020, reaching R$1 billion.

Hershey is the fifth-largest chocolate maker in the world, with a 7.3% market share. It trails Mars (14.5%), Mondelez (14.3%), Nestlé (12.4%) and Ferrero Group (9.1%), according to Euromonitor International. In Brazil, it is the fourth-largest chocolate brand, behind Lacta (Kraft Foods), Garoto and Nestlé (both controlled by the Swiss food company).

"We are having in 2015 a year of transition to a new phase of growth. The company now has the challenge of accelerating the pace of growth even in the current environment of low consumption,” says Marcel Sacco, Hershey director general in Brazil.

The Brazilian chocolate market contracted 6% in the first half, to 231,000 tonnes, according to the Brazilian candy association, Abicab. Hershey says its sales in Brazil increased 5.5% in value and 1.5% in volume in the first nine months of 2015. "It was a lower-than-expected result, but still good, considering that the market shrank 8% in the period," Mr. Sacco says. Globally, Hershey had 1.2% revenue growth in the first three quarters, to $5.48 billion. Its profit fell 53.5%, to $299.6 million, due to currency losses and slowdown in China.

Euromonitor estimates that the chocolate market in Brazil will grow on average 3.2% in volume and 4.9% in value per year until 2020. In 2014, the Brazilian market grew 2.9% in volume, to 320,700 tonnes, and revenues rose 6.3%, to R$12.6 billion. Hershey will have to grow 25% per year by 2020 to reach its R$1 billion goal. 

To get there, the company made changes in the distribution, production, marketing and sales departments. To manage these sectors, which were coordinated by Bauducco, Hershey hired 87 people in São Paulo and set up its own office in the city, opened on October 13. Previously, Hershey executives were based at Bauducco’s headquarters, located in Guarulhos, in the metropolitan region of São Paulo. With this measure, the company increased its workforce in Brazil by 16.5%, to 613 people.

Mr. Sacco says the Hershey team began taking over the sales management in October and will complete the transition in December. In manufacturing, Mr. Sacco says the company invested in new production lines this year to bring Reese’s to Brazil, in order to compete with Nutella (of Ferrero). The Brookside line, of chocolate with exotic fruit fillings, also launched in 2015, is imported from Canada, but the company plans to have a local production.

"In 2016, the company will have other launches and will bring to the country at least one new brand," Mr. Sacco says. Hershey has also expanded its types of packaging, with smaller, more affordable portions to consumers. "We will not give up quality or sacrifice margins to expand sales volume," he says, adding that the São Roque unit has room to receive other production lines and even a new plant. "I cannot say more than that for now."

The plan to accelerate growth in Brazil, Mr. Sacco says, led Hershey to end the partnership with Bauducco. “The plan demanded more investments and the Bauducco executives preferred not to make these injections,” he says. Contacted by Valor, Bauducco declined to comment. The American company doesn’t disclose how much it is investing in Brazil.

Mr. Sacco says the separation was amicable. “After the repurchase of the Bauducco part, the companies continue working together. The merchandising part continues being handled by Bauducco. In the North and Northeast regions, Bauducco will remain as Hershey’s master distributor,” he says. Bauducco will also provide storage and distribution services to Hershey.

Hershey arrived in Brazil in 1998, operating as importer until 2001, when it acquired the Visconti plant in Brazil and brands including Iô-Iô Crem and Granulados Visconti, for $18 million. In 2002, the company began its local production. “The company made some mistakes in the process of nationalizing the brand in Brazil and ended up opting for the partnership with Bauducco to have national presence, while it dedicated to innovations,” Mr. Sacco says.

In January 2008, Hershey made an agreement with Pandurata Netherlands (owner of Bauducco) for sale and distribution of Hershey products in Brazil. In the joint venture, Hershey held a 51% stake, and Pandurata the other 49%.

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