According to Mark Scott’s article for BusinessWeek, the candy industry is consolidating and there are few places left to target for growth.  Miller Zell conducted a focus group earlier this year with shoppers aged 16-35 where we asked about their behavior when it comes to making candy purchases.  Most of the respondents, event the teen group, admitted that candy purchases are typically relegated to holiday and gum purchases.  Most indicated that health was a consideration in their candy purchases and while most candy is viewed as empty calories, gum is a necessary oral hygiene accessory.

 So where does this leave these confectioners?  In emerging markets like India; which brought Cadbury a 16.1% revenue increase last year.  Scott reports that emerging markets have an “insatiable appetite for candy [which] is fueling double-digit market growth.”  No wonder Hershey and Kraft want in on that action.  The predominance of their candy sales are domestic.  The western hemisphere only saw a 5.2% increase in candy sales last year.  Kraft actually reported a 5.7% decline.   

Scott goes on to detail why this fight for Cadbury is important to the other companies and the candy business overall.  However, in the grand scheme of things, it’s interesting to watch the consolidation of this particular category.  One has to wonder, if over time it will continue to significantly diminish in size, once the rest of the world adopts the western way and decides that the joys of candy aren’t worth the calories or cavities.  Do you think that the candy category will eventually go away as a major business and be reduced to a segment within a CPG?  Can you think of any other products categories where major players dissolved to segments of larger diversified consumer companies?

Many reasons have been cited for Kraft’s interest in adding to their candy cache. One point of interest proposed by Erin Swanson, a Morningstar Analyst, is the lack of private label competition in the confectionery category. “Strategically, we believe the acquisition of Cadbury makes sense for Kraft as the firm stands to gain a larger foothold in the attractive confectionery industry (which is higher growth and higher margin than other categories in the packaged-foods space). Private-label competition is minimal in the confectionery market (in contrast to Kraft’s other segments), and the deal would not only expand the firm’s international presence but provide it with an expanded platform to distribute some of its existing brands.”

Cadbury, however, is still holding out, maintaining that shareholders would like to see the company remain independent. In addition, The Wall Street Journal reports that Cadbury’s third quarter sales figures were robust, making an acquisition appeal even more costly for Kraft Foods.

Several important dates are coming in the Kraft-Cadbury saga. Kraft is expected to release their third quarter results on November 3rd during which they may reveal their cards in the deal. November 9th is the deadline for Kraft to make another approach to Cadbury (based on the English rules of takeover engagement). It will be interesting to watch this one unfold in the coming weeks.