Hershey In Lifestyle Play With Golden Monkey
US chocolate giant Hershey (NYSE: HSY) is in the headlines this wintry day in late December, with word that it’s dipping its toe deeper into China with a modest acquisition of a Shanghai candy maker. I’ll admit I don’t know much about Golden Monkey Food, even though this company being acquired by Hershey is based here in my adopted hometown of Shanghai. But a description of the company provided by Hershey, combined with my own perusal of Golden Monkey’s web page, makes this particular deal look like a good one for Hershey as it tries to take on hometown rivals Mars and Dove in China’s rich candy market.
As a longtime China resident, I can say that chocolate is not a natural delicacy in the market, where local tastes tend to favor fresh and dried fruits and some fruity flavored candies. I’m often dismayed when friends think a Hershey bar tastes just as good as high quality Belgian chocolate, much the way that my local friends are often shocked when I can’t tell the difference between an ordinary green tea and a premium one that is far more expensive. That doesn’t mean there isn’t a market here for chocolate, especially premium chocolate that can be quite costly.
Instead, it means companies like Hershey, Mars and Dove all need to create a market for their products by using different marketing approaches to target specific consumer groups. Starbucks (Nasdaq: SBUX) has been the big pioneer in this field, positioning itself as a premium brand and symbol of the yuppie lifestyle despite selling a product that is largely foreign to China. As a result of its targeted efforts and heavy investment, young Chinese who carefully watch their spending are happy to splash out $4 or $5 for a cup of a foreign beverage served in a cup prominently displaying the Starbucks logo.
With all that background in mind, let’s look more closely at this new Hershey tie-up and why I think it looks good based on the limited information I have. Hershey said it will buy 80 percent of privately held Golden Money for an undisclosed sum, with the deal expected to close in the second quarter of next year. (company announcement) Hershey lists a number of reasons for why it likes the deal, including Golden Monkey’s positioning as a pure candy maker, unlike many of China’s other food groups that are often make many different kinds of products.
Hershey said it also likes Golden Monkey’s strong presence in China’s second-tier and third-tier cities, many of which are quite large but are relatively neglected by other big multinationals. Golden Monkey isn’t huge but it also isn’t tiny. The company is set to notch more than $225 million in sales this year, and manufactures in 5 cities and has 130 sales offices.
So, why do I like this deal? Put simply, Golden Monkey looks like a well-run, mid-sized company that can draw on Hershey’s strong marketing experience to boost its presence in a country with no strong historical tradition of candy and chocolate eating. Hershey has already tried to position its flagship Hershey bars in China as a lifestyle, much like the other foreign chocolate makers that pitch themselves as prestigious treats and gifts for upwardly mobile white-collar workers.
I’ve had a look at Golden Monkey’s website (goldenmonkey.com.cn) and it looks a bit flashy but otherwise relatively well organized and slick. The product packaging is also well designed, with many candies featuring a cute cartoon monkey. The current focus looks distinctively targeted at young children, which may be the market that Golden Monkey has targeted in the past and is certainly a logical one for candy. I expect it may continue to target this market going forward, but also wouldn’t be surprised if we see some more upscale campaigns targeting bigger-spending white collar workers in China’s second- and third-tier cities following the Hershey tie-up.
Bottom line: Hershey’s purchase of local food maker Golden Monkey looks like a smart pairing, combining the former’s marketing skills with the latter’s good distribution and strong focus on candy.
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