Callebaut emerging as global b2b chocolate supplier after Hershey deal
- April 26, 2007
||strategic supply and innovation partnership agreement announced;
||long-term supply contracts and production facilities in US and Mexico chocolate markets;
||The Hershey Company (USA), largest confectionery producer in the USA (customer);
||Barry Callebaut AG (Switzerland), international manufacturer of cocoa products (supplier);
||focus on confectionery finished products, cost rationalisation;
||double capacity in the Americas, enhance position as leader in high-quality cocoa ‘on both sides of the Atlantic’;
||BC to supply min. 80k t. of chocolate and finished products p.a., contract to add 10% to BC’s total volumes over three years.
This deal that marks Barry Callebaut’s emerging as the global chocolate production and innovation outsourcing partner of choice. Only a few months earlier, BC announced a structured deal of this nature with Nestle, and it’s known to also be cosying up to Cadbury. It will be interesting to see how far BC’s role evolves in this area, and to track other outsourcing opportunities and assets for the group in various geographies.
There’s a lot of innovation going on in the cocoa world, and we suppose it makes sense for specialised suppliers and innovators like Barry Callebaut to emerge, for reasons of scale economy in investment and R&D.
The parties to this deal have declared BC’s focus on ‘new chocolate taste experiences, premium chocolate, health and wellness, ingredients research and optimisation’. BC will make a substantial capacity investment, by building a new plant in Monterrey, Mexico. They will also lease existing Hershey capacity at Robinson, Illinois, as a core part of the deal.
This will allow Hershey to focus more on marketing and, as with Nestle, transfer the burden of capacity closures to BC.
Unlike with Nestle, it’s surely unthinkable for Hershey to be planning to withdraw from chocolate confectionery altogether over time. However, ‘finished products’ are on the list of what BC is to supply to Hershey under this arrangement.
A phased closure of Hershey’s US industrial chocolate facilities, in favour of the lower-cost operation that BC’s to build in Mexico, may also be behind this deal. BC’s own US unit, Bracht, is at risk; the company earlier announced that it was ‘reviewing options’ for it.
With the Nestle deal, and now this with Hershey, BC is clearly ‘on a roll’ in growing its industrial chocolate business through this type of structure.
When we reviewed the BC deal with Nestle, we indicated that ‘the jury is still out’ as to whether this type of outsourcing makes sense financially (supplier margins) and in conflict-of-interest terms, notwithstanding the investment and R&D rationale.
We think the jury still won’t make a verdict after this deal – amongst other things, Nestle is likely to be asking BC for more details. BC maybe isn’t thinking of divesting its Stollwerke business just yet.