Is Russell Stover Deal a Sweet Marketing Play for Lindt?
18 Jul 2014|Added Value
Originally written by Nathalie Tadena for The Wall Street Journal, with comments from Jonathan Hall, President North America, Added Value.
Chocoladefabriken Lindt & Spruengli AG, known for its high-end sweets, may face a marketing challenge when it closes its acquisition of U.S. boxed chocolate-maker Russell Stover Candies Inc.
Branding experts said Lindt’s recently announced deal to acquire Russell Stover, whose chocolates are closely associated with Valentine’s Day in the U.S., is a smart way for the Swiss-based confectioner to broaden its portfolio. The company, which specializes in premium treats like pralines and truffles, will now have the task of making sure the premium reputation of the Lindt brand is not tarnished by its association with a mass-market name.
“You need to make sure that from a branding perspective, the brands seem separate,” said Red Peak Branding Chief Executive James Fox. “I wouldn’t put them under a single brand name. It’s a very dangerous position.”
Marketing experts noted Lindt has had success in transforming Ghirardelli Chocolate Co., an American chocolate company it acquired in 1998, from a sleepy regional brand into a more widely distributed one. Lindt also acquired Italian chocolate manufacturer Caffarel in 1997.
“There’s no connection between those brands and Lindt,” said Russ Meyer, global director of strategy and insights at branding firm Siegel + Gale. “It protects the Lindt brand.”
It’s a common business strategy for a parent company to own brands aimed at different price points– retailer Gap for example also owns bargain brand Old Navy and more high-end brand Banana Republic.
“Portfolio strategy is so important because you need to leverage different brands to go after different consumer opportunities,” said Jonathan Hall, president of consulting at Added Value North America, a branding firm. “If a premium confectionery brand chooses to try and drive volume through drugstores, for example, as a mainstream retail channel, it’s going to make [the brand] seem like a commodity.”
Companies that have more than one brand that serve different sets of consumers can also be better protected when economies are soft and consumers downgrade their purchases.
“As we’re seeing in the market now post-recession, there’s a lot of bifurcation of brands,” Red Peak Branding’s Mr. Fox said. ”People want to save and buy high-end luxury goods and compromise on lower-end goods, so mid-tier brands are getting squeezed out of the equation…From a business perspective, to have that lower-end priced item really helps.”
With the Russell Stover deal, Lindt is making a big bet on the U.S. chocolate market. Euromonitor International expects the U.S. chocolate market to grow to $20.92 billion in 2018 from $17.44 billion in 2013.
Russell Stover is the biggest deal in Lindt’s history and will make the company the third-biggest chocolate maker in North America. The acquisition will push Lindt’s sales above $1.5 billion in the huge North American market.
Even combined, Lindt and Russell Stover don’t spend as much on advertising as rival candy-makers in the U.S.
According to Kantar Media, the candy and mints category spent roughly $1.2 billion on advertising in 2013, a 23% increase from the prior year. Hershey spent the most out of any candy company in the U.S. last year, shelling out $605 million for advertising, Kantar Media estimates. Hershey was followed by Mars Inc., which spent $399 million last year on advertising, and then Lindt, which spent $77.1 million, according to Kantar Media.
Russell Stover spent about $1.9 million on advertising last year, while Lindt’s USA division spent about $50.9 million, Kantar Media estimates.
The deal is likely to provide Lindt with operational and distribution efficiencies. Russell Stover’s products, which include its namesake boxed chocolates, Whitman’s samplers and Pangburn’s chocolates, are sold in roughly 70,000 pharmacies across the U.S. and Canada.
Just as Lindt was able to grow the Ghirardelli business, the company’s takeover of Russell Stover could also bring innovation to the mass market brand.
Russell Stover is usually seen as a holiday purchase, commonly around Valentine’s day, not as an everyday purchase, notes Siegel + Gale’s Mr. Meyer.
“It doesn’t make sense to migrate a customer who’s a Lindt customer to become a Russell Stover customer,” Mr. Meyer said. “It’s very smart to say instead, ‘How can we get the Russell Stover customer to buy more or buy different or buy in different cases?”
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