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Hershey's First New Brand Ex U.S.

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In a bid to expand its presence in China, The Hershey Company (HSY - Free Report) recently announced its plans to launch a new milk candy brand called Lancaster in the country.

The new candy brand will be initially launched in three Chinese cities by the next month followed by much wider distribution in 2014. Lancaster Nai Bei candy will be available in three flavors, Original Pure Nai Bei, Pure Nai Bei filled with Rich Nai Bei, and Pure Nai Bei filled with Strawberry. Milk candies are extremely popular in China and account for one quarter of the total candy market in China. Lancaster Nai Bei candy, made from imported milk and involving slow cooking, has been specially crafted to suit the taste of the Chinese customers.

This is the first time that Hershey, which generates around 80% of its business in the U.S., has launched a completely new brand outside the U.S. Markets outside the U.S. have accounted for only 14%-16% of the company’s net sales between 2010 and 2012. Hershey is thus accelerating investments in overseas markets, particularly in Mexico, Brazil, India and China, where consumer spending growth is positive. Demand for confectionery items is growing in these countries as middle-class consumers there are shifting to urban living. The rising pool of middle-class consumers in emerging markets thus represents a huge opportunity for branded consumer companies. Hershey intends to expand its five core brands of Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher and Ice Breakers in these markets.

Among the emerging countries, Hershey’s special focus is on China as it has one of the largest numbers of consumers given its growing number of middle class and affluent households. The company plans to add additional manufacturing capacity and resources to boost growth in China. The company expects China to become the fifth largest global confectionary market by 2016.

In 2012, the company did well in China, Brazil, and Mexico, with constant currency revenues growing in double-digit percentages. The company believes that net sales outside the U.S. and Canada will increase 15% to 20% in 2013, higher than the 12% growth in 2012, driven largely by innovation and increased advertising investments for both core brands as well as new products. By the end of 2014, the company intends to achieve $1 billion in net sales in markets outside the U.S. and Canada. In 2012, Hershey derived approximately 16.1% of net sales from markets outside the U.S., which is expected to grow to 25% over the long term.

Hershey carries a Zacks Rank #3 (Hold). Other consumer staples companies that are currently doing well include Flower Foods, Inc. (FLO - Free Report) , carrying a Zacks Rank #1 (Strong Buy), and The Coca Cola Company (KO - Free Report) and General Mills, Inc. (GIS - Free Report) , both carrying a Zacks Rank #2 (Buy).

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