Zurich romances Kansas City

In the chocolate market, as in life, you never know what you are going to get-as evidenced by the announcement of Zurich-based Lindt & Sprűngli that it will acquire Russell Stover. The acquisition will firmly establish Lindt as the number # 3 chocolate candy manufacturer in the U.S. market-still well behind Hershey and Mars, but now firmly ahead of Swiss rival and global food leader Nestlé.  This development has far-reaching implications for premium chocolate in the U.S. market, particularly in the seasonal and gift-box market segments. The deal will combine one of the U.S. market’s best-known gift chocolate companies with a global player that has been working hard to grow its presence in the U.S. market, including through the acquisition of Ghirardelli. With the purchase of Russell Stover (which also owns the Whitman’s and Pangburn’s brand lines), Lindt will strike a new balance between Swiss import and made-in-the-USA-with Lindt pointedly stressing its commitment to maintaining Russell Stover’s headquarters in Kansas City and domestic manufacturing plants. 

The dynamic U.S. chocolate candy market has always attracted European chocolatiers.  While the U.S. market has certainly developed giant as well as deluxe chocolate brands, European purveyors still benefit from Old World prestige and, from a historical point of view, a sort of home-court advantage in the manufacturing of fine chocolate.  (One of the key events  in the history of commercial chocolate is Rudolphe Lindt’s discovery in 1879 of conching, an extended stirring process that is essential to improving the smoothness, flavor, and aroma of chocolate.  This discovery, albeit accidental, ultimately spurred the shift in the center of gravity for the chocolate industry from chocolate beverages to chocolate bars and confectionery.)

Market pundits may see the purchase of Russell Stover as a bit of a stoop for Lindt and somewhat of a lucky break for Russell Stover, which has been struggling in its old-school gift box business.  We see it as a strategic move for both, and one that will certainly capture the attention of Hershey and Mars.

With the acquisition, Lindt & Sprüngli will gain considerable domestic brand heft in the largest candy market in the world, including access to Russell Stover Candies’ long-established & diverse retail reach, shelf space allotments, and visibility in seasonal merchandising, including its strong presence in drugstores.  Russell Stover will gain access to Lindt’s world-class resources and tradition of chocolate manufacturing.  Moreover, the product portfolios of the two businesses will round out revenues by purchase occasion (everyday vs. gift), product segment, and consumer base.  While Lindt and Ghirardelli stand tall in candy bars (as well as baking chocolate and cocoa supplies, in the case of Ghirardelli), the Russell Stover brands are far stronger in seasonal Valentine’s Day and Easter candy.  While Lindt brand draws disproportionately among younger and coastal/top metro adults who might rather imagine themselves skiing in Switzerland, the Russell Stover brands appeal to the U.S. geographic and cultural heartland.  And it will be interesting to see what Lindt, with its deep roots in the European fine chocolate tradition, makes of Russell Stover’s newfangled and all-American sugar-free chocolates business. 

For fuller perspective on Lindt’s purchase agreement with Russell Stover and on the U.S. chocolate market, see Packaged Facts’ recent report on Chocolate Candy in the U.S. (July 2014).

David Sprinkle, Research Director, Packaged Facts