Capitalizing on its success in the US, Hershey's primary strategy has always been to sell to Americans – to own the US market. Of course, when the company started, this was not an unusual strategy, as distribution streams were weak and a confection as fragile as chocolate could not be exported easily or cheaply. But the strategy has continued to serve Hershey well, even a century later. Today, the company leads the American market with its brands, accounting for 38 percent of all chocolate sold in the US. This figure is more impressive when we consider that the American market is the world's largest consumer of confectionery.
Cadbury, in turn, reigns in the United Kingdom, and its brands do particularly well in English-speaking parts of the world. Of the 120 million chocolate bars sold in New Zealand each year, for example, 60 million are made by Cadbury.
But Cadbury’s strategies are rather different from Hershey's, and Cadbury has suffered some unique obstacles as well. First and foremost, unlike Hershey, Cadbury is very interested in selling candy both inside and outside of its home country. In part, this is because Cadbury and its related chocolate brands are part of a much larger food and beverage holding company, Cadbury Schweppes.
In the Cadbury model, we also find an example of the uniqueness of regional tastes. As Dora McCabe, Head of Group Public Relations at Cadbury Schweppes explained “By and large well-established markets have an established chocolate taste - the UK and commonwealth countries are defined by Cadbury chocolate, the US by the Hershey Bar and the Continent by high-cocoa content products such as Lindt and Suchard. With the taste of chocolate defined in early childhood, it is thus pretty difficult to break.”
Additionally Cadbury has faced a major setback that had more to do with legislation and politics, rather than taste buds. In 1973 a European Union directive defined chocolate for the member states as a product that contain no fats, save cocoa butter. In England, Ireland and Denmark, however, chocolate manufacturers had been including up to five percent vegetable fats in their formulations. Reaching something of a compromise, the EU agreed to let individual nations elect whether or not to sell these products, which were dubbed "vegelate" (as opposed to chocolate). Of the 15 member nations, 8 (including most of the major chocolate consumers of the group) elected not to sell these vegelates, a ban that included Cadbury products. This certainly had a very real effect on Cadbury sales and its global branding efforts.
In 2000, the directive was modified; vegelates could be sold throughout the EU so long as they were labeled as "family milk chocolate," but recovery from this almost 30-year ban has lingering effects. Even today, Cadbury Schweppes chocolate products only have major (continental) European presence in France, Poland, Spain and Russia; in France and Spain, the Cadbury Schweppes group sells some chocolate that does not even carry the Cadbury name.
With the ban in place, Cadbury turned its attentions to the North American market, with positive results in Canada. In the US, which similarly allows only cocoa butter (as fat), Cadbury reached a rather interesting agreement with Hershey. As McCabe explained, Cadbury has “a license agreement with Hershey for the manufacture and sale of our products in the US (but they don't make crème egg which we export from the UK).”
Hershey pays Cadbury a royalty, which effectively renders the two business partners, but it also removes Cadbury’s control over its US market. McCabe says “Via this relationship, we are effectively barred from competing in the US chocolate confectionery market but not sugar. We have a small share of the US sugar confectionery market with key brands such as Swedish Fish and Fuzzy peach.”
Overall, McCabe says that Cadbury uses all the usual marketing tools for promoting its confectionery products while acknowledging the local tastes. “We run our confectionery business on a regional not global basis and tailor our products and marketing strategies to the local markets. It can be difficult to break into markets, which have already well established confectionery companies and tastes as it is for any consumer product category. We have tended to enter markets such as these via acquisition – for instance, France where we now have a leading position in the total confectionery market.” Cadbury has been particularly successful in greenfield markets, such as Russia and China, where chocolate preference is less established.
Nestlé Food, the world's largest food company (and Switzerland's largest industrial company), is well familiar with the peculiarities of regional tastes. Nestlé spokesman, Marcel Rubin stressed, "the food industry generally speaking is a very fragmented business. If you take the 20 largest food industry groups in the world, they make 8.6 percent of the total sales of this industry. Which is small."
Nestlé is composed of six worldwide corporate strategic brands: Nescafé (coffee products), Nestea (tea products), Maggi (culinary products, frozen food), Buitoni (Italian cuisine), Friskies (pet food) and the Nestlé brand itself (chocolate, milk products, ice cream, nutritional products, etc.); chocolate and confectionery is less than 15 percent of Nestlé’s total sales.
So how does Nestlé Foods make impact – and not just with chocolate? By understanding fragmentation and localized tastes. Nestlé operates 500 factories in about 80 countries. They are a multinational company fully equipped to understand local tastes in food and in marketing and promotion.
Rubin asserts that the food industry is fragmented "because food is a component of the culture of the people, which means that the people are not all eating the same things all over the world. And the food producers – even the big international ones – are not proposing the same product all over the world.”
For example, he says, “If you take Nescafé, our soluble coffee. We make around 200 different types of Nescafé. Because people in the US do not drink the same type of coffee as people in Italy, as people in Brazil or people in Japan. And therefore we have to adapt the product to the tastes and habits of consumers. What is true for coffee is of course also true for chocolate . . . . [T]his explains why the food industry is so fragmented, because the food industry was born locally."
And in reality, what Rubin is saying helps to explain the very regional popularity of Hershey and Cadbury. All of these companies understand that, in the food business generally, and in the war for chocolate consumers more specifically, the most important tactic is to understand the very specific tastes of your customers, region by region. Once you've mastered that, you can move forward and capture their tastes or stay home and revel in the adulation.