Chinese have a sweet tooth but, unlike Americans, it's not mainly for chocolate. So the iconic American chocolate maker is finally adapting itself to the tastes of China as Hershey makes its first major product launch beyond the U.S. market.
Lancaster, known in Chinese as Yo-Man, is a condensed-milk candy aimed at the fastest-growing segment of the quickly expanding Chinese confectionery market. Hershey estimates the segmentto be worth $1.2 billion a year, and it accounts for about a quarter of all candy sold.
"We've spent the last two years working with core suppliers, with our consumers and our customers to really develop something that makes sense for the Chinese palate," Steven Schiller, a senior vice president of Hershey, told CNBC. "It's got a premium nature in terms of the slow roasting milk quality to it and we really think that we've hit on something that Chinese consumers are going to love."
That's good, because so far Chinese consumers haven't loved Hershey. The American chocolate leader has been in the market since the 1990s but mainly has peddled chocolate in China. Even in that segment, Hershey trailed rivals such as Mars. Lately, Hershey has introduced its Ice Breakers mint and gum brand in China.
The Lancaster play is by far Hershey's biggest as it plays catch-up in China with sights on increasing sales by a factor of seven in the market over the next five years, which would make China the second-largest national outlet for Hershey after the United States. Brand executives said that they plan to boost the number of stores that retail its products in China by 32 percent and its sales force by 60 percent this year compared with just a year earlier.
Lancaster will debut in three cities this month with wider distribution next year. Hershey also plans to launch its chocolate Kisses Deluxe and will unveil more Reese's and Jolly Rancher products in China.
In tandem, Hershey has opened a Shanghai-based Asia Innovation Center, now the company's second-largest R&D facility anywhere.
Will localized products and an on-the-ground development presence enable Hershey to leapfrog snack rivals in a market where others have been investing more heavily for a while now? Opposition comes in the form of both state-owned Bright Food Group, which sells a popular milk candy, as well as western chocolate brands and, more broadly, other snack purveyors such as Mondelez International.