US chocolate firm banks on Golden Monkey to open doors in China

Finding a single taste that appeals to customers across all geographies has been the dream of every chocolate maker. But Bert Alfonso, president of international business at The Hershey Co, believes that it is equally important for companies to have products that succinctly blend local and international flavors, for sustained growth in key markets like China.

The Pennsylvania, United States-based chocolate manufacturer has already taken the first steps in this regard by launching chocolate products with blended ingredients and also through acquisitions of Chinese confectionery brands that have established connections with customers.

A woman shops inside the Hershey Store in New York. Hershey cut its long-term earnings growth target on Tuesday and laid out a strategic plan to boost its biggest brands in the United States with more advertising and tighten development of new products. Reshannon Stapleton / Reuters

"The addition of Golden Monkey has really broadened the possibilities in China," said Alfonso in a recent interview with China Daily, after Hershey acquired an 80 percent stake in the privately held confectionery company in Shanghai for $584 million in September.

Alfonso said the acquisition gives Hershey automatic access to more than 1,000 distributors across China, especially in the second- and- third-tier cities. More importantly, it has also propelled Golden Monkey on to the global center stage, he said.

"We see the acquisition as a perfect blend since Hershey follows the advertising-driven brand-building strategy, whereas Golden Monkey takes the distribution- and sales-driven approach," Alfonso said. Golden Monkey's vast distribution network will help reinforce Hershey's business model, while Hershey's inputs will make the Golden Monkey brand more visible to global consumers.

"We want Golden Monkey to be more active in the modern aspects of trade, and Hershey to participate more in cross-selling," he said.

According to Alfonso, the deal will help Hershey grow sales in China to about $500 million by 2015. That will also make China the second-largest market globally for Hershey after the US, he said.

"What it also means is that China will be our top international market priority," said Alfonso. "We are still in the early stages of that journey in China. But there is no doubt that the potential is huge, particularly among urban consumers," he said.

Alfonso's confidence also stems from the robust market fundamentals. "The annual per capita consumption of chocolate in Switzerland is roughly 10 kilograms, in the US about 5 kilograms, and a quarter of that in Brazil. But in China it is just dozens of grams. This is what gives us confidence and we believe that the fastest growth would come from the high-end segment," he said.

"Though there is intense competition from several local brands in the Chinese market, we are confident of sustained growth as we believe that more Chinese consumers will purchase high-quality and high-priced products from premium global brands."

According to a recent survey conducted by global market research agency Nielsen, chocolate clocked the fastest growth rate among all fast-moving consumer goods. Within the chocolate segment itself, Hershey had a growth rate four times higher than the average growth rate for the chocolate segment.

"The annual growth rate in the US market is about 3-4 percent, whereas in China it is about 13-14 percent. Though this may fall to 9 percent in the next few years, it is still higher than most of the other markets and this is what gives us continued confidence."

Despite Hershey's ambitions, it has never been easy for the company to take a big bite of the highly competitive Chinese market. And Hershey has learned this better than most other foreign companies.

The company set up its office in China in 1995. But in 2004, Hershey's products were reported to be "missing" from the shelves in Chinese supermarkets, triggering speculation that the company was pulling out of the Chinese market due to poor sales.

Alfonso was quite frank about this rather painful chapter in the company's history.

"Hershey had some false starts. Much of it was due to the fact that the company was too US-centric and most of the talent base was also from the US." However, he said, there have been several improvements over the last six to seven years, and the company is now much more resilient.

"In the past, most of the Hershey chocolate bars were made in the US and then shipped to China. To be honest, that is not exactly what the customers want in China. We have altered this strategy and now make everything locally and add more local tastes and flavor for the products in China."

Hershey will continue to expand capacity in China. "Currently our facilities in China support other key markets also within the region. We are building a new facility in Malaysia so that we can free up more capacity in China to cater to the domestic market. We know that we are not yet a global company in China. But we are sure that we are more of an international company than we were 10 years ago."

Alfonso said Hershey has focused on investment-driven and brand-building geographic expansion strategy in China. "We have been very successful in terms of the 'Kisses' brand and the 'Hershey's' brand and other brands recently added to our portfolio."

The company is also looking for bigger market opportunities following the acquisition of Golden Monkey.

"The brand has been around for years now and has a strong connection with customers. While we are fully committed to maintain that brand, we are also looking to add more global brands to our portfolio."

Alfonso said he is particularly excited by the healthy snacks developed by Golden Monkey. "This is something that Hershey does not have in its global portfolio and something that is becoming increasingly popular with customers. We think there are enough opportunities for these products in other markets also," he said.

Q&A | Bert Alfonso

How do you spend your time during weekends? What are your hobbies?

Connect with friends and family on Friday evenings. I am fortunate to have a group of friends to keep me grounded.

Saturday is generally busy with errands, going to the gym or outdoors. I enjoy hiking, fishing for trout or snowboarding. I also enjoy reading about world history.

Sunday is also time with family and church but i'm also busy for reading and preparing for the week ahead or heading to the airport for business travel.

What book are you reading now?

World Order, by Henry Kissinger.

Do you have a favorite saying? Is there someone you admire?

I firmly believe that "none of us is smarter than all of us". I live by that saying.

And someone I admire is probably Warren Buffett - not because he has been financially successful but because he has invested his wealth to benefit society. I also greatly admire Nelson Mandela.

What is the quality you most admire in a man and in a woman?

In a man, generosity, and in a woman, maternity.

What is your idea of perfect happiness? What is your greatest fear?

While I do not believe in perfection, I think perfect happiness is being with friends and family during the Thanksgiving holiday and celebrating the lucky life that I have had.

My greatest fear is how much I will miss my parents when they pass away. I am lucky to still have them in my life.

What do you consider to be your greatest achievement?

Having raised a beautiful and talented daughter. She is my only child and means the world to me.

If you could change one thing about yourself, what would it be?

I would like to be about four inches taller.

Please name some places in China that impressed you most and destinations that you have not visited but want to explore.

I was really impressed with Shanghai. It is a beautiful city with a good contrast between modern and traditional.

I recently visited Chengdu after several years and was amazed by the city's rapid progress.

The amazing lakes in Wuxi and Hangzhou have also captivated me.

As for places I would like to visit, it would be Chongqing and Tibet.

What's the best way to break the ice with a Chinese businessman? Give three words to describe them.

The best way is to discover what is important to them and ask to learn about whatever that is.

Meeting over a meal and drinks also makes things less formal and helps in getting to know the person better.

It is important to "take the time to make a connection".

The three words I would use to describe the businessmen and women I work with in China are:

Driven, humble, and smart.

What kind of experience has shaped your thoughts the most?

Growing up in a relatively poor immigrant family and inner city environment was foundational to how I live and interact with others.

I have received encouragement from my family, friends and my wife and that has helped me throughout my life and career.

Professionally it has been about recognition - both positively and constructively.

When I have been recognized by others for a job well done I think through the elements of that success so that I can leverage them going forward.

Conversely, there have been times when I have not been successful (I hate to fail) and I try to use that as a learning as well.

I have been greatly shaped by meeting people who I admire and want to emulate.

weitian@chinadaily.com.cn

(China Daily USA 11/21/2014 page18)