The following is an excerpt from TWST‘s interview with Charlie Mills, a UK-based managing director at Credit Suisse.
TWST: Looking specifically at Cadbury and Nestle, how have their candy sales held up during the recession?
Mr. Mills: Candy does very well in a recession. It’s basically viewed, if you like, as a cheap treat. A quick candy bar, a Milky Way bar, Mars bar or Snickers always makes you feel a little bit better. It’s a sufficiently low-priced item that is not particularly price sensitive, which is certainly true of the developed world. There is no real indication from what we have seen, or if you go back historically, there has never been any indication of confectionery suffering in economically tough times.
TWST: If you look at Nestle as a whole, how have their candy brands performed in comparison to their other brands? Is that an area of growth for them right now?
Mr. Mills: That depends on the time frame you’re talking about, actually. Traditionally, Nestle (NSRGY.PK)’s mantra is that it is a health, wellness and nutrition company. They really got into actual confectionery meaningfully back in about 1988, I think it was when they bought Rowntree. Since then, confectionery has actually been quite a problem area for them. It’s not been in decline, but if you look at the organic growth of confectionery, it’s been rather low by their own high standards that you see in the rest of the business.
TWST: What are the cost pressures on candy companies right now?
Mr. Mills: Well, actually pricing is quite good. I mean, principal inputs are milk and coco. Milk prices, as you’re probably aware, went ballistic 12 to 18 months ago. They went from $2,000 to $5,000 a ton and back again. So there was a substantial amount of pressure. Coco prices are still very high. So there has been quite a bit of inflation in that business, which the confectioneries would like to pass on. But they are pretty good with their pricing generally