DEERFIELD, ILL. — Mondelez International, Inc. plans to enter China’s $2.8 billion chocolate market with the launch of its Milka brand this fall. Despite the country’s recent economic woes, China “will continue to be an important part of our growth story,” said Irene Rosenfeld, chairman and chief executive officer, during a July 27 earnings call with financial analysts.
|Irene Rosenfeld, chairman and c.e.o. of Mondelez|
“By leveraging a formidable power brand like Milka in a sizable category white space, we see significant potential for chocolate in a market where per capita consumption is quite low, even by emerging market standards,” Ms. Rosenfeld said. “We expect our unique brand assets, industry-leading innovation, a new world-class manufacturing facility, and strong sales and marketing capabilities will not only grow our business, but will also accelerate the category.
“While chocolate in China has recently been challenged, we believe we are well-positioned to succeed. Our plans have been presented to customers and will enter the market in the next few weeks, well before the critical Chinese New Year season.”
During the conference call, Ms. Rosenfeld confirmed the company’s offer to acquire the Hershey Co., which was rejected in late June; however she declined to share details related to the matter. Still, she addressed an analyst’s question regarding Hershey’s recent struggles in the Chinese chocolate market and why Milka may be better positioned to succeed.
“With respect to chocolate in China, we have studied this for quite some time,” Ms. Rosenfeld said. “The Chinese consumers love brands with personality. We’ve done a lot of testing with the consumer, and our Milka bundle is a very unique bundle. The purity of Alpine milk together with some of the assets that you’re familiar with, the Lila Cow, for example, are really positive with the Chinese consumer, and we have every expectation that we can actually bring growth back to this market with the launch of Milka.”
Within China, e-commerce represents a particularly attractive opportunity for Mondelez, which earlier this year inked a deal with Alibaba Group, the country’s leading e-commerce company, to sell snacks on its Tmall.com platform.
“China is an important market for us,” Ms. Rosenfeld said. “We have some of the most attractive gross margins in that market of any of the emerging markets in the world, but there is no question that the economy has weakened and that’s contributed to slower growth of our categories. So we have continued to selectively invest in marketing support in our power brands, and in particular e-commerce, as the fastest growth in e-commerce is occurring in China.
“We actually see close to 10% of snacks being purchased on-line, and it is one of the drivers of the partnership that we have struck with Alibaba. So we really believe that the strong programming we have on our core franchises, biscuits and gum, together with the launch of China, will help us continue the momentum in that market.”
Near term, she added, the company remains cautious of China’s weakened economy but maintains confidence in long-term opportunities.
Net earnings attributable to Mondelez International in the second quarter ended June 30 were $464 million, equal to 30c per share on the common stock, which was up 14% from $406 million, or 25c, in the prior-year period. Net revenues fell nearly 18% to $6,302 million from $7,661 million. The decline in revenue was driven by the deconsolidation of the company’s coffee business and its Venezuela operations, and currency headwinds. Organic net revenue grew 1.5%, helped by pricing actions and increased consumption of Oreo, belVita and Triscuit products in North America.
Net earnings in the six months ended June 30 were $1,018 million, or 65c per share, up 40% from $730 million, or 45c, in the same period of the previous year. Net revenues declined 17% to $12,757 million from $15,423 million.“We've modestly reduced our organic net revenue growth outlook to approximately 2% from at least 2%,” said Brian Gladden, executive vice-president and chief financial officer. “This reflects the increasing challenges we’re seeing in global categories, and includes about 100 basis points from revenue management actions. We continue to expect adjusted (operating income) margin of 15% to 16% and are increasingly confident in delivering this commitment.”