Halls Acquisition Brings Cadbury Into “Functional Confectionery” Market

Cadbury Schweppes' purchase of the Halls cough drop brand from Pfizer provides the firm with a foothold in the "functional confectionery" category.

In a ¹ Dec. 17 release discussing its acquisition of Pfizer's Adams subsidiary, Cadbury describes functional confectioneries as having "appealing taste, combined with health benefits." The London-based firm noted the category's growth rate is twice that of traditional candies.

"The functional confectionery and gum sectors are highly attractive given: they are highly branded; the products are premium priced with consumers willing to pay for functionality and convenience; and improvements in functionality (based on R&D) are a key driver of demand," Cadbury added.

While the company's entry into the functional confectionery category should provide it with a vehicle for growth, the move represents a shift into relatively uncharted territory for Cadbury, which has roots in the conventional confectionery business.

Although the firm would not comment on its plans for the Halls line, Cadbury's relative lack of experience in the new category makes it seem likely it will keep the brand's management team intact.

The brand holds the top position in the cough/sore throat drop market, with $100.4 mil. in food, drug and mass sales (excluding Wal-Mart) for the 52 weeks ended Nov. 3, according to data from Information Resources, Inc. (Chicago). Cadbury said Halls is the leading "medicated confectionery brand with a 22% value share of the world market in 2001."

Halls represented 27% of Adams' revenues in 2001, with average sales growth of 2.4% in 2000 and 2001, Cadbury reported.

The firm said it expects Halls and the other Adams brands to perform strongly due to the "more focused commitment and investment" they will receive as part of a "committed global confectionery group." Pfizer announced in late June it was considering divesting Adams, because it did not fit with the firm's strategic focus (² 'The Tan Sheet' July 1, 2002, In Brief).

The agreement states Cadbury will acquire Adams from Pfizer for $4.2 bil. in cash, pending shareholder and regulatory approval. The deal is expected to be completed by mid-April, according to Cadbury.

As one sign of its commitment to Adams, Cadbury noted it will increase marketing for the division's brands by about 10% in 2003 and 2004.

Cadbury pointed to opportunities to "drive sales growth by leveraging both Adams and Cadbury Schweppes routes' to market in order to generate incremental growth."

Furthermore, "the portfolios of both Adams and Cadbury Schweppes can be expanded, using each other's technical expertise to improve functionality, packaging and innovation," Cadbury noted.

Expansion also could come from developing markets, where functional confectionery growth rates are higher - about 6% per year compared to 4% per year in mature markets. Cadbury observed Adams has "an established presence" in a number of developing markets such as Latin America, which contributed approximately 40% of Adams' sales in 2001.

With the Adams purchase, Cadbury also will acquire the Trident sugar-free gum franchise. The line contains Trident Advantage with Recaldent , which was introduced in 1999 to help remineralize tooth enamel (³ , p. 9).

The remainder of Adams' portfolio includes several gums - Dentyne , Bubblicious , Bubbaloo , BubbaXtreme and Chiclets - as well as Clorets and Certs breath mints.

Adams recorded 2001 net sales of $1.9 bil. in 70 countries, according to Cadbury. The firm reported Adams employs about 14,430 people, with 22 factories in 19 countries. Cadbury said it expects integration of the Adams business to lead to cost and revenue synergies of $125 mil. and $60 mil., respectively.

Pfizer also is considering divesting its Wilkinson Sword shaving products business. The company announced Dec. 17 it has completed the sale of its Tetra aquarium and pond supplies business to the European private equity group The Triton Fund.