William Neilson Ltd. is among the many Canadian candy industry corporations seeking to increase their market share by exporting chocolate bars to the US. The Canadian industry is also feeling the competition from Europe.
For 12 years, Roy Rodie helped to knead and stretch the toffee-and-peanut-butter concoction that forms the centre of Canada’s best-selling chocolate bar, Crispy Crunch. He and a partner used to toss each 30-lb. lump of the sugary substance back and forth at least eight times, a physically demanding job that helped to make the candy filling light and flaky. But for Rodie’s employer, Toronto-based William Neilson Ltd., the 75-year-old method of producing Crispy Crunch bars was also time-consuming and labor-intensive. So last Janury, as part of its preparations for exporting chocolate bars to the United States, the company replaced Rodie and his fellow toffee-stretchers with $3 million worth of German-made machinery. Now, Rodie’s job is to monitor the equipment, which stirs and spis the toffee before extruding it in a long, thin ribbon that is flattened, sliced and coated with chocolate. For Neilson, that was just oen of many changes needed to tackle the tought but potentially lucrative U.S. market.
The company’s efforts appear to be paying off. Although Neilson declines to reveal its U.S. revenues, company officials say that sales of Crispy Crunch south of the border are currently in line with forecasts. Still, the firm clearly faces major challenges in vying for a significant portion of the $6.8 billion that Americans spend each year on candy bars. On average, Americans consume 11 lb. of chocolate candy per person annually, compared with the Canadian average of 8.5 lb. But the U.S. market is dominated by multinational corporations whose products are a well-entrenched presence on store shelves. “It’s a fantastic opportunity,” says Neilson president Arthur Soler. “But to survive in the U.S. market, we had to become more efficient.”
Neilson’s move south is the latest step in the company’s efforts to become more competitive. During the past two decades, as the baby-boom generation has approached middle age, sales of chocolate bars have remained essentially flat in Canada. To step up production at its single, underused plant, located in west-end Toronto, NEilson bought the Canadian chocolate business of Cadbury Schweppes PLC of Britain in 1987. By then, rationalization throughtout the industry had reduced the number of major players in Canada to four from seven in 1980.
Other chocolate makers in Canada have experienced similar pressures. Ganong Brothers Ltd. is a family-owned firm that has made boxed chocolates in St. Stephen, N.B., for four generations. But the current president, David Ganong, says that the company has been forced to adopt a new business strategy to counter inroads made by European competitors. During the past two years, Ganong has replaced the firm’s rambling 120-year-old facilities with a larger and more efficient $12-million factory. He then established an export team, which has found buyers throughout the Far East and in Argentina. Third, Ganong built a small factory in Bangkok, where lower labor costs have enabled the company to continue making labor-intensive, hand-rolled candies. However, Ganong says that his firm has had less success in the United States: “We find the American market extremely challenging.”
Founded in 1894, Neilson has historically been Canada’s leading manufacturer of candy bars. A wholly owned subsidiary of Toronto-based George Weston Ltd., the company had 33 per cent of the market in 1990 and reported sales of $175 million. That compares with 32 per cent of Swiss-based Nestle SA, 19 per cent for Mars Inc. of McLean, Va., and 16 per cent for Hershey Foods Corp. of Hershey, Pa. But the Canada-U.S. Free Trade Agreement, Soler says, forced Neilson’s managers to search for new ways of protecting the company’s No. 1 position. Under the 1989 pact, both countries agreed to eliminate tariffs on chocolate-bar exports over 10 years. Previously, the tariffs stood at 12.5 per cent for U.S. imports into Canada and seven per cent for Canadian exports to the United States.
Neilson’s first response was to introduce a Japanese-style production process known as “continuous improvement,” designed to encourage ever-higher levels of quality. Production manager Kim Weir says that the company’s 870 workers now have the right to stop the production line at any time if they notice a problem. In addition, newly installed machines monitor the quantity, temperature and consistency of the ingredients to ensure uniformity in the candy bars that roll off the production line.
The next step in trying to ensure Neilson’s future was the decision to export. In January, 1990, Neilson executives agreed to base their marketing efforts outside Canada on two of their most popular brands–Crispy Crunch and Mr. Big. In addition to the United States, Neilson has begun selling the bars in Southeast Asia, where Mr. Big has been renamed Bang Bang. the bars are already available in Singapore and Taiwan. Neilson plans to begin shipping both products to New Zealand next month and to Korea and Hong Kong in September.
But the challenge of marketing Neilson’s products in the United States is far from easy. For one thing, the number of large retail chains ther eis far greater than in Canada. “In Canada, we have to make maybe 20 key sales calls,” says Howard Bateman, Neilson’s vice-president of strategic development. “Down there, there are maybe 20,000. One small chain in the Midwest alone has 1,800 stores. Nobody here is that size.” To avoid having to establish its own U.S. sles force, Neilson formed a partnership with Pro Set Inc. of Dallas, the largest producer of trading cards in the world. Pro Set’s 2,500 sales representatives stay in close contact with convenience-store owners and other retail clients, so it made sense for them to sell another, noncompeting product.
The alliance appears to be succeeding. The 7-Eleven convenience-store chain, which has 6,500 U.S. outlets, recently agreed to carry Crispy Crunch and Mr. Big for a year. And WalMart Stores Inc.–the largest retailer in the United States–is selling the bars for a three-month trial period.
Bateman says that it also helps that Neilson has a proven track record in Canada. The U.S. packaging for Crispy Crunch features a prominent claim to being “Canada’s favorite bar.” That, says Bateman, is often enough to persuade people to try the bar, and the company’s research suggests that 20 per cent of first-time buyers will purchase the product again. To build brand awareness, Neilson plans to begin airing two of its four Canadian television commercials, in which a man and a woman pilfer each other’s candy bars, on U.S. televisoin. Bateman, however, declined to identify the cities in which the ads will be broadcast. “If our competitors know where we will be running ads,” he explained, “they will send in their sales force to buy up our product. That way, we can’t get a reading on how effective our ads are.” With pressures like that, it is no wonder that Canadian firms sometimes find it hard to grab a piece of the U.S. market.