Various financial and business media report that Nestle, the global goliath in food production, is one of several companies in confidential talks to acquire and form a partnership with Hsu Fu Chi International (HFCI), China’s largest confectioner. The company produces chocolates, candy and pastry. Shares of Hsu Fu Chi stock were voluntarily suspended yesterday on the Singapore Exchange as a result of this news.

So much for confidential!

The deal if successfully completed will have significant impact, including supply chain related implications. The company reported a 31 percent increase in fiscal year  2010 profits.  The supply chain profile of HFCI includes 45 production plants that produce more than 700 different confectionary products.  Products are distributed through retail, hypermarkets and supermarkets.

Supply Chain Matters readers will recall our previous commentaries related to Kraft Foods and its acquisition of Cadbury PLC, a move to broaden and diversify Kraft’s presence in the confectionary arena and particularly in growing emerging consumer markets such as China and India. Kraft has had to re-orient its supply chain production and distribution plans to support both its traditional food and now confectionary products, whose distribution channels are somewhat different.

Nestle, on the other hand, has been very experienced in global markets and distribution channels, particularly those in China. Its recognition in China dates back 20 years. The company has set a goal to dramatically increase its penetration of these markets.  If this potential deal, either in partnership or acquisition is successful, it will clearly deepen Nestlé’s influence and penetration in one of the world’s potentially largest consumer markets.  The Nestle brand  has garnered far more consumer trust in China in the wake of the previous milk powder contamination incidents that occurred in 2008. Chinese consumers have preferred trusted foreign brands over those within China. Nestle currently operates 23 factories in China and employs over 14,000 people.

Whoever is successful in a broadened business relationship with HFCI will likely inherit a broader and deeper distribution channel relationship within China which could prove to be a major plus.

Bob Ferrari