• by Thom Forbes  @tforbes, June 16, 2017

With its confectionary business heading south as Americans indulge more and more in healthier snacks, Nestlé SA yesterday said it was exploring its “strategic options” for the likes of Butterfinger, Baby Ruth and Crunch bars — not to mention 100Grand, Laffy Taffy, Nerds, SkinnyCow, SweetTars, Raisinets and Gobstoppers.

Analysts were not surprised by the announcement, Reuters’ Martinne Geller reports, which is in line “with its stated strategy of becoming more health and nutrition-focused … underlined by last year's naming of a healthcare veteran as CEO.”

“This might seem small stuff, but in our view, it could be a significant step by new(ish) CEO Mark Schneider,” RBC Capital Markets analyst James Edwardes Jones wrote in a note, Ralph Atkins and Scheherazade Daneshkhu report for Financial Times. “There’s a limited amount that the CEO of a business as big as Nestlé can do: change the culture is one thing, manage capital allocation is another ... this might be a first tentative step towards a more deliberate and efficient capital allocation strategy.”

“Nestle's chocolate business in North America has been a distant fourth in terms of market share when a company typically aims to be No. 1 or 2, so overall the move toward a disposal is not a surprise," Jon Cox, head of European consumer equities at Kepler Cheuvreux said,” Zlati Meyer reports for USA Today.

“Lindt & Spruengli AG overtook Nestle as North America's third-biggest chocolate producer in 2014 when it acquired Russell Stover. Hershey and Mars Inc. together control more than half of the market, according to Euromonitor data, which puts Nestle's market share at 8.4%,” report  Bloomberg’s Corinne Gretler and Thomas Mulier.

“But candy is just one part of a basket of Nestle brands including Nestle Pure Life, Purina, Coffee-Mate, Gerber and Stouffer’s that will ensure the company continues to have a huge U.S. presence. About 97% of American households have Nestle products in them,” USA Today’s Meyer continues.

Strategy and market share aside, there’s also the bottom line to consider.

“Sales in the Nestlé confectionary unit fell last year, to about $922 million, in what the company said in February was a ‘disappointing’ performance,” Michael J. de la Merced reports for the New York Times.

“Though Nestlé said that it was considering a sale of the American confectionary division, it will hold onto its international candy businesses, including its successful KitKat brand. And the Swiss company said it would also hold onto its Toll House line of baking goods, declaring it a ‘strategic growth brand,’” de la Merced continues.

Those delectable chocolate chips and baking mixes find themselves in the middle of an increasingly muddled marketplace, however.

“U.S. candy makers face competition not only from healthier snacks but also from anything that occupies consumers' idle time — including technology and social media, said Nielsen analyst Jordan Rost,” writes Brian Blackstone for MarketWatch. “‘They are fighting against more competitors than ever before,” he said. At the same time, food makers are under pressure to aggressively lower costs to maintain profit margins amid the slower sales.”

“Nestlé also said that it would continue its U.S. investments in pet care, bottled water, frozen meals, infant food and ice cream,” CNBC’s Sarah Whitten points out.

Indeed, that “efficient capital allocation” strategy referred to earlier may very well involve an expansion in those areas.

Schneider, who became Nestle CEO a year ago after 13 years of leading the Germany-based, €28-billion global healthcare company Fresenius, “told CNBC in February that the food and beverage giant would be ready if the opportunity for mergers or acquisitions arose and made ‘strategic sense’ for the brand,” Whitten reminds us.

“When it comes to M&A, I think Nestle is no stranger to that,” he said. “In fact some of the most strident deals of the 1980s that actually put the company on the map where it is today, as the world's largest food and beverage company, those were coming from here.”