No humbug in the nostalgia sweet market

Sherbet flying saucers are flying off the shelves and retro sweet shops are sprouting up like coconut mushrooms. The nostalgia end of the $57.5bn global sugar confectionery market has seldom been so cool.

While the sweets sector overall ratcheted up global growth of 1.6 per cent this year, stores specialising in the sweets of yesteryear report annual growth of about 20 per cent.

“It’s cool because it reminds us of when we were six,” says Lee Linthicum, analyst at data agency Euromonitor. He sees sales of retro sweets manifesting “irony and a hankering back to golden times in what is now a disturbing period; part of a broader sociological phenomenon.”

Nostalgic baby boomers and their sweet-toothed offspring are not the only buyers. Serious investors are joining the pack.

Blackstone swooped on the UK’s biggest independent confectioner, Tangerine, last summer. Tangerine is the owner of such venerable brands as Butterkist popcorn, Barratt Sherbet Fountains, Henry Goode’s soft eating liquorice and Princess marshmallows.

Lionel Assant, senior executive at the US private equity group, said: “Our aspiration is that in five years we will have formed a company with £500m in sales and a strong UK and continental European footprint,” he said.

Investors like sweets for their relative immunity to recession. As an affordable treat, largely bought on impulse at outlets such as kiosks and cinemas, sweets are less price-sensitive than other foodstuffs, and less under the domination of the big grocers.

Michael Parker, founder of retro sweets website A Quarter Of, was one of half a dozen online purveyors of retro sweets when he set up shop 10 years ago. Today he reckons there are about 200. A Quarter Of has sent Jelly Babies to Japan, Sherbet Strawberries to Brazil and Aniseed Balls to a dentist in the US. Sales grew 15-20 per cent last year and Mr Parker expects to turnover £1.5m this year.

Another earlier arrival was Cybercandy, which sells sweets from around the world. “The sad thing is, you can’t have real retro candy like you can vintage clothes,” says Margaret Morrison, who founded the £2m turnover business with her husband 11 years ago, finding sweets no longer available in the UK and shipping them in to feed nostalgia.

Tangerine, having effectively vacuumed up much of the UK industry and quadrupled turnover to £160m, now has its sights trained on the still-fragmented North West European market – backed by Blackstone’s deeper pockets.

“It’s a business model that works,” says Steven Joseph, Tangerine chairman. “There has not been a consolidation under the majors and there will be casualties with recession in Europe . . .  that will let us do the same and double our business by having a French or German division with the same turnover.”

Germany offers plenty of temptation, but family ownership of many companies means little is on the table. More likely, bankers say, is that smaller brands will come up for grabs as casualties of recession.

Tangerine’s latest acquisition, retro sweet brands Highland Toffee and Wham Bars, were bought from Scottish confectioner Millar McCowan shortly after it went into administration in September.

The sweet industry can quickly sour, as many have discovered. Raw ingredients gobble up more than half the revenues, and in the past one and a half to two years, Mr Joseph says, the cost of the main ingredients has risen by 50 per cent.

Foam shrimps, liquorice allsorts and their ilk are also fiendishly complicated to produce, with many more pack size and flavour variants than chocolate or gum. Unlike chocolate, they do not lend themselves to pricier upmarket versions. “As such, it’s not particularly appealing to the big players, who prefer the more scaleable chocolate, mints and gum,” says one market participant.

Industry margins on earnings before interest, tax, depreciation and amortisation, at below 10 per cent, are inevitably suffering as input costs rise. And while consolidation helps, sceptics caution that rolling up smaller manufacturers into a bigger business is not a sure-fire road to success.

“The process [of rolling up] always takes longer than people think, costs more – and half the benefits are given away to retailers,” says one. The roll-up concept “didn’t work for Premier Foods.”