Yowies For Yanks Monster Step For Choc-Maker

By James Dunn | More Articles by James Dunn

Yowie is expected to announce its first order from a major Australian retailer very soon, as well as a trial with another major US retailer. As it builds a global brand, Yowie Group’s objective is to sell 500 million units a year, in five years.

In February this year, Australian confectionery company Yowie Group Limited (YOW) announced a potentially transformative deal, with the news that its Yowie chocolate, which encases a toy animal, will go on sale in 1507 Walmart stores and 1318 Safeway stores throughout the US. Walmart is the largest company in the world and the largest grocery retailer in the United States.

Why the deal is so good is that the company has got around a US ban on selling confectionery with embedded toys, because of choking risks. Yowie has designed a special capsule for the toy, and last year was granted the only patent for a chocolate-encased toy by the US Food and Drug Administration (FDA). Yowie’s much bigger global rival, the Italian-based Ferrero Group, which makes the Kinder Surprise chocolate egg, does not have such a patent – after two rejected applications – and cannot sell the Kinder Surprise in the US. Yowie’s patent expires in 2019.

Yowie also sells in the 1900 North American convenience stores of the Valero Corner Store chain. Yowie is also expanding into Asia, where the product was sold until eight years ago – before Yowie Group owned the rights to the product – and Europe and the Middle East are the priorities for the “second-stage” brand roll-out. The company has created the online presence of yowieworld.com to build brand engagement, and help in its ambition to build a successful global brand company.

Yowie listed on the Australian Securities Exchange (ASX) in December 2012, through a “backdoor listing” into the “shell “ of GSF Corporation (GSF), which had been dormant since 2009, and in a trading halt since July 2010.

Authors Bryce Courtenay and Geoff Pike created the Yowie characters in the early 1990s, based on the mythical Australian monster. The pair licensed the characters to Cadbury for use in a chocolate-encased toy, which was launched in 1995. Yowie sold 65 million units in Australia in its first year alone, before expanding into the Asia-Pacific. The product was very successful, outselling its biggest competitor, the Kinder Surprise, and taking 30% of the $80 million children’s confectionery market, according to Foster Stockbroking.

But when Cadbury wanted the rights to sell the chocolates worldwide, it sparked a dispute with creators Courtenay and Pike. There was also a distracting legal battle with Canberra identity Tim the Yowie Man: Cadbury tried to prevent Yowie Man, who claims to have seen yowies, from using Yowie in his nickname. The upshot of these legal cases was that Cadbury removed the brand from shelves in 2005.

Yowie Group Limited was formed to buy the rights to the Yowie. It took seven years to secure them, but by 2012 it had full rights to the chocolates, and listed on the ASX, raising $2.7 million. The company has subsequently raised a further $21 million. As part of its 2012 raising, YOW bought Whetstone Chocolate Factory’s plant in St. Augustine, Florida: Whetstone designed, built and installed the manufacturing equipment used for the Yowies. Yowie plans to produce 40 million units a year from the plant.

This year, the share price has risen from 54 cents to 71 cents, which capitalises YOW at $99 million, as the market gets interested in progress, particularly the US deal.

In March, Yowie gave a US market update, reporting that apart from Walmart/Safeway, further sales and distribution accounts had been signed with the following new accounts:

• AWG Brands: the rollout into 123-plus grocery co-operative stores commenced during March;
• 7-Eleven: the rollout to 58 7-Eleven stores in Hawaii, with potential for a further 5000-plus stores on the US mainland;
• CVS Pharmacy: orders have commenced to 50 CVS stores in Hawaii, with potential for 6000-plus stores on the US mainland;
• Unified Grocers: two new grocery chain accounts added to Unified Grocers, with John’s Market (ten stores) and Super Kin market (15 stores);
• Stark Foods, Mandel Distributors and Matty’s Toy Shop: orders commenced to 45 specialty stores, within a potential distribution network of 1000-plus stores.

The company followed that in April with the report of a “successful” trial of Yowie in 12 supermarkets in Dubai, hosted by a “major international supermarket chain.” In all stores, said Yowie, benchmark targets were exceeded within the required time frame. It added that consumer response was positive and consistent with other markets where the product was being sold, trialed or research has been undertaken. Pricing in the Middle East trial was in line with the US market taking into account currency exchange.

Yowie says the Middle East is emerging as one of the fastest growing chocolate markets across the globe. The company cites trade newspaper Confectionery News as saying that the Middle East market is set for a compound annual growth rate of 6.09% over the period 2014 to 2019, while the global chocolate market is expected to grow at just 2.3% a year over the same period. Yowie says the Dubai trial was “a promising outcome on which to build a consistently strong performance.”

Yowie is expected to announce its first order from a major Australian retailer very soon, as well as a trial with another major US retailer. As it builds a global brand, Yowie Group’s objective is to sell 500 million units a year, in five years.

There are two major caveats with Yowie Group. The first is that it made a loss of $6.4 million in FY14, and a loss of $996,000 for the December half-year. Not being profitable, it does not pay a dividend. But cracking the huge US market ahead of its rivals at least gives shareholders some confidence that profitability is not too far away.

The other is that it does not have much time to establish the Yowie brand globally before its patent expires. If it shows that there is a big global market for the Yowie, Kinder – and other competitors – will try their best to eat its lunch, toy and all. But so far, the Australian stock market is backing the local monster.

James Dunn

About James Dunn

James Dunn was founding editor of Shares magazine and has also written for Business Review Weekly, Personal Investor, The Age and Management Today. He was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au.

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