What's on your holiday treats wish list? Hershey's Kisses, perhaps? Or if you're really feeling decadent, perhaps some Ghirardelli premium salted-caramel squares? Well, the Brits will have it better than the Yanks, because Nestle (NSRGY 0.17%) is launching made-to-order luxury KitKats in the United Kingdom in time for the holiday season. The good news? They come in 1,500 flavor combinations. The bad news? One "Earl Grey" or "whisky & ginger"-flavored KitKat will set you back $17.
If the economic theory of elasticity applies to British candy, Nestle is doomed: Consumers will react to the high price by reducing their demand. But will they? After all, it is a KitKat we're talking about. Here's how Nestle's clever strategy is creating media buzz, turning its candy into luxury, and boosting its bottom line.
Clever marketing of a basic product
The choices are endless, including rose petals and cocoa nibs; some wafers are even coated in ruby chocolate. There's something that will appeal to anyone here. And that, fundamentally, is the secret. Who doesn't like a KitKat? And how easy is it for a giver to choose one that is unique and perfectly suited to the receiver?
The luxury KitKat idea is whimsical, but it's also genius. It leverages social-media users who act as advocates and, through platforms such as Instagram, initiate a word-of-mouth marketing effect. Fifteen years ago, a matcha green tea-flavored KitKat was launched in Japan, creating a huge fuss. Then, earlier this year, the matcha green tea KitKat appeared on U.K. supermarket shelves. Instagram users went to town snapping and sharing their sugary finds.
IMAGE SOURCE: GETTY IMAGES.
Personalization works despite the price
The luxury KitKat comes with a luxury price tag. The bespoke bars cost 14 pounds ($17) versus the usual version at 65 pence. Special editions start at seven and a half pounds. The gimmick rests on the premise that when consumers are looking to splurge on ideal and unusual holiday gifts, they'll decide that a luxury KitKat makes an alluring stocking stuffer.
However, personalization of other products is not seasonal and could be extended and offered year-round. A uniquely selected box of chocolates with the recipient's name artfully displayed is a perennial and thoughtful gift.
Nestle over the long term
Nestle is such a powerhouse that it's difficult to find a reason why it wouldn't show long-term growth. The luxury KitKats are Nestle's first direct-to-consumer venture, but judging by the response in Japan to a similar concept, it won't be the last. Nestle has aced the art of using media buzz and consumer advocacy (by Instagram users) to change a brand from basic to luxury.
As far as current earnings are concerned, Nestle's earnings for the first half of 2019 were as sweet as its KitKats. The company confirmed guidance for full-year 2019, with expected full-year organic sales growth of around 3.5% and a full-year trading operating profit margin at or above 17.5%, versus 14.7% the previous year.
To top it off, Nestle may even consider its stock to be undervalued, judging from its share buyback program -- indicating a good long-term option. In the first half of 2019, the Group repurchased 4.2 billion Swiss francs' worth of its shares and had completed over 70% (14.5 billion Swiss francs) of a share buyback program announced in 2017. The total buyback should be complete by December 2019.
Note to investors: Earnings per share decreased by 12.3% on an as-reported basis for the last earnings announcement, but this was because the U.S. confectionery business was sold the year before. In 2019, luxury KitKats will surely compensate.
