Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Willy Wonka's big idea was the ever-lasting gobstopper. Nestle SA has gone one better: low-calorie Kit Kats.

Sugar Levels
Nestle's shares are down almost 10 percent this year
Source: Bloomberg

The Swiss food company said this week it has found a way to cut the amount of sugar in chocolate by as much as 40 percent.

As Bloomberg Intelligence analyst Duncan Fox puts it, that's the holy grail of food innovation.

It would also be a potential lifeline for Nestle's sickly confectionery operation.

Reducing the sugar content of its products would give Nestle the edge over rivals including Mondelez International Inc., Mars and Hershey Co. as consumers try to rein in their sugar intake and governments across the world levy taxes on sweetness.

Growth in sales of traditional confectionery has been constant in recent years, while that of reduced sugar confectionery has been rebounding, as this chart from Euromonitor shows, so Nestle's timing could prove to be fortuitous.

Low Cal Rebound
Annual growth in sales of low-sugar treats is increasing while traditional products are stagnating
Source: Euromonitor
Data for 2016 is forecast

Nestle isn't giving away much detail about just how it can produce low-sugar chocolate. Chief Technology Officer Stefan Catsicas likens the process to making hollow sugar crystals. (They dissolve more quickly, stimulating the taste buds faster.)

Nestle shareholders, nursing a near-10 percent loss so far this year, shouldn't expect an immediate sugar high.

Even if Nestle can get the product to work, sugar will be hard to replace. It is stable, reacts well with other ingredients and has the right taste and consistency. Any alternative needs to tick all these boxes.

Even if this is achieved, getting the healthier chocolate to shelves will be a long process, particularly if Nestle decides to go for full U.S. Food and Drug Administration approval.

Sweet Taste
The price of sugar has climbed by almost a quarter this year, squeezing choclatiers' margins
Source: Bloomberg

Then there's the question of cost. Prices of some commodities like sugar are already rising, putting pressure on food producers to raise their prices. Grocers, which have much skinnier margins, are resisting this. It may be difficult to raise the cost of a chocolate bar -- even a low-calorie one.

Taking the Biscuit
Confectionery accounted for only 10 percent of Nestle's sales in 2015
Source: Bloomberg

Nevertheless, it would be a welcome boost for incoming Nestle CEO Ulf Mark Schneider. He takes up his new role in January at a time when the pace of growth in consumer goods is slowing, and cost pressures are rising.

Dwindling Appetite
Nestle's revenue from chocolate, confectionery and biscuits has been falling in recent years
Source: Bloomberg

Investors are betting that he will take an ax to some of Nestle's poorly performing businesses. One of those is confectionery, where revenue is falling and Kit Kat is the only star seller. The chocolate operation has been losing share as other manufacturers such as Lindt & Spruengli AG encroached on the pricier end of the market.

Cocoa Cut
The 10 largest chocolate makers make up 65 percent of the world's chocolate business
Source: Bloomberg Intelligence

The move to healthier chocolate might stabilize the division's performance -- and give it a stay of execution in any strategic review.

--Gadfly's Elaine He contributed graphics.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net