Nestle said it may sell Butterfinger, BabyRuth and other U.S. confectionery brands as it explores strategic options for a unit that’s struggling amid sluggish demand for chocolate.

The review will be completed by the end of the year, the Vevey, Switzerland-based company said Thursday. The unit had sales of $923 million in 2016, about one-tenth of the company’s global revenue from sweets.

“It’s a first step away toward health and wellness,” said Alain Oberhuber, an analyst at MainFirst Bank AG. “It became clear that Nestle is too small in confectionery in the U.S.”

The food industry is under pressure to reduce costs after Kraft Heinz Co.’s unsuccessful bid for Unilever earlier this year showed that even the largest companies in the industry could become targets. Chocolate makers especially are grappling with weak U.S. consumption as Americans increasingly turn their backs on sugar. In March, Hershey Co. announced plans to cut 15 percent of its workforce six months after rebuffing a takeover bid from Mondelez International Inc.

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 percent. In addition to chocolates such as Raisinets, OhHenry! and 100Grand, the brands up for sale include SweeTarts, LaffyTaffy, Nerds, Gobstopper and Runts.

A sale of the unit would be the first major strategic shift from Mark Schneider, who became Nestle’s chief executive officer this year. He has said he aims to boost the company’s health strategy as well as focus on the businesses that are growing the fastest, such as coffee and pet food. Schneider came from the health care industry, having previously led Germany’s Fresenius SE, and is the first outsider to be given the Nestle CEO job in almost a century.

Nestle has been investing heavily in a health-science unit since 2011 and has said it aims to make a $10 billion business out of it, trying to develop food-related products to prevent ailments such as obesity, metabolic problems and Alzheimer’s disease.

The maker of Cailler, the brand that invented milk chocolate, is taking an initial step away from the industry after its confectionery sales declined for a fourth year in 2016. The U.S. business has been particularly hard-hit amid fierce competition.

“This might seem small stuff, but in our view it could be a significant step by new(ish) CEO Mark Schneider,” James Edwardes Jones, an analyst at RBC Capital Markets, said in a note. “The possible disposal of the U.S. business is not everything we had hoped for, but might be the start of something bigger.”

While some investors and analysts have said a company focused on better nutrition shouldn’t produce sweets, Nestle said Thursday it remains committed to its chocolate business in the rest of the world, especially its KitKat brand. Nestle produces KitKat outside of North America and has failed to convince Hershey to sell it the rights to the brand in the U.S.

The review doesn’t include Toll House chocolate chips and baking products, as that brand remains strategic, Nestle said.

Copy the Story Link