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Yowie Group Ltd surges 13% on U.S. expansion plans: Should you buy this tasty small cap?

Yowie Group Ltd (ASX: YOW) shares surged 13% on Wednesday after the company announced that the rollout of Yowie chocolates in the US had spread to a second major US retailer. The retailer, who was not named but “is the largest pharmaceutical and convenience retail chain in the United States” will stock Yowie’s toy-filled chocolates during a 90-day trial in 60 stores in Philadelphia and New Jersey.

About Yowie

For the uninitiated, Yowie Group owns the rights to make and sell the Yowie brand of educational chocolate products worldwide. Yowie outsources the manufacturing and distribution of the Yowie chocolates in the US with plans to reintroduce the brand into Australia, New Zealand and Asia over the medium term.

The most interesting point about the Yowie story is that the company has exclusive rights to US Patents #5,925,321 and #6,099,872 valid until 2019, allowing: “FDA-approved production of non-embedded chocolate inclusion product”. This means that major competitors Kinder Surprise and the Italian-based Ferrero Group International cannot sell their wildly popular products in the country.

As a result, Yowie’s focus has been entirely based on the US market.

US Expansion Progress

The stocking of Yowie products in 60 pharmaceutical and convenience retail stores follows the rollout of the products in over 1,200 stores, including all 50 Texas-based Walmart stores. The success of the brand in Walmart and the most recent trial could largely determine the success or otherwise of the brand.

Time to Buy

I can’t think of any really good examples of companies like Yowie, but iCar Asia Ltd (ASX: ICQ) and iProperty Group Ltd (ASX: IPP) have similar strategies of “expand at all costs”. Yowie is undertaking a quasi-winner-takes-all smash and grab of the US ‘educational confectionary’ market before its competitors are able to enter the market. iCar and iProperty are similarly trying to take market-leading positions in Asia by spending heavily on marketing to gain the lion’s share of the market before competitors wake up and get organised. I believe these companies are essentially black and white opportunities, either investors will make a lot of money or lose almost all of their money.

Are you willing to risk it?

Yowie and similar companies aren't for every investor, more conservative investors should give preference to companies that already dominate their markets. The Motley Fool's top pick for 2015 has done just that! Be among the first to get the name and code right now. (Hint: It's a sexy ASX tech company!) Simply click here for your FREE copy... BEFORE the investing crowd gets wind of this!

Motley Fool contributor Andrew Mudie owns shares in iCar Asia. You can find Andrew on Twitter @andrewmudie

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