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“Hershey’s is the currency of affection, it’s the childhood symbol of love,” Don Draper once said in a memorable advertising pitch on the TV show Mad Men.
However, the Pennsylvania chocolatier, the United States' leading confectionery brand, has not seen that much affection from the American consumer of late. The demand for its chocolate Stateside has been sluggish and the brand recently cut 15% of its workforce.
In full year 2016, Hershey posted a sales increase of just 0.7%, while its sales for the first nine months of 2017 were up 1.7%.
Most recently, the brand failed to acquire Nestlé’s US candy unit, losing out to Italian company Ferrero. The deal means that Ferrero now occupies third spot in the confectionery market, behind Hershey and Mars.
Aside from M&A opportunities, Hershey is also faced with the move towards healthy eating trends and the consumer backlash against sugar, which have weighed in on both it and its competitors' performances.
Salty Snacks
All things considered, maybe the Nestlé deal wasn’t meant to be, given the way things are going with the American confectionery market. Instead, its failure to acquire brands such as Baby Ruth and Butterfinger might be an opportunity for Hershey CEO Michele Buck’s chance to change tack and adapt the business to current trends.
Before the end of last year, the company made its biggest acquisition ever by buying Austin, Texas-based Amplify Snack Brands for $921 million.
This new portfolio includes an array of modern looking products such as SkinnyPop popcorn, Tyrrell’s potato chips, Paqui chips and Oatmega protein bars. All of these brands are in tune with current snacking trends, i.e. salty snacks and protein bars.
The biggest name, SkinnyPop, prides itself on not containing artificial ingredients, GMO, and most its products being dairy-free. The brand has been surging in recent years, with Americans seeking out convenience and on-the-go snacking, while also gaining a clearer picture as to what is in their food.
Snacking Market
Salty snacks have proven to be one of the few rocks of stability in the snacking market. Another American staple that has been finding the going tough recently, Campbell, recently acquired Snyder’s-Lance for about $4.9 billion in cash, which will add Cape Cod potato chips, Snyder’s pretzels and Pop Secret popcorn to its portfolio.
It’s no coincidence that the the Hershey and Campbell deals are targeting the same category, according to Ken Shea, of Bloomberg Intelligence. Salty snacks have been growing for the past four years and show no signs of abating.
“It’s a group that’s been growing consistently,” Shea said.
The move by Hershey also shows it wants to be an acquirer rather than an acquisition, as it showed when it snubbed a potential Mondelez takeover bid last August.
With the Amplify acquisition, however, Hershey still has work to do: the company has lost over half of its value since it went public in 2015.
Simplicity
As Hershey goes into 2018 with a more diversified portfolio, it will be crucial to stick to the mantra of transparent simplicity.
A Euromonitor report entitled Repositioning Indulgence to Remain Relevant in the Healthy Snacking Era has declared the new modern snacking ethos to be ‘treating myself without harming myself’. While chocolate sales have dipped, consumers are open to spending more per treat, especially if it’s seen as healthy.
Hershey has a strong American heritage to build on and need not over-complicate its formula, with analysts suggesting that a clear and transparent message around its products will guide it to success.
Or, as the titular Don Draper said, with Hershey, “the product itself is one of the most successful billboards of all time…"
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Kevin Duggan. Click subscribe to sign up to ESM: The European Supermarket Magazine
