|Hershey is planning to promote king-size products in convenience stores.|
HERSHEY, PA. – Competitive dynamics in the convenience channel have not been particularly convenient for the Hershey Co., whose recent performance fell below expectations as the company’s candy brands vie against a broader selection of ready-to-eat options.
“One of the unique things, as we look at our data, is remember last year Hostess, Twinkie, some of the bakery segment was not participating in the category; this year they are,” said J.P. Bilbrey, president and chief executive officer, during a July 24 call with financial analysts to discuss second-quarter earnings. “While they haven't participated at a significant price discount, the percent of merchandising over the quarter that they had their products merchandise was very high. So you saw meat snacks did very well, salty snacks did well, bakery did well. And so the growth was really led there across the snacking continuum, more so than it was with (candy, mints and gum). And those are some things that we have to respond to as we go forward.”
During the second quarter, Hershey’s C-store retail takeaway rose 1.3%, driven by 7.2% growth in mints that offset weakness in chocolate, resulting in market share loss in the C-store C.M.G. category.
“Our C-store performance was soft in the first half of the year, given that more of our innovation was in take-home versus instant consumable pack types,” Mr. Bilbrey said, adding the company’s merchandising and programming lacked effectiveness against macroeconomic challenges and increased in-store activity across the broader snack categories.
“If you look at total snacking, snacking continues to grow as a total category,” Mr. Bilbrey said. “And then one of the things that we've talked about is, if you look at the core confectionery category, people come to the category as a reward-me category. They know it’s indulgent. It's not a food group. It tends to represent about 2% of total caloric intake. So it's self-regulating in many respects.
“So as we think about the future, we're thinking about the total snacking continuum. That can be everything from indulgent to more functional.”
To improve its competitive positioning in convenience stores, Hershey is launching several initiatives that include increased displays of king-size products and new limited-edition items.
“We continue to believe that over the long term, the candy and mint category grows in the 3% to 4% range,” Mr. Bilbrey said. Although given year-to-date results and the aforementioned challenges, category growth will most likely be around 3% in 2014.”
While confident about upcoming activities, Hershey anticipates lower volumes for the remainder of the year in response to its recently announced price hike of 8% on its products.
“While it is a bit early to measure consumer reaction and response to pricing, we feel that our brand support, innovation, consumer spending and investment in go-to-market capabilities should enable us to deliver on our long-term targets,” Mr. Bilbrey said.
Net income for the second quarter ended June 29 was $168,168,000, equal to 78c per share on the common stock, up 5.4% from $159,504,000, or 73c per share, in the comparable quarter.
Net sales climbed to $1,578,350,000, up 4.6% from $1,508,514,000, driven primarily by volume. New products contributed 60% of overall volume growth.“Net sales sequentially improved versus the first quarter, and we continue to make progress against the initiatives that will drive improved performance over the remainder of the year,” Mr. Bilbrey said. “In the second half of the year, seasonal growth will be solid, new products will launch, and we will have new initiatives that should enable us to deliver on our objectives.”