Chocolate: Sweet Returns

CandyFinding out what confectionery products your customers will gobble up in 2014 can be a recipe for more sales.

By David Bennett, Senior Editor

You don’t need to be Willy Wonka to know that chocolate candy is a sweet product in terms of generating impulse sales.

The National Confectioners Association (NCA) recently reported that the total confectionery market in 2013 topped $33.6 billion, marking the sixth consecutive year of sales growth. Sitting on top of the mound are chocolate sales, which reached $20.6 billion—a 3.6% increase over 2012 figures.

The candy and confections markets remained resilient through the recent economic downturn, particularly chocolate, racking up strong sales despite consumers cutting back on discretionary spending. Not surprisingly, when c-stores—big chains and small independents—were working aggressively to maintain profit margins, chocolate sales helped to keep cash in the till.

Whether the economy lags or gallops along, it’s seemingly not enough to change customer buying patterns when it comes to chocolate consumables.

“Consumers who like chocolate—and that’s about three quarters of adults—have remained loyal to the category even during the tough times, as chocolate tends to be seen as an affordable reward, and a permissible indulgence,” said Marcia Mogelonsky, global food analyst for market research firm Mintel Group Ltd.

Team Oil Inc., based in Spring Valley, Wis. and an hour from Minnesota’s Twin Cities, sees chocolate as a high growth category. Danni Nyeggen, grocery manager for the 11,000-square-foot Team Oil Travel Center, which offers a wide array of services, said candy bars are flying off the shelves, but the convenience store does its best business with chocolates of the smaller variety.

Hershey’s Kisses, for example, seem to move faster than a Hershey’s bar. Perhaps that’s because the travel center caters to hundreds of customers daily, many of them truckers. Bite-sized candy seemingly is just the thing for travelers who have one hand on the wheel. “We sell a lot more candy in bags than candy bars,” Nyeggen said.

Raising the Bar
Shell Food Mart in Hinsdale, Ill. does well with made-to-order food, which is grilled onsite and often generates lines around the corner. However, the c-store also boasts a wide selection of confections and, over the years, has garnered a loyal following from the candy crowd.

John Archer, co-owner of Shell Food Mart, said chocolate candy sales this past winter took it on the chin by the arctic freeze that enveloped Chicago. In fact, all of the store’s product categories, walloped by the cold weather, are just starting to recover.

“We had a couple of nice days and we’re busy again, which is encouraging because we had such a miserable winter,” Archer said. “It would snow and businesses would shut down and schools would close. Tuesday numbers were like Sunday numbers. So with the weather warming up, it’s definitely been busier the last week or two.”

With customers outside their homes again, the Shell marketer expects to replicate the strong candy sales it generated in 2013. For the most part, supply is meeting demand.

“We have contracts with Hershey’s and Mars, and they force out shippers,” Archer said. “That’s a lot of what we do. I like the shippers that are pre-priced because they tend to sell a lot quicker and customers think they are getting a good deal, which they are. So, you get a nice looking shipper, you put it right up across from the register and you can blow through a lot of candy. We just finished a big, king size Reese’s shipper; went through it in 12 or 13 days.”

That translates to at least 10 boxes of candy sold in less than two weeks.

Dark Victory
A recent Mintel report revealed that for just more than half (51%) of all adult consumers the favorite type of plain chocolate is milk chocolate, followed by 35% who favor dark chocolate and 8% who prefer white chocolate.

By contrast, Mintel’s 2011 report found that 57% of consumers favored milk chocolate and 33% of consumers preferred dark chocolate.

In many cases, dark chocolate is growing in popularity among consumers interested in its health properties. Dark chocolate is known to lower both blood pressure and cholesterol, and has nearly eight times the number of antioxidants as found in strawberries.

As a result, manufacturers are stepping up production which, in turn, has lapped over into the c-store industry, which is seeing incremental sales.

Whether it’s dark or milk chocolate, ingredients of chocolate candies continue raising chocolate production costs, and that could affect the category.

The price of cocoa butter, the vegetable fat extracted from cocoa beans that makes up about a quarter of every chocolate bar, in March 2014 rose 65% higher compared to March of last year—almost a four-year high. Whole milk powder—another major component in chocolate production—rose more than 20%. Then again, in this chocolate-rich environment, consumers are willing to pay extra to maintain their sweet tooth.

“Prices have held relatively steady, but this is going to change —as manufacturers can’t keep holding prices down as prices for commodities increase,” Mogelonsky said. “Will that have an impact? Interestingly, so loyal are chocolate eaters, that half of those who responded to our (February 2014) survey said that they probably would not notice a price increase of 10% in the chocolate candy they typically buy.”

New For Old
Arguably, the chocolate bar is the ultimate impulse purchase in the convenience channel, and suppliers are always looking for new ways to be noticed through brand extensions and promotional activities.

In 2014, consumers are likely to see continued innovation around core brands. Which ones are bound to stand out from the competition, generating sales along the way?

“The usual suspects,” said Mintel’s Mogelonsky. “Kit Kat, M&M’s, Snickers and the new “bites” format, bags of unwrapped pieces, have been very popular.”

Hershey’s already boasts the top-selling chocolate confectionery brand in the U.S.—Reese’s Peanut Butter Cups, projected to do more than $2 billion in sales in 2014.

Not to be outdone, Mars is bringing nine product extensions to the confectionery marketplace. Brands getting additional extensions include M&M’s, Twix, 3 Musketeers, Milky Way, Dove and Snickers.

“I’m going to (shows including the Eby-Brown Expo and the Sweets & Snacks Expo in May) and I’ll look for a lot of new products and new ways to sell what I already have,” Archer said.

What he has and what’s selling is a mixed bag indeed.

“The Reese’s Mini Peanut Butter Cups do really well for us, but the Snickers Bites aren’t doing a whole lot, and the Milky Way Bites aren’t doing a whole lot,” Archer said. “The Reese’s Peanut Butter bites do well. I just got in today two new M&M’s—a Mega M&M and some other M&M.”

Figuring out what customers crave is fairly straightforward, Archer said. Keeping popular items on the shelf, however, can be a challenge, depending on supply channels.
One new product that is challenging Reese’s Peanut Butter Cup and generating sales for c-stores comes from Nestle.

“The Butterfinger Peanut Butter Cups went really well,” Archer said. “I keep reordering them and they keep coming in: Out-of-stock.”

So his lesson applies to other convenience stores as well. When you learn what customers want, reorder early and reorder often.

 

  • http://www.BradReese.Com/ Brad Reese Speaks Out

    Hi David,

    According to Advertising Age and Euromonitor International, the Reese’s Brand had $2.679 BILLION in sales for 2012 (amazingly, only $76 million of Reese’s $2.679 BILLION in 2012 sales were made outside the United States).

    Furthermore, the non-union H.B. Reese Candy Company manufactures the Kit Kat for the U.S. which had 2012 sales of $948 million in the United States.

    I mean, here’s the “standard ongoing joke” among Wall Street investment bankers who have performed “due diligence” on Hershey’s financial statements:

    The Hershey Company is nothing more than the H.B. Reese Candy Company doing business as (DBA) The Hershey Company.

    With regard to Reese’s Minis, it was the #1 confection launch in the U.S. with retail sales over $122 million.

    Before the 1963 tax free stock-for-stock merger between Reese and Hershey, Reese’s sales doubled every 4-years. So for the past 51-years, Reese’s has created most of the new wealth for Hershey’s stockholders.

    Sincerely,

    Brad Reese

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