Speaking on a conference call about Hershey’s third quarter results last week, chief executive John Bilbrey said: “Within the c-store channel, the king-sized candy bar has emerged with the fastest growing pack type.
"Year-to-date, king size is up about 18%...and [is] on pace to be a $1.1bn business in convenience stores by year end. Here, Hershey is the king-size leader with a 54% share of the segment.”
He added: “In 2011, Hershey's C-store king-size retail takeaway has increased 22% with market share up 1.6 points. King-size conversion has progressed nicely due to merchandising, continued distribution gains, innovation and consumer recognition that this is a good price value proposition.
“In Q3…[Hershey’s sales of] c-store chocolate, non-chocolate and mint takeaway were up 13%, 15.4% and 13.8%, respectively. These gains were driven by price realization, net volume gains due to king-sized growth and strong in-store merchandising.”
‘Overwhelming success’ for Reese's Minis and Hershey's Drops
Commenting on recent launches, Reese's Minis and Hershey's Drops had been an “overwhelming success”, said Bilbrey.
“Both products have exceeded our expectations…We were particularly pleased with the Reese's Minis king-size where dollar velocity ranked second among all king-size offerings in C-stores and sixth in FDMs (food, drug and mass merchandise channels).”
As for new products, some “close end line extensions” were planned for the fourth quarter and early 2012, he said.
“Late in the fourth quarter and into 2012, we'll launch some close end line extensions that will bring variety and excitement to some existing brands including Hershey's Drops, Cookies 'n' Cream at a king-size pack price, Hershey's Pieces Milk Chocolate with Almonds and Jolly Rancher Crunch 'N Chew.”
Project Next Century
The firm, which posted a 5% rise in sales in the third quarter, has also started installing equipment at a new $200m+ plant extension at its West Hershey facility in Pennsylvania, and will start production in the fourth quarter.
The huge capital investment project, first announced last summer, will see production transferring from Hershey’s older factory at 19 East Chocolate Avenue in Hershey, PA, to its more modern West Hershey facility, in a move that will result in 500-600 job losses as automation increases.
Bilbrey said: “The building is essentially complete and equipment is currently being installed. Initial production line start up [will be] during the fourth quarter of 2011 with continued rollout and implementation during 2012.”
Q3 results
While sales were up 5% in the quarter, this was driven by higher prices introduced to offset higher commodity costs, and overall volumes were down about 1%, he said.
“Seasonal volume gains, driven by Halloween, were better than our initial expectations. New products, primarily Reese's Minis and Hershey's Drops, continue to perform well in the marketplace.
“Offsetting these gains were volume declines, in line with our modeling, due to price elasticity, resulting in an overall volume decline in the third quarter of about one point. Foreign currency exchange rates added about 0.6 points.”
While the spot prices of most key commodities had declined from their 2011 peaks, many were “still trading at levels greater than the two-year average price”, he said.