No sugar added: Hershey signals commitment to low sugar confectionery with acquisition of Lily’s

Launched in 2012 by Cynthia Tice, the Boulder-based Lily’s brand – backed by VMG Partners - is best known for its stevia- and erythritol-sweetened chocolate bars and baking chips, but has moved into additional categories in recent years including peanut butter cups and chocolate covered nuts, caramels, and popcorn, with products in 35,000+ stores nationwide. It hasn't disclosed revenues but said it has "experienced strong, double-digit growth year-over-year."

While consumers sometimes say they’d rather eat a small portion of something made with ‘real’ or familiar ingredients (butter, cane sugar, whole milk) than a more ‘processed’ low calorie/sugar/fat alternative, the success of Lily’s, which replaces sugar with erythritol, inulin, dextrin, and stevia extract, suggest that many Americans are willing to forgo ‘kitchen cupboard ingredients,’ provided products deliver on taste.

And if no sugar added chocolate used to be the preserve of diabetics and dieters, the category is now attracting mainstream consumers looking to reduce their sugar consumption, said Lily's CEO Jane Miller, a CPG veteran who joined the brand in 2018 and presided over a successful packaging revamp in 2019.

“Cynthia had the vision that consumers wanted a better-for-you option in confections and today 80% of adults want to cut back on their sugar intake. By joining the Hershey's family of brands, Lily's will become a platform confection brand making better-for-you options easily accessible to all consumers.”

"Hershey is focused on developing a better-for-you confection portfolio that offers a variety of choices to meet the evolving needs of our consumers," said Hershey’s US president Chuck Raup, who said the deal was expected to close in the next few months and would be financed with cash on hand as well as short term borrowings.

'The Lily’s team will continue to run the business as usual'

A Hershey spokesperson told FoodNavigator-USA that, "following the regulatory process and close of the deal, the Lily’s team will continue to run the business as usual, and will work with a team from Hershey to coordinate a longer-term integration process to ensure a smooth transition into The Hershey Company."

The spokesperson added: "Lily’s has an amazing network of co-manufacturing partners and we will continue to work with them to create these delicious low sugar treats."

CEO Jane Miller added: "Hershey has tremendous, long-term partnership with retailers across the United States that will help us further build on the momentum we have created at Lily’s."

Asked whether the fact that Hershey had acquired KRAVE Jerky - and then sold it back to Sonoma Brands – gave her pause, Miller said: "Not at all.  Because Lily’s is a confectionery company, and confection is still at the core of what Hershey has been known for for more than a century, we are confident that our great offerings of low-sugar confections will fit perfectly within the broader range of Hershey’s confectionery brands as well as their Better-For-You snacking products."

Hershey exploring 'breakthrough sugar reduction capabilities'

Hershey has made a series of acquisitions in better-for-you snacks in recent years including SkinnyPop popcorn, protein-bar maker ONE Brands, and Pirate’s Booty maker Pirate Brands, and made a minority investment in natural foods snack company Quinn last year.

It also acquired fast-growing meat snacks brand KRAVE Jerky in 2015, but sold it back to a private equity firm (Sonoma Brands) run by its founder Jon Sebastiani five years later.  

More recently, Hershey’s C7 ventures arm led a Series B round (along with sugar refining giant ASR Group) in Bonumose, a Virginia-based startup with patented technology it claims could enable the mass market adoption of rare sugars such as allulose and tagatose.

Following the deal, Pennsylvania-based Hershey – which offers thinner versions of some iconic products and several sugar free options made with maltitol, polyglucitol and polydextrose - said it planned to expand its portfolio to deliver more reduced sugar options, “focusing internal efforts and external investments to develop future breakthrough sugar reduction capabilities.” 

In February, it announced a strategy to further increase its presence in the better-for-you segment, via:

• Core brand packaging and platforms: portion-controlled treats  
• Innovation: extending core brands to better-for0you offerings and renovating existing products
• R&D: focusing internal efforts and external investments to develop future breakthrough sugar reduction capabilities  
• Partnerships, Licensing & M&A: teaming up with top better-for-you brand partners to co-develop and launch new offerings
• M&A: evaluating a pipeline of acquisition opportunities

More to follow...