Issues & Leaders With Don Longo: Tom Joyce

JERSEY CITY, N.J. -- Who are the authorities on the future of the convenience store industry and what can you learn from them? In this series of exclusive one-on-one interviews with c-store industry leaders, Convenience Store News Editor-in-Chief Don Longo explores the most important trends and issues facing the convenience industry.

This month, Longo interviews Tom Joyce, vice president, global customer and industry affairs, for The Hershey Co. Joyce has held numerous positions with the leading candy and snacks company over his more than 36-year career. Last December, he was inducted into the supplier wing of the CSNews Hall of Fame. Joyce is also chairman of the NACS Supplier Board.

In his current role at Hershey, he is responsible for building and maintaining relationships with Hershey's customers and representing the company in various trade associations and industry affairs.

Longo: What do you consider to be the most important trends influencing retailing today?

Joyce: The biggest thing that has been going on for a while is the blurring of retail formats. We now see Walmart building smaller-sized stores, for example, and the competition for selling gas is increasing from the wholesale clubs and supermarkets.

What's hot now is loyalty programs. The larger grocery stores are offering cents off on gas purchases. Drugstores and supermarkets are heavily into loyalty programs, and you're going to see a lot more convenience stores moving into loyalty programs. They have to do that to sustain their customer base and compete with other retail formats.

In the bigger picture, the new economy is going to force the American people to adjust their lifestyles. With high gas prices and flat wages, people have to stretch the money they earned further. Lifestyles will be affected. If you look outside the United States, you'll see other countries have adjusted. They drive smaller cars that get better mileage. They drive scooters in the inner cities. Americans are going to have to make adjustments, too. They will have to learn to live with less, especially the younger generation. The auto industry is calling it the new economy and I think that's true.

Longo: Please comment on the most significant developments relating to the convenience snacking and confectionery industry?

Joyce: Over the past couple of years, the focus in candy and snacks has been on core items. The typical convenience store carries about 2,500 items, but the wholesale distributor has four times that many in their warehouse. The industry sees a lot of innovation every year and retailers have to make decisions from among all the new products that are introduced. We have found through research that the retailers who focus on core items -- the ones that sell every day -- are the most profitable.

Our studies show these retailers make significantly more profits by focusing on the core best-sellers. This is true in candy, gum and mints and snacks. Innovation will remain important to the category, but the most successful new products will be ones that leverage the essential attributes of favorite core products. Examples of this for Hershey in the past year include Hershey's Drops, Reese's Minis and Ice Breakers Frost.

Even some of the wholesale distributors are coming out with warehouse programs focusing on the best-sellers. If you carry the proven best sellers, you'll make more sales and profits. We've seen the same thing in the cooler, where space limitations force retailers to carry the best sellers.

Besides the move to carry core items, the other major trend impacting the category is the move to better-for-you products. The consumer is the one making this decision and a lot of this is due to the influence of the government. New product labeling rules that are coming in the near future will put pressure on retailers and manufacturers to offer consumers healthier choices. Nutrition keys on products will help consumers make informed decisions. Manufacturers will have to adapt to the new rules when they are finalized.

We have some exciting new products in development in this arena, and we continue to work with leading universities to understand the science behind the health benefits of cocoa. This scientific research will be the foundation behind future better-for-you products and consumer education efforts to help people understand the significant health benefits of natural cocoa.

Longo: What are your thoughts about the current evolution of c-stores? Is the push to grow foodservice sales working? In what areas are c-stores lagging today?

Joyce: I'm not an expert at foodservice, but in talking to retailers, it's obvious that foodservice is a very attractive area of opportunity. Convenience stores have finally figured out what they can do well in foodservice and what they can't do well. Retailers have to figure out what works for them and become the best at it. And convenience distributors are gearing up to provide more fresh products to c-stores.

One area most c-stores still have a lot of learning to do is in nutrition/health and wellness. It's very difficult to get into the fresh, better-for-you products and be successful. It will take many years. It's a trend that's here to stay but the majority of c-stores are not there now. As foodservice becomes a bigger and bigger part of the c-store's future, so will nutritious products.

Overall, I think the majority of c-stores are behind in taking advantage of the opportunity in seasonal products. We've had a tremendous experience with seasonal products in the convenience store. Traditionally, it was thought that people go to other retailers for seasonal candy, but we've proved that if you focus on single-serve seasonal items -- not the bagged candy -- you can be very successful. Our Reese's Peanut Butter Egg and our Cadbury Egg are great examples of seasonal c-store success stories.

Longo: Please discuss the role suppliers play in today's convenience store industry and how has the retailer-supplier relationship evolved over the past five years? How is it likely to change in the next five years?

Joyce: In the past, suppliers and retailers sometimes had difficult relations, but that doesn't seem to be the practice today. I see retailers and wholesalers now more than ever looking to manufacturers for solutions. You can't just throw an item on a desk and say, trust me, it'll sell. Now you have to back it up with comprehensive consumer information and turn the process into a collaborative relationship. That seems to be the trend today more than ever -- retailers and suppliers working together for a solution that works for both of them.

We also see suppliers working with retailers on loyalty programs and social media. We are all growing together, trying to figure out the new ways to reach to consumer. Retailers are seeking out suppliers willing to bring their insights and knowledge to help them succeed with their new marketing/communication efforts. We all want to sell more profitable products.

Longo: What are your thoughts about the national economy? When will consumers shed their recession mindset? How is the economic environment impacting c-stores? How is it impacting the candy and snacks business?

Joyce: As I said earlier, the main thing is that we have to adjust our standard of living and be more like the rest of the world. It's not going to happen right away, but I can't see us holding on to our big, gas-guzzling vehicles. You're going to see more Americans driving smaller cars, especially in the cities, and riding motor scooters and bicycles, like you see in many cities around the world. There will be new innovations in transportation, depending on what part of the country you live in.

For the candy and snacks business, we have had success in the tight economy since our product is relatively inexpensive. It's an affordable treat that consumers are willing to buy for themselves even in a tough economic environment. But, if you do the math, you can see how people have to make adjustments when its costs them $60 to $70 to fill their gas tanks. A lot of trends support this. The savings rate is up. People are no longer living on the equity in their homes. They are not using credit cards as much. Consumers will continue to make changes and this will impact all retailers.

Longo: What change in consumer demographics will have the greatest impact on retailing in the coming five to 10 years?

Joyce: Hispanics and New Americans, along with aging baby boomers, will have the greatest impact on retailing in the near future.

As Americans age, they are going to be making big changes in their consumption patterns. For example, retirees will ask themselves: do we need two cars or will one car be enough?

On the flip side, the Hispanic population is growing tremendously and they have certain needs. Throw in the New Americans and add in the impact of aging boomers and it's easy to see how retailing is ripe for change. We are just nearing the tipping point. Retailers have to re-evaluate their product mix. People will shop at the retailers who figure this out first.

Longo: Is your company heavily involved in new media, such as Facebook, Twitter, etc.? How important is social networking for consumer product goods companies?

Joyce: At Hershey, we are certainly running as fast and as hard as we can to keep up with the speed of change in social media. If a company is not doing that, it is missing out on an opportunity.

Web-based retailing is growing fast. I can't express the rate of speed we are seeing. And it's happened with lots of different products. This is a worldwide trend. It's everywhere. Direct to consumer distributing companies, like Amazon, are giving traditional retailers a run for their money.

Hershey has a dedicated team that works on just new media. They look at the effective use of websites and social media, as well as traditional media like TV, radio and print. This is a whole new world.

Longo: Switching gears, what are the foremost non-industry specific retailing issues that are on your mind?

Joyce: I think the biggest challenge for all business people today is to understand the global economy. The growth of population in some developing countries is having a big impact on commodity prices. As people in these developing countries move up toward the middle class, they are putting a greater strain on commodity supply. They are consuming more consumer goods, more corn, more wheat and using more fuel.

If you are a manufacturer and the prices of commodities continue to rise, you have to figure out ways to develop more innovative profitable products that meet consumer demand.

You must have your eyes open to what's going on around the world and understand how it impacts you and your company. We certainly are living in interesting times.