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By Renee M. Covino
Has the recession brought out the sweet tooth in consumers? To hear some in the industry tell it, as stress levels rise, so does the need for a little candy comfort -- an affordable, pleasurable treat.
"This economy plays out well for confections because we typically see our best sales in a recessionary timeframe," Mike West, national c-store director for The Hershey Co., told Convenience Store News. "People start to trade down and they really look to confectionery as a little luxury. People can still afford a candy bar."
But c-stores won't realize the full benefit of this sugar rush without making some adjustments, according to a soon-to-be released industry study conducted by the American Wholesale Marketers Association (AWMA), and co-sponsored by the National Confectioners Association (NCA) and NACS -- the Association for Convenience and Petroleum Retailing.
"In recessionary times, confections are highly resistant. They're not recession-proof, but they perform well," said Kit Dietz of Dietz Consulting, who recently outlined the preliminary findings of the new study, "Candy in the Convenience Channel." Dietz explained retailers, manufacturers and distributors are "so joined at the hip, but we don't leverage that. [This study reveals] a few strategies that can bring profitable growth opportunities to everybody in the channel."
And it seems c-stores could use the help. Dollar sales in the channel's overall candy segment were up 3.9 percent (to nearly $4.4 billion), but unit volume declined 4.3 percent for the 52 weeks ending Dec. 27, 2008, according to The Nielsen Co., which is the parent company of Convenience Store News. The trend was seen throughout most of the subcategories tracked within candy, such as chocolate bars/packs, gum, and pegged and bagged candy.
That pattern of slightly increased dollar sales and slightly decreased unit sales is attributed mostly to price increases retailers took in the category. Rising commodity prices affected the candy industry as it did other consumables. Mintel, a leading market research company, reported "ethanol production led to increases in the price of high-fructose corn syrup. Other ingredients in candy have also increased in price."
Weldon Theobald, general manager of Danville Petroleum, a Danville, Calif.-based company with 42 convenience stores, supports the flattened category perspective. "I don't see my candy sales being up in this down market -- they're just holding," he said.
Other retailers reported flat and "unexciting" candy sales this past Easter season. "We've had a lot of snow and rain here in Western Pennsylvania," said Karen Purvis, merchandise director for four Planet Marts in Mars, Pa. "A lot of our construction worker customers and landscapers are just coming back to work," she said.
So how can c-stores boost true increases in category performance? So far, Dietz outlined three key strategies for c-store retailers in his preliminary findings from the AWMA study.
Go with a core concentration. Dietz said there is a $410.1 million "incremental growth opportunity" if c-stores and distributors could increase the distribution and in-stock position of the best-selling 50 SKUs in the category.
"The core brands drive a significant amount of sales, and when you look at the typical c-store, carrying 200 to 300 [candy] SKUs, making that right is really important," said Dietz. "And when you look at the broad number of SKUs -- just in confections -- carried across all the distributors in the channel, there are more than 7,000 SKUs available to satisfy the space for 200 to 300 at retail. So we have an opportunity to focus on what's really driving the business."
Hershey immediately responded to the "core" findings of the study, identifying "Hershey's Big 33" -- that is, its top 33 items, according to Nielsen data.
"Our focus is to get these top 33 items in every c-store in the U.S.," West explained. "We're using the data with every distributor and going store by store, and we can tell if a store has not ordered a [core] item in the past four, 12 and 26 weeks. So then our goal is to close those gaps with them on all of our top-selling items."
That means limited editions will be a lot more limited. "In the past, we were trying to be everything to everybody," West explained. "Take our Reese's cup -- we were making it with marshmallow, caramel, banana -- and the customer got confused. They couldn't find the regular Reese's cup. So now we're getting back to our core."
That's not to say that limited editions are completely over. "We will come out with some things, but we're going to be very strategic in how we approach it," said West.
Mars Snackfood is taking a similar approach. "We still believe in limited editions because they lend excitement to the category," said Larry Lupo, vice president of sales. "The core is key, but done in moderation -- maybe one or two a year -- limited editions add some excitement."
The company's current limited editions include Coconut M&Ms and "Strawberried" Peanut Butter M&Ms, as well as "Transformers Revenge of the Fallen" movie tie-in editions.
Get quick on the draw. As much as $1 billion in increased sales could be realized if c-stores could speed-up bringing new products to market -- at least catch up to the drug channel, Dietz added. "We should own trial for confections," he said. "It's big money for all of us if we can do that."
The reality right now is "we're missing that initial trial lift in this channel," said Dietz. "We're completely missing it because we haven't extended our reach fast enough. The drug channel is top of the line currently -- they are the first to have new items and they're tying them into manufacturers' promotions. If we could just match the speed and distribution levels of the drug channel it would be a significant opportunity. There's just about 320 new SKUs a year, but we have to learn how to manage them properly."
Theobald at Danville Petroleum admitted it would help to have distributor support. "There are a lot of pluses with my distributor, but one of the problems is they're too conservative. They're not exactly on the leading edge. The other thing is trial and plus-outs run a course. If you don't move them in 30 days, they get old. Then before you know it, people are using displays as trash bins and no one will buy anything out of them."
Mark down more. Speed-to-market is only part of the story. More profit could also be generated if products that fail were marked down at the retail level, rather than returning them to distributors for credit, Dietz said.
"One of the biggest problems we have is the general perception in this industry to hold onto products and return them for credit," he said. "One of the things we're validating in the tail-end of this study is retailers are going to make a lot more money marking products down because they'll have the ability to bring new products to market. They can mark them down to 10 percent or 20 percent margin, put them in a dump bin, and move them in a couple of weeks. That will free-up space to put new items in and have dynamic sales through promotions."