Dive Brief:
- A Bernstein analyst says that Hershey is getting a boost from millennial snacking habits and an increasing demand for indulgent chocolate, despite broader consumer health trends, according to CNBC.
- The candy maker’s margin performance is also being helped by lower ingredient costs. The price of cocoa, for example, has fallen 37% since last summer due to increased cocoa yields.
- Bernstein has upgraded Hershey shares from perform to outperform, and also raised the company’s 12-month price target to $127 from $109. Hershey shares jumped 2.6% Thursday.
Dive Insight:
As consumer eating habits change, the snack market is quickly proliferating. NPD Group research shows while Americans are still consuming three meals a day, many of those meals are smaller to make room for snacking — an eating occasion that has been elevated by more sophisticated products.
Millennials are especially fond of snacking. The demographic is indulging in everything from meat snacks to candy to granola bars around the clock. A recent study found that millions of millennials intentionally miss meals so they can have a snack. Millennials and Gen Z consumers are expected to keep up their snacking habits as they age — per capita snacking at meal times is expected to rise by 12%.
"Millennials love to snack. So snacks are holding up much better than center-of-plate or meal-based categories,” reads a note from Bernstein analyst Alexia Howard to CNBC. “And even though better-for-you snacks like fresh fruit and ready-made salads are the fastest growing sub-segments, indulgent snacks like chocolate are also holding up."
Younger consumers are also more interested in complex flavor and texture profiles, especially sweet and salty flavor combinations, and Hershey is delivering. As part of a corporate initiative called "snackfection," Hershey is exploring ways to leverage sweet and salty — the No. 1 favorite snacks flavor combination among U.S. consumers. The candy maker is also innovating with new smooth and crunchy texture profiles. Among the snack items Hershey has recently debuted: Reese's and Hershey's Crunchers Candy, Reese's and Hershey's Dipped Pretzels, and Hershey's and Reese's Popped Snack Mixes.
Hershey has the nation's second-largest share of the snacking market, at 7.5%. During a recent investor presentation, CEO Michele Buck expressed her intention to transform the company into "an innovative snacking powerhouse." And it’s not stopping at chocolate. The company recently moved into the meat snacks category by acquiring Krave, which is experiencing strong growth. Hershey also recently announced a new popcorn snack, Popwell "half-popped" popcorn.
By creating snack products centered on its popular Hershey's and Reese's chocolate brands, the company intends to drive sales by expanding its candy products beyond traditional dessert and indulgence periods. While dessert/snack hybrids fill a unique niche among snacking options, it's unlikely that these creations will be the new way forward for snack brands. Better-for-you foods and healthy snack alternatives — like fresh fruits and vegetables, ready-made salads, meat snacks, yogurt, nuts and more — will remain the likely winners.