Hershey is not finished growing its snacking portfolio through M&A as the 125-year old chocolate maker aims to boost its presence in a space increasingly popular with on-the-go consumers, the company's top executive said in an interview.
Michele Buck, Hershey's CEO, said a failure by the maker of Kisses, Reese's and Take5 to grow beyond its signature sweets would amount to "missing an opportunity" to reach more consumers who are changing not only how and where they eat, but turning to better-for-you products when they do.
Since taking the helm of Hershey in early 2017, Buck has added Amplify Snack Brands, parent company of SkinnyPop, for $1.6 billion. The company also recently spent $420 million to acquire Pirate Brands, the maker of better-for-you snacks — including Pirate's Booty, Smart Puffs and Original Tings — from B&G Foods. While the purchases added $400 million in annual sales, a fraction of the nearly $7.8 billion Hershey sold in 2018, Buck said the company isn't done. Even before she took over Hershey had started growing its premium and better-for-you snacking operations with meat snacks company Krave in 2015 and snacking chocolate barkTHINS a year later.
"Our largest focus for M&A is snacking and really on filling out the places that we don’t currently meet demand,” like better for you and or savory, she told Food Dive on the sidelines of the annual Consumer Analyst Group of New York conference in Florida. "We’re not there yet, but we’re on our journey (to becoming a snacking powerhouse). And I don’t think I would ever declare that we’re there."
Snacking has evolved into one of the fastest-growing segments in the food space, with sales of more than $89 billion annually. Datassential estimated that consumers eat about four to five snack foods a day.
As food companies scramble for new sources of revenue, nearly all of them have acquired snacking brands — like PepsiCo with fruit and veggie snack maker Bare Foods or Conagra Brands with Duke's meat snacks and Angie's Boomchickapop — to grab a share of this market. Other manufactures have taken products that have been around for decades and turned them into something portable, like General Mills' Cinnamon Toast Crunch cereal bars.
Hershey has seamlessly broadened its reach in the category by parlaying its existing knowledge in research and development, consumer insight and the supply chain it already had in confections. The Pennsylvania company has looked at a lot of potential acquisition targets in the snacking space, Buck said, passing on nearly all of them.
“It's always exciting when you buy it, but then you have to make it work on a sustainable basis (because) you’re shelling out a lot of money for that” asset, she noted.
While the company grows its snack reach into other categories, Hershey has taken steps to maintain its status as the largest U.S. confection company. It owns six out of the top 10 brands by sales, according to IRI data cited by Hershey — led by Reese's with $2 billion in annual sales. It has introduced new standup packaging to improve the shelf appeal of its candies, innovated through brand extensions of core products — like Hershey bars with Reese's Pieces or Hershey Gold Kisses — and increased exposure to consumers using e-commerce, targeted social media campaigns and unique displays at grocery stores.
Buck said even though the company's recent acquisitions have been outside its core confection segment, she wouldn't rule out buying more candies that are premium or in what Hershey defines as sweet — products similar to its Jolly Rancher and Twizzlers brands.
“We love our confection business, and people continue to treat themselves," she said.
Erin Lash, a director of consumer equity research at Morningstar, praised the company under Buck's leadership. Hershey wisely pulled back on its investment in international markets where it was going up against juggernauts in Mondelez's Cadbury and Mars Wrigley. Last July, Hershey sold Shanghai Golden Monkey, a Chinese candy company it bought four years earlier, and Tyrrells, an English chip maker acquired as part of its Amplify purchase. It used that money to invest in its domestic iconic candy brands.
Lash also said the company has rightly identified the importance of growing its digital footprint and is working closely with retailers to make sure they can win across all distribution channels.
"We like the story. We like the strategic direction," Lash told Food Dive. "Since (Buck's) first day on the job in the c-suite ... we were very encouraged by the strategy she laid out."