Dive Brief:
- Hershey CEO Michele Buck said the company will cut some varieties of its candy in an effort to save money, according to a story from the Wall Street Journal. The company will focus on reducing complexity in its business, for example, by eliminating some of the holiday assortments it makes for specific retailers.
- Hershey’s current approach has the company delivering about 500 different display styles to specific retailers, the newspaper reported. Buck said the company could cut that number in half in order to be more efficient and drive long-term profits, but warned the move will affect sales for the second half of this year.
- Instead, the company will focus on its core brands, including Reese’s, Kit Kat and Hershey’s, for innovation and better mix opportunities. "There can be excess items that are not driving incremental, profitable growth," Buck told the publication. "We just have to get after those."
Dive Insight:
During last week’s earnings call, Buck noted that cutting some of its limited-edition offerings is the best way Hershey can better control its profits, especially against volatile cocoa prices. An intensified focus on core product innovations is a good way for the company to keep its consumers excited without going overboard on the special occasion releases that “overcomplicate the supply chain and logistics.” Special candies also may not drive growth that food companies are struggling to find amid changing consumer tastes and preferences.
It’s also a good way to avoid consumer burnout. According to data from the U.S. Agriculture Department’s Economic Research Service, new food and beverage product introductions hit 21,435 in 2016 - the highest number in nearly a decade. With such product saturation, brands that focus on innovating their core products tend to have the most success, according to Jennifer Frazier, senior vice president of Nielsen’s Innovation practice.
Although special-edition launches drive quick sales and novelty-induced excitement, they’re not ideal for long-term profit growth, especially as they add extra steps to the supply chain, increase freight costs and complicate demand planning. Hershey pointed to Halloween as an example of this complexity. During the most recent Halloween season, the company had five "approaches," from Reese’s Peanut Butter White Pumpkins to Hershey’s Cookies ’n’ Creme Skulls and Hershey’s Miniatures with Spooky Foils.
There is a balance the company will have to find as it moves forward on this strategy. The confectionary category is in a difficult growth environment and some of these limited-edition introductions have driven revenues and profits. They also have a way of drawing consumers back in to the brand, which can drive long-term interest in the core product going forward. In addition, food categories are becoming far more niche and some of these innovations have appealed to discerning consumers.
Hershey, according to Buck, is keeping the good complexity and shedding the non-profitable, non-incremental complexity. Perhaps most importantly, Hershey is taking control of costs where it is able to, which is never a bad strategy in this current marketplace.