Since 2017, Hershey has spent billions to build a salty snacks business to complement its already dominant presence in confections. Now, the storied food maker is poised to tap into yet another lucrative growth opportunity by launching products that bring together both sides of its business.
The 129-year-old company has “a very good opportunity to disrupt” the salty and sweet category due largely to its prior experience in the space, a portfolio of well-known brands and the absence of a larger player, said Vero Villasenor, vice president of salty snacks at Hershey.
“We are seeing an opportunity to win,” Villasenor said in an interview. “The more and more we have been going deeper into this space, we are prioritizing it even more within the salty business unit.”
Hershey has long been known for its confections such as Kisses, Reese’s, Almond Joy and Skor. But in recent years, the CPG giant has moved aggressively to establish a presence in the $36 billion salty snacks category through the acquisitions of SkinnyPop Popcorn, Pirate’s Booty Puffs and Dot’s Homestyle Pretzels.
Snacks that incorporate both sweet and salty are viewed by Hershey as one of the key platforms to grow its salty snacks business, Villasenor noted. Currently, salty contributes about 10% of the company’s more than $10 billion in annual sales, with the rest coming from confections. Hershey aims to grow its salty snacks division to about 20% of the company’s sales, about $3 billion, within a decade.
‘Uniquely positioned’ to win
Hershey first identified sweet and salty as a white space in its portfolio in 2016, leading to the launch of Reese’s and Hershey’s chocolate-dipped pretzels as well as a snack mix with confection, pretzels and popcorn. The chocolate-dipped pretzels have performed well, grabbing 4% household penetration but a 40% repeat purchase rate, Villasenor said.
Hershey is no stranger to products that include both sweet and salty characteristics.
Its nearly century-old Reese’s brand, with more than $3 billion in annual sales, was an early entrant in the category with its pairing of sweet milk chocolate with salty peanut butter. Hershey took the brand even further in 2016 by mixing in Reese’s Pieces. Since then, the company has announced similar products stuffed with pretzels, potato chips and Reese’s Puffs Cereal.
Hershey also sells pretzels in its Reese’s Take 5 candy bar and more recently, it has added Reese’s Drizzled Popcorn and Reese’s Dipped Animal Crackers and pretzels to its portfolio. The company plans to debut a new popcorn innovation at the Sweets and Snacks Expo later this month.
The sweet and salty category is valued at $1.7 billion, according to Hershey, with roughly $1 billion of it coming from private label that tends to be heavily focused on seasonal offerings. Growth in the segment has posted a strong 12% compound annual growth rate during the last four years.
Hershey wants to be the No. 1 branded manufacturer in sweet and salty by 2026.
“That’s not been a combination of flavors that has been broadly explored,” said Kristen Riggs, who oversees Hershey’s salty snacks business. “We do think there’s a good opportunity.”
Hershey executives said the company’s deep portfolio and expertise in confections make it uniquely positioned to lead branded offerings. It not only has recognition in sweets through Reese’s and Hershey’s, but the company has spent years understanding key factors, such as the right balance of salty and sweet through line extensions to its Reese’s peanut butter cup.
But before Hershey could really intensify its push into salty and sweet products, the company needed to increase its scale in salty.
“We weren’t able to be a bigger player before because we weren’t positioned to win,” Villasenor said. “Now, we are uniquely positioned to play here.”
In addition to purchasing salty brands, Hershey has increased its manufacturing capacity and added capabilities in the space across research and development as well as manufacturing. These enhancements not only give Hershey more room to make sweet and salty products but they also provide the company with more opportunities to see firsthand how they are made. This insight is valuable for innovation.
Last month, Hershey announced it was buying two popcorn operations from a co-manufacturer to increase production capacity and flexibility for its fast-growing SkinnyPop brand. The decision mirrored a similar one Hershey made two years ago when it purchased co-manufacturer Pretzels Inc. and its three plants while acquiring Dot’s.
“We feel confident and clear in our ambitions, but we are also learning,” Villasenor said. “We are going to learn very fast.”
Staying true to the brand
Erin Lash, a director of equity research in the consumer sector for Morningstar, said as Hershey introduces more products, the company must ensure the new launches stay true to the original brand.
“You need to make sure the product meets expectations because if it doesn’t, does that impair the Reese’s brand on a stand-alone basis?” Nash said.
For now, Villasenor said, Hershey plans to focus its growth in sweet and salty through its “powerhouse brands” that give the company an opportunity to lay a “strong foundation” due to their broad reach and consumer familiarity.
Still, the 20-year Hershey executive said the company could eventually look to other confections in its portfolio.
“As we think about reach and incrementality in the future, then we start to bring in some of those brands that enable us to expand our footprint on the shelf,” Villasenor said. “But we’re very mindful that they deserve to be there. We don’t want to create an unsustainable innovation.”