Candy Faces Price, Packaging Shifts
Commodity crush not repeating itself, but other factors putting pressure on manufacturers
TEMPLE, Texas -- Sales up big, units up barely. It's a common refrain in the candy category this year as the market adjusts to last year's price increases.
In 2011, c-store dollar sales increased more than 9% for chocolate and more than 7% for nonchocolate, according to SymphonyIRI Group data. Yet unit sales rose less than 2%.
Lance Smith, category manager for candy for McLane Co., Temple, Texas, estimates prices inflated about 8% for chocolate and nonchocolate. If that's the case, if a retailer didn't see an 8% jump in dollars sales, "then certainly they're not outpacing inflation," says Smith.
The commodity crush and subsequent price spike of 2011 is not repeating itself this year. But other factors are putting pressure on manufacturers to switch up both pricing and packaging.
In 2011, manufacturers, feeling the continued pressures of commodity pricing, finally served recession-whipped consumers a price increase. Many major manufacturers made sizable increases in 2011 in the hopes of projecting what their costs were going to be down the road. Hence, dollar-sales increases at the checkout greatly exceeded how many units were actually moving.
Meanwhile, many commodities loosened their hold in the first part of this year, putting industry experts at ease. "Based on current data and market conditions, we do not foresee another confectionary price increase in 2012," says Smith.
Other factors are challenging packaging and pricing in the candy category. Sugar has been named Public Enemy No. 1 as first lady Michelle Obama New York City Mayor Michael Bloomberg press on with their campaign against childhood obesity. In response, says Marcia Mogelonsky, director of insights for Mintel Food & Drink, many major manufacturers are making moves to "get on the bandwagon before they get pushed onto it."
J&J Snack Foods continues to roll out better-for-you products such as baked pretzels and all-natural Whole Fruit Bars. This year it is launching a no-sodium whole-grain gourmet pretzel roll and a 51% whole-grain cinnamon roll.
Mars in February made a major commitment "not to ship any chocolate products that exceed 250 calories per portion by the end of 2013," according to a company release. It also switched from the king-sized bars to multipiece packaging meant for portioning or sharing, labeled 2toGo, 4toGo and Sharing Size.
The move away from king-sized bars surprised some because of the subcategory's ongoing surge in sales. Last year unit sales of king-sized chocolate rose more than 11%, according to Nielsen data, while standard-sized bars dropped nearly 3%.
Robert Perkins, vice president of marketing for Rutter’s Farm Stores, York, Pa., has seen some big growth in sales of king-sized candy. "It's increasing much more than standard sized bars, but in ratio we still sell quite a bit more standard-sized than we do king sized," he says. "A lot of manufacturers are looking at size and packaging as a way to deter retail increases. They always fear retail increases."
Which points to perhaps the most contentious category in the candy aisle: gum. Unit sales continue to slump, because gum's price point at c-stores is increasingly difficult for the consumer to swallow.
"When a consumer walks in and sees that they can buy a king-sized chocolate bar for less than the price of gum, crisp data clearly points to what purchase decision many consumers are currently making, and the numbers aren't lying," says Smith.
Neither Cadbury nor Wrigley took any pricing increases last year. Instead, the companies are launching prepriced gum packs to try to induce trial.
"With the launch of Wrigley's 5 brand as well as Cadbury's Stride brand into a prepriced format and size, one would expect that you'd see greater trial, and subsequently that trial should lead to an increase in unit sales," Smith says. "With that said, it's going to take a large amount of unit sales to compensate for the retail price trade-down or perception of such."
Dave Lau, merchandising manager for Rutter's, said. "When they want to downsize the package and control the retail … that starts to make you a little fidgety," Lau says. "You have to sell a lot of units to make the kind of profit you make on a non-prepriced pack of gum. It's a difficult decision."
For the retailer, it hurts to take something that's marked at $1.99 to 59 cents. But to the manufacturer's point, it's a stagnant category that needs some serious trial.
"Many retailers are already buying Wrigley's prepriced gum, and it's one of their best unit-moving SKUs. If you look at it from that standpoint, prepriced gum purchases [are] already occurring," says Smith. By putting top brands and flavors at that price point, "I think you're going to see a positive impact to the gum subcategory."
Click here to view the full story and statistics in the August 2012 issue of CSP magazine.