If the trick is to hit what is known as the “triple right”—the right product at the right price at the right time—then convenience-store operators and manufacturers currently have their work cut out for them trying to align all three in the candy and snack aisles.
For reasons ranging from rising commodity prices to healthy-eating trends, many products in the snack and candy categories have gone up in price while, conversely, either shrinking or staying in the same package size.
Ryan Morton, who handles the snack category for North Salt Lake, Utah-based Maverik stores as its customer benefits manager, finds the dichotomy more pronounced with meat snacks. He says customers looking for their protein boost from jerky and its kin are finding themselves paying more—and sometimes for less product. Morton is concerned about the trend. (See more in CSP’s 2015 Category Management Handbook, p. 86.)
But other categories, such as chocolate, also have felt the pressure. Rising cocoa and other ingredient costs forced both Mars and Hershey—two of the biggest chocolate confectioners in the c-store space, much less the world—to announce price increases last year of 7% and 8%, respectively. Those price increases are only now surfacing at the store level.
When retailers opt to pass on the increases occurring in many middle-store categories, the concern becomes demand destruction.
Manufacturer price increases last summer are expected to drive dollar growth in the candy category for c-stores in the first half of this year, according to Stephanie Poitry, category manager for West Des Moines, Iowa-based Kum & Go.
However, the all-important unit sales will likely see only slight growth, even with promotional activity, she says.
“Although there is a theory that the confection category is not challenged by trends of the economy, I believe that the value proposition of single and king-size bars is at risk as retail prices continue to increase,” she said in the Category Management Handbook.
The increases, which ranged from 10% to 12%, have narrowed the price gap between regular and king-size candy, making it more difficult for retailers to find attractive promotional price points.
“Consumers all want to eat right, but they also want a bang for their buck, especially in these economic times,” said Sam Odeh, CEO of Power Mart Corp., Chicago.
While not addressing changes in package size, T.J. Powers, vice president of sales—convenience for Oberto Brands, Kent, Wash., confirms that the meat-snack category saw a 4.3% pricing increase in the past year “due to increases in raw materials, especially meat.”
But pricing was only a relatively small piece of the segment’s overall growth. Meat-snack sales climbed 11.3% in dollars and 6.0% in units for the 52 weeks ending Dec. 20, 2014, according to Powers. One of the stars was bacon jerky, growing 41% in 2014 after doubling in 2013.
In terms of meat-snack price, retailers saw averages go up 14 cents year over year, says Kaila Fiske, marketing and public relations associate for Jack Link’s, Minong, Wis. However, she says, “We’ve been driving meat-snacks sales for the past [more than] five years by increasing total points of distribution across multiple channels. … Consumption is up.”
The rising demand for meat snacks even saw confectionery-focused The Hershey Co., Hershey, Pa., purchase high-end jerky brand Krave Pure Foods Inc., Sonoma, Calif., earlier this year.
Known for gourmet flavors, the Krave product appeals to a more global palate, with Hershey officials saying in press calls that such “culinary” offers—black-cherry barbecue pork jerky, basil citrus turkey jerky and chili lime beef jerky—are a differentiator.
The Value Equation
“Consumers are getting smarter as they shop retail channels, and value is the key,” said Sally Lyons Wyatt, client services director for Chicago-based IRI, during a spring webinar sponsored by the Arlington, Va.-based Snack Food Association (SFA).
From a retail perspective, convenience stores are one of the channels best suited to capitalize on the growth in snacking. For instance, some older Gen Xers and younger baby boomers (ages 45 to 54) identify c-stores as the channel that has the best assortment of snacks and snack sizes. Dollar stores and the Internet score high with similar capabilities.
Younger boomers make quick trips to stores, which plays nicely for the convenience channel. Younger millennials and older boomers, on the other hand, are prone to make trips to stock up their pantry vs. smaller fill-in stops.
For Odeh, the trapeze act of offering value at a good price no longer exists. He believes that “across the board,” manufacturers have cut the amount of snack or candy in a package to where one-third of any given bag is air.
“Manufacturers are saying to us, ‘Hey, [retailers] will help us sell these air bags,’ ” he says.
Odeh in 2008 moved his store’s assortment to more private-label snacks, offering what he believes to be a value to his consumers. He also offers items in bulk, which lets customers fill their own bags and measure the weight of what they’re buying.
“It’s about engaging customers,” he says. “C-stores, mass merchants, drug stores: We’ve all done a poor job of engaging the consumer.”
A retailer in the Midwest, who spoke on condition of anonymity, says recent price increases and changes in packaging size are putting pressure on inventory turns. “It seems [certain snacks] are reaching pricing thresholds,” he says.
In terms of meat snacks, pricing increases have resulted in some sales gains but left units flat, he says: “Pack size changes are just now taking place in bag jerky and may change the value perception.”
CONTINUED: King-Size Dilemma
King-Size Dilemma
Perhaps more than any other trend, rising candy prices are expected to affect the category this year in convenience stores.
But don’t blame the manufacturer. Rising costs of ingredients are challenging all suppliers, says Jenn Ellek, senior director of trade marketing and communications for the National Confectioners Association, Washington, D.C. For instance, she says, the price of cocoa has risen 25% since 2012 and 5% in the past year. Likewise, the price of tree nuts, such as almonds and hazelnuts, is up 10% over the past year. Add to that double-digit increases for milk and sugar, and the result is an inevitable rise in consumer prices.
“With about 40% of shoppers still very much focused on value, price increases may result in some volume pressure for at least some products,” she says. “But so far the category is holding, and we are seeing a big resurgence of gum.”
For the Midwest retailer, price increases on standard bars have had a few adverse effects. Sales are down, and his company is seeing “very poor” conversion rates to king sizes. He says those results could be because of pricing, or possibly from consumers switching to different snacks. Although sales of king-size bars are up, units are declining, with a mixed bag of declines and growth from different manufacturers resulting from promotional shifts and the recent addition of point-of-interruption displays.
Health Considerations
In counterpoint to any discussion of king-size candy bars are recent trends that saw manufacturers produce “shareable” versions of certain lines, using resealable packaging and bite-size candies.
Resealable packages have been “tremendously popular,” with a compound annual growth rate of more than 10% across the globe, says Ellek of NCA. “They allow people to treat themselves and easily share with others,” she says. “They also address the on-the-go convenience.”
Retail sales of shareable bags and boxes grew by more than $1 billion from 2009 to 2014, Ellek says, and are expected to continue to grow at a similar rate from 2014 to 2019, reaching $17.1 billion.
Still, retailers question the value and price equation. “You’ve got to wonder if there’s the same amount of chocolate there for the money,” said a second Midwest retailer who also requested anonymity.
Health trends also are putting pressure on product price, says Tom Dempsey, CEO of SFA. The industry has experienced “fairly benign” price pressure on most commodities in the past two or three years, he says. However, “price increases are also the result of more elaborate recipes for healthy, organic or enriched traditional products,” he says. “Different grains, vegetables and nuts are getting more consumer attention and resulting in more manufacturer attention.”
But that doesn’t mean people are abandoning traditional snacks, Dempsey says: “While there has been very significant growth in the health, better-for-you, baked, low-fat and reduced-salt product lines, the standard snacks of chips, pretzels, tortillas and popcorn maintain steady growth year after year.”
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