Snacks & Candy

Candy Depot

Alternative channels for sweets burgeoning

MECHANICSBURG, Pa. -- An increasing number of the nation's largest retailers are looking to squeeze impulse buys out of customers by offering candy, gum and mints at their cash registers, reported the Associated Press.

The nation's largest home-improvement retailer, Home Depot Inc., has just joined those ranks, giving a big boost to the candy industry's efforts to open what it calls "alternative" channels.

"You name it, where there's a consumer and there's a chance for a consumer to buy an impulse thing like candy, we want to [image-nocss] be there," Larry Lupo, the vice president of small-outlet sales for Masterfoods USA, which is a division of Mars Inc., told AP.

The Hershey Co., Wm. Wrigley Jr. Co. and Masterfoods each have sales groups devoted to persuading nontraditional retailers to sell candy. Mostly, they target major retailers: Dick's Sporting Goods Inc., Circuit City Stores Inc., AutoZone Inc. and Staples Inc., to name a few, carry candy bars and more.

With candy now greeting customers at nine out of 10 Home Depot stores, the trend is undeniably gaining strength, said analysts and company officials. "A lot of [retail] companies have started to pay attention to it in recent years," Len Teitelbaum, managing director of Roosevelt Investment Group, New York, told AP.

The type of candy being carried might varyfor instance, more high-end candy in a clothing store where women tend to shop. In Staples stores, bags of miniatures sell best as an office-supply item. For the holidays, Staples even adds shelf space for gourmet candy and advertises it on the public address system. "It's an unexpected gift while shopping for their holiday supplies to be able to check an item off their list," said Robert Muldoon, Staples' vice president for supplies.

Teitelbaum estimated that candy companies' sales through nontraditional outlets have doubled over the last several years, although the relative proportion remains small compared to sales at pharmacies, groceries, convenience stores and mass merchants.

Wrigley spokesperson Brian Wright told AP sales in alternative channels account for about 5% of the company's revenue. "For us, it's not just the current sales, but the long-term potential that makes it attractive, because you never know what the next hot retail concept will be," he said.

Department stores still have yet to broadly sign on to the concept, Masterfoods' Lupo said. And Home Depot's main competitor, Lowe's, has no plans to offer candy with its cases of bottled Gatorade and water, spokesperson Chris Ahearn said. The company, she said, is focused on selling products that "people expect to find in our stores." Selling drinks, she said, makes sense because workmen will bring them to the project sitealthough a Home Depot spokesperson used the same argument for selling candy. "These guys are coming in, they're getting all their stuff, some of them are grabbing food for the morning or the afternoon," said Home Depot's Jennifer King. "It just makes it very convenient for the customer."

Some analysts questioned the wisdom of selling candy at Home Depot and other nonfood retailers. The phenomenon is great for the candy companies, but does nothing to improve the core business of the retailers, George Whalin, the president and CEO of Retail Management Consultants, San Marcos, Calif., told AP. "To dilute that business by selling things that are not relevant to that business is foolish to me," he said. "When you focus on what you do best, you do it better."

Marshal Cohen, the chief analyst for the market research company, NPD Group Inc., Port Washington, N.Y., agreed. But, he said, customers are far more willing to indulge themselves in a candy bar than, say, a flashlight. And selling candy reflects a wider trend among retailers that are willing to search for profits outside of their specialty, he said. "We've entered into a time when dollars per square foot is better than educating customers about what's in the store," he told AP.

Candy does not make a major splash on the balance sheets of the unlikely hosts. At Staples, candy accounts for less than 1% of sales, officials there said. But the trick seems to be convincing retailers that they can make more money by selling candy in the checkout aisle than what's already there. Considering that candy typically has about a 30% retail markuphigher than most companies' gross profit margin, but not Home Depot'sthe argument is a no-brainer, Teitelbaum said. "The whole name of the game is try to get money in the cash register, and markups are usually good on candy and confectionery," he said.

In December 2005, Home Depot launched a candy pilot in fewer than 100 stores. In August, the company began expanding the program, extending it to approximately 1,700 stores of its 1,864 stores, King said. He would not reveal specific figures on candy sales, but said the company is pleased.

In a July conference call with analysts, Hershey's CEO Richard H. Lenny touted its success with Home Depot. Average sales of Hershey's candy at Home Depot were comparable to levels at major drugstores and approaching that of major c-stores, he said.

The spread of candy to more checkout aisles is contagious, people in the industry said. When one major chain does well with candy sales, they say, others can be more easily persuaded to follow suit. "It has grown and it continues to grow," said Wrigley's Wright. "There are still spaces out there that are untapped."

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