Snacks & Candy

Hershey Hopeful for 2007

Strategy includes step-up in core brand investment, support of new-product platforms

HERSHEY, Pa. The Hershey Co. will rely on ramped-up consumer marketing spending to bring it out of a slump this year, according to a report by MediaPost's Marketing Daily. The nation's largest candy maker reported fourth-quarter results that it said were below expectations due mainly to aggressive trade promotion to clear out unsold merchandise, and CEO Richard H. Lenny said the company will take "fewer, but bigger, initiatives" this year.

Hershey will introduce an organic chocolate bar, expand into China and increase U.S. advertising for Reese's Peanut [image-nocss] Butter Cups and chocolate Kisses, said the report. The 2007 growth plan, Lenny said, will be "driven by a step-up in core brand investment and support of new-product platforms."

Hershey's U.S. market share declined to 42.5% in the 13 weeks ended December 24 from 43.5% at the end of the fourth quarter in 2005, according to the online newsletter, citing Information Resources Inc. (IRI). Mars's market share, meanwhile, climbed to 25.9% from 24.2% a year earlier. The IRI data excludes sales to Wal-Mart.

For its Kisses, the company plans to mark the brand's centennial in 2007 with new advertising, customized flavors and consumer events such as the recent issuing of the "Love and Kisses" U.S. postage stamp, the report said.

As part of the year-long celebration, Hershey is inviting consumers nationwide to Kiss Someone. The Kiss Someone tag is at the heart of the new TV advertising campaign, which debuted this week. The campaign features scenes of everyday life, with Hershey's Kisses Chocolates cascading throughout the background. The plumes feature heartfelt phrases such as Thanks Dad or I Really Like You. Print ads will feature Hershey's Kisses with plumes conveying a variety of everyday sentiments. The campaign's tagline reads, Whatever you want to say, say it with a kiss. Kiss Someone. The print ads debuts this month and run throughout the year in various publications.

A birthday celebration will be held in Hershey, Pa., on July 7 to commemorate the day when Hershey's Kisses Chocolates were first produced 100 years ago.

Lenny said Hershey will double consumer support by increasing media usage, particularly network and in-store TV. He said the company enjoyed a greater return on its investment over the holidays by running ads on Wal-Mart TVs in 3,000 stores. Also on tap are single-serve Kisses Truffles based on Hershey's positive experience with Truffle Nuggets, added Marketing Daily.

For Reese's, which is the largest and most profitable of its brands, Hershey will introduce new products based on Crispy Crunchy's Good Start and dedicated advertising to build brand awareness for that product will begin this month, Lenny said. There will also be a new advertising campaign for the core Reese's Peanut Butter Cup later in the quarter with an investment that will "more than double" in 2007.

In-store events such as those planned to coincide with the launch this year of the limited-edition Elvis Presley-related item will increase, and a partnership is underway between Coca-Cola and Reese's at convenience stores, the report said. Hershey will also introduce a dark chocolate Reese's as that dark chocolate continues its spectacular rise.

Lenny said sales of Hershey's dark chocolate doubled in the past two years. Cacao Reserve by Hershey, introduced late last year, will run tie-ins with such upscale magazines as Wine Spectator and Cigar Aficionado. ("Life is good" store displays for the dark chocolate brand revel in how red wine, and now dark chocolate, have been determined to be good for you.)

He also said the company plans innovative packagingincluding standup pouchesfor its Special Dark and Extra Dark varieties. Consumer marketing spending for those items will double in 2007. The company is introducing Hershey Whole Bean Chocolate, with less sugar and more fiber; antioxidant milk chocolate; and organic chocolate bars, all of which will be available by mid-year, the report said.

The company's portion-control snack items will continue, having provided $200 million in retail sales last year, Marketing Daily said.

On the refreshment side, the company is "on trend" with Icebreakers, Lenny said, and will introduce new wellness mints and gums with such ingredients as ginseng, green tea and vitamins. New ads will support those launches.

David J. Westthe company's chief financial officer, who was just named chief operating officersaid the company was "encouraged" by the performance of dark and premium chocolate and drinks, which were up during the quarter; however, results were hurt by higher markdown expenses during Halloween and the holiday season due to lower-than-expected sales.

A product recall in Canada also hurt results, Hershey said. In November, Hershey closed a plant in Canada for six weeks and recalled products such as Hershey bars, Reese's Peanut Butter Cups and Oh Henry! bars after salmonella bacteria turned up, resulting in a profit loss of about 1 cent per share.

Lenny said in a company earnings release: 2006 was a difficult year for Hershey. Following a solid first half, we experienced a slow-down in retail performance. The necessary shift from line extensions to innovative new product platforms took longer than anticipated. Progress on new product platforms such as dark chocolate and refreshment has been strong, as these were Hershey's fastest growing businesses in 2006. In addition, Hershey's seasonal business performed well, posting share gains within each seasonal timeframe.

For 2007, our priorities are clear. First, we're committed to restoring core brand growth through increased investment behind superior consumer and customer programs. Second, we'll accelerate news and programming in support of our on-trend new-product platforms, primarily dark and premium chocolate and refreshment. Within the U.S. market, we're taking the necessary steps to ensure superior retail execution in support of these two initiatives. Third, in selected high potential global markets, we're following a disciplined approach in pursuing appropriate growth opportunities.

While we expect input costs to be broadly higher for 2007, we have plans in place to deliver improved gross margin. This will provide the necessary funds to invest in our business.

On Wednesday, West was named executive vice president and COO, effective immediately. West, 43, will continue to report to Lenny and will be responsible for the company's day-to- day operations, including Hershey's North American Commercial Group, International Commercial Group and global supply chain activities. A search is underway for a successor to West as senior vice president and CFO. He will continue as CFO until a successor is named.

Lenny will continue to focus on the strategic direction of the business.

West first joined Hershey in May 2001 as vice president of business planning and development. He was named senior vice president of business planning and development in 2002 and, later, promoted to senior vice president and chief customer officer. He was named senior vice president and CFO in 2005.

Prior to joining Hershey, West was senior vice president and CFO at Nabisco Biscuit & Snacks Group, with responsibility for leading the financial function of Kraft Foods' biscuits, confections and snacks businesses. He joined Nabisco as senior cost analyst, Planters/Life Savers Co. in 1987. During his 14-year career with Nabisco, he served as vice president and corporate strategy and business planning, and director of investment analysis, among others.

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