Hershey tries to find profit in low-calorie candy
PHILADELPHIA — At a convenience store outside Philadelphia, bars of Hershey-branded Cookie Layer Crunch tantalized shoppers with “dark chocolate bars with chocolate-chip cookie bits and mint creme.”
So was the new 200-calorie minty treat selling? “Not so much,” cashier Mary Beattie said.
But, she added, “when we put Reese’s up here, they really move.”
Herein lies the challenge for the Hershey Co.: how to squeeze more revenue from its brands with new flavors and a “lighter eat” as the Pennsylvania company navigates such trends as e-commerce and sugar-wary consumers.
Transition: Company CEO Michele Buck says she wants to “reignite” its core confection business while reformulating and resizing sugar-rich products and even looking beyond candy.
One new product theme is the Cookie Layer Crunch, a chocolate bar with cookie bits plus caramel or creamy mint.
The transition for Hershey could be rocky financially, and the stakes are high for central Pennsylvania and the Milton Hershey School and its 2,000 poor children.
That charity is the largest shareholder in the Hershey Co., with an 80 percent voting control and dividends that have helped create a $12.5 billion endowment, the largest of the nation’s private boarding schools.
The school is run by a trust established more than a century ago by Milton and Catherine Hershey. About half its vast assets are shares in the company, a big exposure for a charity that would typically diversify to protect against downturns.
Hershey has time to adjust to consumer shifts disrupting other food companies. State lawmakers granted the company special anti-takeover protections after the trust negotiated a deal to sell it to the Wm. Wrigley Jr. Co. in 2002 to diversify its assets. The aborted deal was fiercely opposed by Hershey residents and workers.
The Hershey Trust today would need approval from the state attorney general’s office to sell the company, a high hurdle, given the local affection for the company and connections between the trust and former political officials who earn hundreds of thousands of dollars on the company and trust boards.
It won’t be easy for Hershey. Packaged-foods companies, from the cereal-maker General Mills to Campbell Soup, have faced weak sales and declining market shares as consumers seek fresh produce and healthier products, leading to big-food mergers.
Hershey rejected a buyout offer in 2016 from the global Oreo-maker Mondelez International, which has a market capitalization about three times larger. Mondelez responded by vowing to compete more directly against Hershey in its most critical market: the United States.
“Consumers either want more healthier options or they want to indulge themselves,” said Diana Rosero-Pena, a consumer-goods analyst for Bloomberg Intelligence. Hershey, she said, has to “cater to the consumer without losing sight that they are a mainstream chocolate company.” She thinks that Hershey can do it.
Hershey’s recent annual sales growth peaked in 2012 at 9.3 percent. Then problems at Hershey’s just-acquired Shanghai Golden Monkey unit, combined with other weakness, led to an unusual 0.5 percent sales decline by 2015.
Revenue rebounded slightly in 2016, with a 0.7 percent gain. Hershey now forecasts sales gains of about 2 percent this year as it launches new flavor variations: Key lime pie-filled Twizzlers, coconut-almond Kisses, strawberry Kit Kats, and others.
But there are headwinds. More people shop online — thus fewer impulse buys at the cashier — and CVS has even warned that it would pull candy from the front of hundreds of its stores, to make room for healthier choices.
While working with retailers on new candy displays, Hershey also announced last month that it would cut the calories in many of its individually wrapped products to 200 calories or fewer by 2022. The goal is to have half of its single-sale products at that reduced-calorie level, up from one-third now.
Separately, Hershey has said that, by 2020, it would reformulate its branded products with “simple, familiar ingredients.”
It also has pledged that 100 percent of its cocoa will come from suppliers certified as following environmental, child labor and modern farming practices — problem areas that advocates have cited in the past.
Hershey spokesman Jeff Beckman said the latest Food and Drug Administration guidelines, published in December 2015, recommend an average American daily diet of 2,000 calories, with no more than 10 percent of those calories from added sugars.
Hershey’s 200-calorie goal is “roughly based” on the latest FDA recommendation, he said.
“Job No. 1 is not to alter the flavor and texture,” Beckman said. “Our idea is not for people to bite into a Reese’s Cup and say this is not a Reese’s Cup.” Two regular Reese’s peanut butter cups packaged together today contain 220 calories. Two big cups sold as one item contain 400 calories.
Reduced calories will be accomplished through innovation, reformulation, and product-size reduction, Beckman said. New products also will be launched with 200 calories.
Gary Taubes, author of “The Case Against Sugar,” said a broad movement has arisen in Europe and the U.S. to limit sugar consumption, which has been linked to obesity and diabetes.
“Every place where you have a battle over sugar taxes” — such as in Philadelphia with its sweetened-drinks tax — “you are conveying the message that sugar is unhealthy,” Taubes said.
Sugar “got a pass” as “a benign pleasure,” Taubes said. For years, fats were blamed for Americans’ cholesterol and weight problems. Then studies showing high levels of obesity in the mid-1990s implicated sugar as a factor. Sugar consumption peaked in the U.S. in 1999.
“I don’t think the genie is getting back in the bottle,” Taubes said. “The future that people like me are fighting for is to reduce the general sweetness in the products we eat.”
At the annual shareholders’ meeting this month, Buck cited the strengths of its core brands: Hershey, Reese’s, Kit Kat, Ice Breakers and Kisses, but said the future would be snacks with a “lighter eat.”
She talked about snacks that are “indulgent” or “better-for-you.” Hershey would look for other places in the snack aisle for new products. “It’s all about long-term value, and I feel confident in our growth strategies,” said Buck.
Her audience in Hershey agreed. In an era when Comcast Corp. and others hold shareholder meetings online, the Hershey gathering felt like a throwback, with Rep. Charlie Dent, R-Pa., in attendance along with scads of retirees and out-of-state shareholders.
One elderly man drove from Manchester, N.H., to ask Buck why his local Shop-Rite ran out of Hershey chocolate bars earlier this year. A shareholder gave a high-five to the company for reintroducing the full-size Krackel bar. Another shareholder asked where to find a certain kind of Jolly Rancher Gummies.
Hershey shares have been a good investment, with total returns of 630 percent between 1997 and 2016, compared with a 339 percent return for the S&P 500. Several shareholders talked about how they bought Hershey shares years ago and now have many more because of stock splits.
Lou Bushman, 68, of Hershey, said that he noticed vegetarian and vegan products in his local supermarket. The company has expanded into beef jerky with its Krave product. “I wish,” Bushman said, “the Hershey Co. would go ahead and develop some vegan products.”
Good idea, Buck said. They’d think about it.
STEPS THE HERSHEY CO. IS TAKING:
Cut calories in standard and king-sized Hershey products. By 2022, half will be 200 calories or less.
Reformulate Hershey’s branded products with “simple, familiar ingredients” by 2020.
Pledge that 100 percent of its cocoa will come from sources certified as following environmental, child labor and modern farming practices.
Expand its product portfolio with new candy flavors and other non-candy snacks to grow its U.S. sales.