Hershey seeks to set new bar in spreads

by Monica Watrous
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HERSHEY, PA. — The Hershey Co. hopes to unwrap new opportunities in the $3.4 billion spreads category with its latest product line.

Launched in mid-January, Hershey’s Spreads includes chocolate, chocolate with hazelnut, and chocolate with almond varieties packaged in 13-oz jars.

“(The category of) spreads includes peanut butter, marmalades and other kinds of things,” said J.P. Bilbrey, president and chief executive officer, during a Jan. 30 earnings call with financial analysts. “And the fastest growing sub-segment of that are really chocolate spreads. So, we looked for unmet needs, and one of the unmet needs, not only in the fast-growing category, was that it was primarily a breakfast occasion. And, as we believe we can bring great chocolate credentials to that space, we are also looking at a different variety of day parts than what was happening.”

The product is positioned as a “snack enhancer” to be served with fruit, vegetables, pretzels, rice cakes and other between-meal bites. To-go portion packs with graham cracker sticks are set for a 2014 launch.

“So, these could be used on apples, bananas, fruits — it’s almost endless,” Mr. Bilbrey said. “It could be on traditional bread at breakfast occasions, but it makes for a great-tasting and a way to get also healthy snacking throughout the day. … And what is great for us is this is really incremental. It’s not cannibalistic to what we do already.”

Hershey identified another unmet niche when it bought the Brookside brand of dark chocolate candies at the end of 2011.

“Brookside … satisfies a need that really wasn’t there,” Mr. Bilbrey said. “It has a package that lends itself to portion control, as well as on-the-go and hand-to-mouth.”

This year, Hershey is expanding the brand with a crunchy cluster variety.

Other upcoming launches from Hershey include York Minis, which are unwrapped, bite-size peppermint patties; Lancaster Soft Crèmes caramels, featuring caramel, caramel and vanilla, and raspberry flavors; and new packaging options for its hand-to-mouth products, including an instant consumable flex pack that fits in a cup holder.

“And a yet-to-be-announced new product that we are very excited about,” Mr. Bilbrey added but declined to provide more details.

Hershey’s approach of “fewer, bigger, better” launches is driven by consumer-centric demand, as well as whether the company identifies opportunities to participate in a given category, as it did with spreads.

“Our innovation has been terrific really over the last several years,” Mr. Bilbrey said. “So as we talk about wanting one point of our growth coming from innovation, but we have done significantly better than that. So, it’s really not the frequency of innovations; it’s really the quality of innovation.”

For the year ended Dec. 31, 2013, Hershey’s net income increased 24% to $820,470,000, equal to $3.76 per share on the common stock, up from $660,931,000, or $3.01 per share, in 2012.

Net sales advanced 7.6% to $7,146,079,000 from $6,644,252,000 the year before.

Fourth quarter income climbed 24% to $186,075,000, or 85c per share, up from $149,879,000, or 69c per share, in the prior-year period.

Net sales for the quarter rose 12% to $1,956,253,000 from $1,751,035,000 during last year’s fourth quarter, led by core brand volume growth and new products. North American sales slightly exceeded expectations, driven by a solid holiday season. Additionally, the company reclaimed its leadership in the candy, mint and gum category with 31.1% share of the market.

Looking ahead, the company expects its net sales in 2014 to grow 5% to 7%, driven primarily by core brand volume growth and innovation. Hershey is targeting adjusted diluted earnings per share growth of 9% to 11% for the full year.

Plans in 2014 focus on targeted growth initiatives in key global markets, new product launches in both the U.S. and international geographies and continued support of core brands. Hershey expects its December agreement to acquire 80% of Shanghai Golden Monkey Food Joint Stock Co., Ltd., a Shanghai, China-based privately held confectionery company, to further accelerate the company’s scale and geographic footprint in the market. The acquisition is expected to close by the end of the second quarter.
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