I want innovation at every trade show – Orlando, Singapore and Cannes
Steve Bentz
World Travel Retail General Manager
The Hershey Company

The Hershey Company, America’s number one chocolate manufacturer best known for its Hershey’s and Kisses billion-dollar power brands, is on a global mission to grow its turnover to US$10 billion in five years and double its travel retail sales in the next three years.

All the cogs are in now place to drive up Hershey’s 3.6% share of travel retail’s confectionery market in 2011 (source: Generation), believes World Travel Retail General Manager Steve Bentz. An expanded team, new travel retail exclusive products and new specially designed merchandising fixtures are ready for lift-off. Not forgetting a fascinating corporate back-story that stirs up passion and emotion in equal measure.

Big ambitions indeed for the company founded by the great American philanthropist Milton Hershey in 1905 – a man who created a legacy out of a humble Hershey’s chocolate bar. The Moodie Report visited the manicured, model town of Hershey in rural Pennsylvania in July to find out more about The Hershey Company’s aims.

Speaking to the staff at the candy giant, it’s immediately clear that Milton Hershey’s legacy is a source of immense pride. In I909, he established a free boarding school for underprivileged boys, and in 1919 he endowed it with the bulk of his personal fortune in chocolate company stock. As a result, the Hershey Trust owns the majority of stock in The Hershey Company. This might be a nightmare scenario for M&A bankers seeking their next multi-billion dollar deal, but a gift for the chocolate company itself.

The Hershey Company’s management recognises the power of this legacy – the trust now controls around US$8.5 billion in funds and runs the Milton Hershey School for girls and boys – and corporate social responsibility runs through the entire organisation at every level. “We’re proud of the Hershey legacy” is almost a mantra for members of the team, and I lost count of how many times I heard this phrase during my three-day visit.

The company aims to ramp up communications around the Hershey legacy. If you look carefully, some of its candy wrappers carry this message: “Every Hershey’s product you’ve enjoyed has helped support children in need through Milton Hershey School (www.thehersheylegacy.com). Thank you for making a difference!”

Hershey’s line-up of travel retail exclusives includes its popular Miniatures pouch packs

Travel retail growth

Under Bentz – a youthful-looking 29-year veteran of The Hershey Company who was hired from the convenience store division in 2010 to spearhead travel retail growth – the company’s turnover in the channel climbed +19.4% in 2011 (source: Generation). The five core brands offered to operators are Hershey’s, Reese’s, Hershey’s Kisses, Ice Breakers and Jolly Rancher.

“We were number five in the Americas [at the end of 2011] and we should be number one,” said Bentz, who expressed a desire to double the candy giant’s travel retail turnover in three years. Generation reports Hershey’s sales at US$43.8 million for 2011. Hershey’s US travel retail business has nearly doubled over the last two years, he noted.

Hershey is now number two in Asia Pacific with a 10.8% share of the market, after sales lifted +18% in the region in 2011. And in the first quarter of 2012, the company jumped to number six in the confectionery category, with a 6.1% share, having shown “good growth” in the period, according to Bentz. In the Americas region alone, the company is ranked third, with a 15.6% share in the quarter, leading growth in the category. Hershey began shipping to Dufry in Brazil in the first quarter, which has boosted listings and is expected to lift turnover considerably in one of the world’s fastest-growing markets. In Asia Pacific, the first quarter has seen the company occupy the number two spot.

“Greece continues to grow, and there is consumer acceptance of our products in the country,” observed Bentz. “It’s a vacation destination and we sell a wide variety of products there.” Hershey brands are carried in every airport store and ferry terminal in the country.

In July 2012, business was given a fillip when Dubai Duty Free – a hub for transit passengers from Asia and immigrant workers – agreed to list the Hershey Travel Retail specific portfolio. Hershey is in the process of taking over the distribution from its local domestic team, which will boost sales in the whole Middle Eastern region, such as Qatar and Abu Dhabi.

“There’s plenty of white space,” observed Bentz as he presented a map indicating Hershey’s travel retail’s global reach. “We have a strong presence in the US travel retail market, and we see high penetration in Greece, Singapore, Malaysia and the Philippines with our partners at Hellenic Duty Free, Focus Network Agencies, Eraman, Chocolate Sales and Service and Duty Free Philippines.

“Mid-penetration markets include China, Dubai and Bahrain. Other markets are open,” he said.

In Europe, where Hershey faces stiff competition in a mature market, Gebr Heinemann at Frankfurt Airport is a new customer – a listing that Bentz is delighted about, thanks to the airport’s hub status. The brand is now in every duty free store at the airport.

To underpin the growth strategy, Bentz has hired people worldwide, using the division’s expanding resources to recruit a customer marketing team based in the Philippines (itself a huge market both at the airport and downtown at the Fiesta Mall with Duty Free Philippines) which includes Customer Marketing Manager for Asia and the Middle East Patrick Pantangco. Marina Steel Business Manager, Europe has been hired in the UK to target airport operators, while Onye Ebo, Marketing Manager, Kristi Smith, Customer Marketing Manager for the Americas and Europe, and Nancy Giambanco, Business Manager, North America, are all based in the US at company headquarters in the historic town of Hershey. Beth Cruz, who almost single-handedly began Hershey’s travel retail push several years ago from the Philippines, is now World Travel Retail Director for Asia, after the company decided to base its travel retail unit at the US headquarters.

Product-wise, Bentz explained that he had refined the portfolio to offer travel retail exclusives and a variety of products, spanning the famous Hershey’s Kisses foil-wrapped chocolates, Reese’s Peanut Butter Cups – a worldwide best-seller domestically and in travel retail for the company – Hershey’s Miniatures, Jolly Rancher candy and Ice Breakers mints. A trio of gift tins featuring various retro designs are about to be launched, while a wider range of novelty gift items are in the works. Also being considered are destination-specific tins as well as a Giant Bar line-up, though the latter will not be exclusive to the channel.

In addition to the iconic chocolate brands in the Hershey portfolio is Scharffen Berger, an upscale range of artisanal chocolates with high cocoa content, ranging from 41% to 82%, including limited-edition Chocolate Maker’s Series bars using different cocoa beans from across the globe. The brand is included in the travel retail portfolio, in a low-key way, with Bentz saying: “We’ll see if it can gain a foothold.”

Scharffen Berger was launched several months ago at New York JFK Airport, where information screens showed videos detailing the brand’s background. The chocolate bars were displayed by the checkouts in Saveria’s shop, where one-third of the retail space is dedicated to Hershey products. The brand is also sold in a dedicated Scharffen Berger store at the San Francisco commuter ferry terminal.

A new brand acquired by The Hershey Company in December 2011 that is expected to perform well domestically and in duty free is Brookside, a range of dark chocolate-covered confectionery made with real fruit pieces, featuring so-called “superfruits” such as goji and acai berries, and pomegranate. The Canadian brand has a loyal customer base.

A display for the Scharffen Berger chocolate brand at Saveria’s shop in New York JFK Airport
Information screens beam Scharffen Berger brand messages in Saveria’s JFK store

Innovation to the fore

“I want innovation at every trade show – Orlando, Singapore and Cannes,” emphasised Bentz, as he presented his team’s visions for the channel. “This will include travel retail exclusive packs at each show. We are also investing in consumer research and shopper insights which will support our PR and media campaigns,” he said, adding: “We want to drive the whole category and our sales will follow.”

Turning to the promotional strategy, Bentz said the company had run HPPs for its 500g variety pouches with Focus Network Agencies in The Cocoa Trees stores in Singapore. “We will look at promotions market by market, and we will work with operators accordingly.”

A new range of merchandising units has been developed specially for travel retailers, based on a flexible system in which retailers can choose their own format. Bentz refers to it as “a kit of parts” with a “uniform and consistent” approach. Backwall units, towers and gondolas – including multi branded solutions – are among the fixtures that aim to “attract, inspire, inform and reassure” customers, leading to an impulse purchase decision. Design features include an information panel placed on the front of the backwall units which can be adapted for different promotional messages. In addition, Hershey’s chocolate bars and Ice Breakers mints can be sold via checkout units.

A comprehensive catalogue for duty free operators details the product assortment – spanning many travel exclusive items – and is divided into three sections for different purchasing occasions: informal gifts, sharing and self-indulgence.

In a new development, a website was launched in late March 2012 specially for travel retailers (hersheystravelretail.com), containing information on the brands offered and merchandising options.
In addition to the travel retail-specific portfolio, travel retailers can choose from local domestic items. The company produces a huge array of chocolates tailored to the diverse tastes of the world’s consumers. It has forensically researched the palates of the world’s emerging markets (Chinese, Koreans, Brazilians, Mexicans, etc) to find out how they differ. As I discovered from a tasting session, Kisses don’t taste the same in the US as they do in Brazil or China. The Reese’s peanut butter-based recipe is universally accepted, however.

Onye Ebo stands beside the Hershey Kissmobile – The Hershey Company’s mobile billboard

Shopper insight report

Spurred by a desire for deep insight into global shopping habits, the travel retail department commissioned a 200-page consumer research report. The global report, which questioned 500 duty free shoppers in each country such as Brazil, the UK, the US, France, Germany, Dubai, Singapore and China, found that travellers spend some US$337 per year on duty free items and want to bring back gifts. This offers a “huge opportunity” for Hershey, according to Marketing Manager Onye Ebo.

Hershey has a strong presence in China, Singapore and the US, the report found. The brand was considered an international brand with a good reputation.

The report uncovered five shopping occasions and gave the percentage of people who fitted into each category: seeking a better brand bargain, 17%; seeking a market memento, 23%; seeking a fresh find (ie the “latest and greatest” products), 17%; seeking impulse items 23%; and getting rid of left-over currency, 20%. Additionally, the report revealed insights on how to effectively target these segments. Hershey travel retail plans to partner with duty free retailers to leverage these insights.

Global brands

According to market research group Euromonitor 2010, three brands in The Hershey Company stable are in the top 20 global chocolate brands. Reese’s is the company’s top performer, generating annual sales of US$2.2 billion; Hershey’s chocolate is the group’s next biggest brand, turning over US$1.6 billion; and Hershey’s Kisses makes US$0.5 billion.

Hershey’s Special Dark performs well in duty free stores, ranking highly for flavour, according to Ebo. “There is great acceptance for Hershey’s Special Dark amongst duty free shoppers in Asia,” she noted. Hershey’s Kisses Cookies “˜n’ Creme product is also big in Asia, and is selling well in Singapore, where the company recently opened a Chocolate World leisure and retail complex to showcase its products experientially.

The Moodie Report’s Brands Editor makes her own Hershey’s chocolate bar at Chocolate World in Hershey, Pennsylvania

Crunching the numbers

The Hershey Company is already ranked the number one confectionery manufacturer in the US market with a 43% share and a turnover of US$6.5 billion. But that is just the start of what the candy giant is hoping will become an international success story. According to Michele Buck, the Chief Growth Officer – a newly created position in the company – Hershey is aiming to grow sales to US$10 billion in five years, with growth expected to come from new and emerging markets across the world.

“We have a real focus on growth, both short and long term, and we want to keep evolving the company to grow in an accelerated fashion,” she told the travel retail media in a presentation that she had just given to banking analysts earlier in the week.

Hershey is seeking to achieve its goal in a variety of ways, starting with its existing wealth of insights, knowledge and market research, according to Buck. Innovation will continue, including “disruptive” and “breakthrough” market initiatives as well as new categories. The company will expand its Chocolate World leisure and retail complexes into new markets. These huge outlets (marketing tagline: The Sweetest Place on Earth) are already trading in the town of Hershey as well as cities such as New York, Dubai, Shanghai and Singapore.

Buck talked about activating the brands, driving impulse purchases, and expandable consumption (meaning Hershey has the opportunity to sell more to existing chocolate lovers). Advertising will be ramped up, with investment injected into both the US and international markets.

Growing the company’s brands globally will require consistent packaging and common advertising, where possible, she said. The company saw a 7.2% upswing in revenue in 2011 and forecasts revenue to climb +7-9% in 2012.

Founded some 100 years ago as a chocolate company, Hershey still generates 85% of its sales from the chocolate category. Now it wants to be broader than chocolate and branch into sugar confectionery and “on-trend” categories, said Buck, which will involve boosting its M&A deals.

Growth will be selective, however. “We will only go into markets where we can be in the top three,” noted Buck.
Other areas for growth will come from refreshments and value-added beverages. “At Hershey we’re all about convenience products,” she said. Bite-sized and hand-to-mouth products such as Reese’s Minis will be further developed, while “better for you” brands such as the recently acquired Brookside are also seen as a ripe area for development.

Hershey aims to grow its non-US and Canada business, which today represents 10% of its portfolio, to 25% of its portfolio by 2017.

Key to this growth will be partnerships with customers, she said. Hershey’s Innovation Center will continue to be used for key customers, which include Wal-Mart and Target. (On the day I toured this amazing facility, a major US retailer had just visited and another was expected for a big meeting in a few days time.) Based at the company headquarters, the Innovation Center replicates convenience store displays, vending machine concepts and promotions, and even boasts a virtual store tour, like a retail-themed video game, where the interiors of customers’ stores are digitally replicated so you can speed-walk the aisles without the crowds.

Markets identified for growth include emerging markets where GDP growth is high and there is a rising middle class. The company is not “aggressively going into Western Europe, as the market is already mature”, said Buck. Europe is dominated by Hershey’s big US-based rival Mars and the big Swiss manufacturers such as Kraft (now the owner of UK favourite Cadbury) and Nestlé.

China has been prioritised as a future leading market. “China will become our number two market in five years, we think. We have made tremendous progress there,” said Buck.

Hershey is very aggressively investing in the US, Canada and Mexico, she added. Expansion is seen in the Middle East, North Africa, Brazil/South America and southeast Asia. India, with its undeveloped infrastructure, is seen as a long-term bet, but is not going to be as big as China, the company believes.

Hershey has invested heavily in research & development and manufacturing in Asia, and has a joint venture with South Korean retail giant Lotte for manufacturing. A new technology centre is set to open in Shanghai in October 2012 in an effort to get closer to the consumer, said Buck.

World Travel Retail and e-commerce also have potential for the company’s brands, she concluded.

The Milton Hershey School in pictures

Milton Hershey, founder of the Milton Hershey School in Hershey, Pennsylvania
Pupils at Milton Hershey School come from disadvantaged backgrounds
The Milton Hershey School buildings and grounds cover hundreds of acres