NRF 2021: Retail's Big Show

Hershey sees business opportunity in family movie nights, tight budgets as Covid pandemic drags on

Key Points
  • Hershey Chief Growth Officer Kristen Riggs said the company sees opportunities as consumers spend more time at home and try to create occasions during the pandemic.
  • Early on in the global health crisis, she said it sent snack crates to a focus group of customers to better understand how they were eating, snacking and celebrating differently.
  • The company has had to adapt to behavioral changes, such as more people buying groceries online.
Mike Blake | Reuters

Hershey saw a strange pattern emerge in the early spring. Sales of Hershey's milk chocolate six-packs spiked online and in stores well ahead of Memorial Day, the typical kickoff to summer camping trips and backyard gatherings.

S'more season started early and continued for months, Chief Growth Officer Kristen Riggs said Thursday at a virtual conference hosted by the National Retail Federation.

"It was the biggest s'mores season we've ever had," she said.

Families made the treats in the backyard to break up monotony during the pandemic. In parts of the country with higher Covid-19 rates, she said Hershey saw a 40% to 50% increase in sales of those milk chocolate packs versus other areas.

The s'mores surge is an example of the growth opportunities that the snack and confectionary company sees as consumers spend more time at home and try to create occasions during the global health crisis. Riggs said it wants to take part in new traditions like family movie nights, suggest recipes that include its candies and cater to customers who want a tasty but affordable indulgence.

She said the company is moving quicker to identify changes in consumer behavior and act on them. When it spotted the s'more trend, she said it ramped up production of the milk chocolate bars and the inventory at stores. It adjusted marketing to depict s'mores as an ideal treat for a more intimate backyard gathering instead of a large social event.

"Being able to read those consumer and retail signals quickly allowed us to take advantage of the opportunity," she said.

Early on in the pandemic, she said Hershey shipped crates of all of its snacks to a focus group of customers. It asked them how they were using the products as they spent more time at home — whether putting them in candy bowls, adding them to a baking recipe or using them as a snack during the workday. It used those insights to inform its business strategy.

Hershey's portfolio includes well-known candy brands, such as Reese's, Almond Joy, KitKat, Twizzlers and Bubble Yum, as well as SkinnyPop and Pirate's Booty. It's one of the consumer packaged goods companies that has noticed stay-at-home trends. Net sales rose by 4% in the fiscal third quarter, as customers indulged with Halloween candy early. Sales of baking items like peanut butter, cocoa and chips and of salty snacks increased by double-digits compared to the same period a year earlier.

Yet the chocolate company must adjust to new consumer behaviors. Instead of browsing grocery store aisles, shoppers get in and out of stores quickly. They are celebrating holidays differently, which could change how much candy they buy. And the rise of online grocery shopping could diminish the chance of a consumer discovering a new product, seeing a holiday display or throwing an impulse buy like a candy bar into their cart.

Earlier this month, Bank of America upgraded Hershey's stock to buy and raised its price target to $168, representing a nearly 13% increase from its current trading price. Its analysts said the company has strong momentum and could benefit in the months ahead as the vaccine rollout improves its out of home sales and those in emerging markets.

Shares of the company have declined by nearly 3% over the past year. Its market cap is $31 billion.

Riggs said in an interview that the company is getting savvier about its online product placement. She said it can place an ad for chocolate syrup near the ice cream assortment on a retailer's app or website — something that's harder to do in the grocery aisle. In the digital world, she said it can spark purchases during holiday seasons by placing ads for candy or baking supplies near merchandise like Christmas ornaments. It can make it possible for a customer to buy a collection of recipe ingredients with one click.

It's also put holiday candy on shelves and websites earlier, something it's doing again for Valentine's Day, as people embrace the seasons as a diversion.

"There's just something so special about these seasonal traditions and occasions that kind of lift the spirits in the home," she said.

If Halloween and Christmas are a guide, she said she expects to see lots of Valentine's Day candy bowls and stretched-out celebrations.

Hershey CEO says agility in adjusting its portfolio led to higher Q3 sales
Hershey CEO says agility in adjusting its portfolio led to higher Q3 sales