As America sours on sweets, Her­shey bets on meat treats

Chasing evolv­ing tastes, it’s em­brac­ing beef jerky “If it says pro­tein on it, con­sumers will buy it”

Bloomberg Businessweek (Europe) - - CONTENTS - Craig Gi­ammona Edited by James E. El­lis Bloomberg.com

Her­shey, Pa., smells like choco­late. Its street lamps are shaped like Her­shey’s Kisses, and its roads bear names like Co­coa Av­enue. So it’s sur­pris­ing that Her­shey, the town’s name­sake candy gi­ant, whose an­nual rev­enue swelled to more than $7 bil­lion sell­ing choco­late with peanut but­ter, choco­late with al­monds, and just plain choco­late, is stak­ing so much of its fu­ture on a rad­i­cally dif­fer­ent snack: beef jerky.

With sugar widely branded a health haz­ard and Amer­i­cans cut­ting back on sweets in fa­vor of Greek yo­gurt cups and pro­tein bars, Her­shey saw sales fall in 2015 for the first time in more than a decade. To halt the slide, the com­pany is bet­ting on a grow­ing ap­petite for

dried meat.

“If it says pro­tein on it, con­sumers will buy it,” says Carl Jor­gensen, di­rec­tor for well­ness strat­egy at Day­mon World­wide, a retail mar­ket­ing com­pany. “This is some­thing Her­shey has to do.”

Amer­i­cans, es­pe­cially mil­len­ni­als, are snack­ing more than ever, nosh­ing through­out the day rather than sit­ting down for three square meals. To ride that trend, Her­shey is rolling out snack bars made with acai berries, trail mixes that fea­ture small pieces of Reese’s peanut but­ter cups, and jalapeño al­monds and pump­kin seeds coated in pro­tein foods. The goal is to gen­er­ate $2 bil­lion in snack rev­enue, with a quar­ter of that com­ing from jerky and other meat prod­ucts.

Her­shey sig­naled its shift away from choco­late in early 2015, when it ac­quired Krave Pure Foods, a maker of pre­mium beef jerky with about $35 mil­lion in sales. Krave, based in Cal­i­for­nia’s wine coun­try, put Her­shey in the fast-grow­ing meat snack cat­e­gory and gave the com­pany ac­cess to Whole Foods Mar­ket cus­tomers. Her­shey has said Krave could be­come a $500 mil­lion-a-year brand.

Sales of dried meat snacks have bal­looned in re­cent years. Jerky has shed its im­age as a salty, over­pro­cessed gas sta­tion sta­ple and has been reimag­ined as a con­ve­nient nib­ble that’s low in car­bo­hy­drates and high in pro­tein. Jerky is now made from meats as var­ied as kan­ga­roo and al­li­ga­tor, and sales of dried meat snacks hit $2.8 bil­lion last year, a 63 per­cent gain since 2010, ac­cord­ing to data from mar­ket re­searcher IRI. Her­shey has more than dou­bled Krave’s sales and plans to launch a line of meat bars—ba­si­cally bars of jerky—later this year.

“With con­sumers hav­ing less tra­di­tional meals and snack­ing more, they’re look­ing for sources of pro­tein,” says Michele Buck, Her­shey’s pres­i­dent for North America. “These things ebb and flow, but pro­tein is here to stay.”

Over­all choco­late con­sump­tion in the U.S. fell last year and has con­tin­ued to drop so far this year, ac­cord­ing to data from IRI. Sales growth has come from higher prices, not peo­ple eat­ing more choco­late. With sugar in de­cline, con­sumers have moved to fancier,

less sweet dark-choco­late prod­ucts, which are per­ceived to be health­ier than main­stream items such as Kisses or Reese’s Pieces, ac­cord­ing to Jared Ko­erten, an an­a­lyst at Euromon­i­tor In­ter­na­tional. Her­shey has ac­quired brands such as Brook­side to boost its pre­mium choco­late of­fer­ings and ex­pand into snack bars, but it “faces an up­hill bat­tle to edge in” to the crowded mar­ket, Ko­erten says.

De­spite its big meat-treat dreams, Her­shey is still very much a choco­late com­pany. It re­mains the No. 1 seller of choco­late candy in the U.S., con­trol­ling nearly a third of the mar­ket. Even if it at­tained its snack goal of $2 bil­lion to­day, snacks would ac­count for only about a quar­ter of Her­shey’s sales. It’s also not clear just how quickly the pro­tein snacks ex­pan­sion could trans­form the com­pany, since snacks ac­counted for only about 2 per­cent of its U.S. busi­ness last year. Her­shey gen­er­ates al­most all its rev­enue from sell­ing choco­late in the U.S.; an ill-fated ex­pan­sion into China con­trib­uted to a $98 mil­lion loss at its in­ter­na­tional unit last year, with an­a­lysts pre­dict­ing an­other loss in 2016.

To make mat­ters worse, Her­shey also faces in­creased com­pe­ti­tion from its top U.S. ri­val, Mars, maker of M&Ms, Snick­ers, and Milky Ways. So the 122-year-old can­dy­maker wants to be more con­tem­po­rary. “We don’t want to be a Block­buster, we don’t want to be a Ko­dak,” says Tony Tyree, vice pres­i­dent for Her­shey’s global snack busi­ness, re­fer­ring to two once-dom­i­nant com­pa­nies that went the way of the di­nosaur. “You can’t be fo­cused on the rear view.”

The bot­tom line With Amer­i­cans buy­ing less choco­late, Her­shey saw its sales de­cline for the first time in more than a decade.

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