Apolo Ohno arrives on a sunny December morning for his Hershey's Gold commercial shoot with two gold medals wrapped in a red bandana in a small plain cardboard box. That humble receptacle is actually a step up from what he used during his days as the world's top short track speed skater, when the eight-time Olympic medalist kept his prize bling in his sock and underwear drawer.
"I wanted to compete as if I'd never won anything and I would go as the underdog, even though a lot of times I was not," says Ohno, dressed in a shimmery gold tracksuit, the medals slung around his neck to complete the look of an exaggerated version of himself: the spokesman obsessed with gold. "I was the one who kind of had the target on my back, but I wanted that psychological reminder that I would race as if I had nothing," he says. "That's, I think, when you're almost your most dangerous."
That's pretty much how Hershey looks at itself, too. Although it's the top U.S. chocolate maker, with a commanding share hovering near 44 percent, the company faces intensified competition from much smaller brands that are capturing shoppers' attention with unique flavors and fewer processed ingredients, or both. So Hershey is trying tactics that might seem more characteristic of an underdog than a legacy player.
The issue for the industry, and for Hershey in particular, is that while people are eating more snacks, they're seeking out ones they feel less guilty about eating. Take jerky, for example: Total U.S. single-serve jerky sales rose 5 percent, while single-serve candy sales grew just 1 percent, in the 52 weeks ended Sept. 9, according to Nielsen.
It's those kinds of products—the ones executives like Hershey CEO Michele Buck call "permissible snacks"—that Hershey feels can help it grow more rapidly. (Sales of smaller bags of salty snacks also grew 6 percent for the period.) Back in 2015, Hershey bought the Krave brand to get into the growing jerky space. Now, it hungers for similar deals, while trying to shake up its long-established brands with new items aimed at, you guessed it, millennials.
Plus, if online grocery shopping becomes the norm—and with Amazon leading the charge, it's seemingly only a matter of time—those impulse purchases of Hershey's bars, Reese's Peanut Butter Cups, Twizzlers and the other candies, mints and chewing gum Hershey sells in supermarket checkout lanes will slowly begin to disappear.
So Hershey is trying to transform itself from a confectionery company into, as Buck describes her vision, a "snacking powerhouse." Two of Hershey's latest moves show how the brand is keeping an eye on its main confectionery business while pushing boldly into new categories.
It starts with a major marketing push for Hershey's Gold, the first new bar branded with the company name in 22 years and the first Hershey's bar ever without chocolate. "This is a big moment. This isn't just a bar. This is a moment in time for our company where we really feel like this is the next big generation of bars for Hershey," says Chuck Raup, VP and general manager, chocolate.
Hershey is also buying SkinnyPop maker Amplify Snack Brands. The deal, valued at
$1.6 billion including debt, will be Hershey's biggest acquisition to date and shows just how serious Hershey is about expanding its portfolio to respond to, and potentially get ahead of, changing food trends, dietary concerns and new shopping habits.
"The whole category is a good place to be," says Sanford C. Bernstein analyst Alexia Howard. "But within snacking, obviously better-for-you snacks, the healthier snacks, are the direction that more consumers are headed."
Hershey and competitors like Mars Inc. are following them there by tweaking their product lines to remain relevant, rolling out snacks that are both salty and sweet (or sweet and spicy) for those seeking new flavors, while also emphasizing smaller snacks that hit at under 200 calories for the diet-minded set. Once the Amplify deal closes in early 2018, SkinnyPop will become Hershey's sixth-largest brand.
But Hershey isn't just buying, it's building with Hershey's Gold, which shows that despite its lofty aspirations, the company is tending to its confectionery core. It's the leading company in the U.S. confectionery industry, with a 30.7 percent market share, followed by Mars at 29.5 percent, according to Nielsen data for the 52 weeks ended Oct. 8, published by Hershey in an investor report. In chocolate, Hershey's lead is even larger, at 43.9 percent, followed by Mars at 29.8 percent.
In 2016, Oreo maker Mondelez International tried to broaden its own snack lineup with a $23 billion bid for Hershey, which was swiftly rejected. Meanwhile Nestlé, the world's biggest food maker and marketer, is poised to sell off its U.S. confectionery division, which markets bars such as Butterfinger and sugary treats such as SweeTarts.
Going for Gold
A bar of caramelized creme with bits of salty peanuts and pretzels, Hershey's Gold is indeed a departure for Hershey. The milk chocolate Hershey's bar has been around since 1900. Hershey's Special Dark followed in 1939. It wasn't until 1995 that the third Hershey-branded bar, Cookies 'n' Creme, came along.
Hershey's Gold was unveiled Nov. 1 in a teaser methodically planned because it was 100 days out from the start of the 2018 Winter Olympic Games, which begin Feb. 9. The big marketing begins this month for a product the company believes will particularly find fans in millennials and Hispanics, two consumer segments important for growth. The push includes giving out coupons for at least 10,000 Hershey's Gold bars through posts on Facebook and Twitter each time a U.S. athlete wins gold in Pyeongchang, South Korea.
Although Hershey reports annual sales exceeding $7.4 billion, its growth pace slowed in 2013 and 2014, followed by a 0.5 percent sales decline in 2015 and a rise of just 0.7 percent in 2016. Hershey recently forecast 2017 sales would rise about 1.25 percent, helped by some newer products including Hershey's Cookie Layer Crunch, another product that mixes Hershey's traditional ingredients with crunchy bits.
"We know that millennial consumers are looking for multitextural, more complex eats. They also have kind of the fear of missing out on something new," says Raup. And to appeal to Hispanics, he says, the caramelized creme in Hershey's Gold is similar to a dulce de leche.
As a partner of the U.S. Olympic Committee, Hershey is leaning heavily on the product's name and references to gold medals, which is why Ohno is on the set filming this TV spot. Hershey is also featuring other athletes online, including four-time gold-medal gymnast Simone Biles. But when it comes to the Winter Games, Ohno is the most-decorated U.S. athlete. And while he won his last three medals back in 2010—his last games—he's still connected to the Olympics as a commentator on NBC.
The TV spot will show Ohno in a meeting with his agent, expressing surprise as he tastes the bar. He thinks because he's repping Hershey's he'd be repping chocolate. The spot plays on the idea that while Ohno loves gold, Hershey's Gold is better.
On set, Ohno, a co-founder of dietary supplements marketer Allysian, doesn't shy away from the sweets. He nibbles dozens of Hershey's Gold bars throughout the daylong shoot in Topanga, California.
In some scenes, Hershey's Gold bars are taped to red, white and blue ribbons to look like medals hanging from his neck. In others, he wears his two gold medals, a gold bandanna and the gold tracksuit.
For some social media posts, Ohno takes more bites of Hershey's Gold, delivers quick lines and holds up an iPhone in a selfie-like moment. The Hershey's Gold work comes from MDC Partners' CP&B, which last year became one of Hershey's two main creative agencies. (The other is MDC's Anomaly.)
Amplifying its product line
The plan to buy better-for-you snacks maker Amplify Snack Brands and its 2015 acquisition of Krave aren't the only forays for Hershey into "healthier" snacks. Other deals include its 2012 acquisition of Brookside Foods, a Canadian maker of chocolate-covered fruit juice pieces. In 2016, Hershey bought Ripple Brand Collective, the maker of barkTHINS snacking chocolate, a brand that emphasizes attributes such as fair-trade cocoa and non-GMO ingredients to appeal to people looking for snacks they feel better about buying.
And it has Hershey's and Reese's mixes including popcorn, pretzels and nuts.
Hershey's soon-to-be newest brand, SkinnyPop popcorn, also has non-GMO credentials, and is Amplify's biggest seller. The deal came weeks after Conagra Brands bought another non-GMO bagged popcorn brand, Angie's Artisan Treats' Boomchickapop, and followed Mars taking a minority stake in better-for-you snack bar maker Kind. The flurry of deals for smaller food makers with more clean-label appeal shows bigger snack makers are ready to pay for innovative upstarts.
With "the sheer number and volume of new snack brands that have been launched in recent years, you've kind of got to be careful that you're picking winners," says Bernstein's Howard. "There is a danger here that the snack market ends up looking a little bit like craft beer, where it's [the] flavor of the month and then we'll move on to the next thing."
Hershey, like other snack makers, is working with online retailers including Amazon to keep its products on people's minds even as more people are skipping that once-standard weekly grocery shopping trip. And, like pretty much all food marketers, the company is tweaking its online strategies to cement its brands in people's minds as they surf online. At Hershey, that means posting recipes like double-chocolate pretzel brownie bites and a steady stream of snippy social media posts for younger-minded brands like Jolly Rancher.
Plus, there are plenty of places other than grocery stores where snacks make sense. Convenience stores and drugstores have sold candy for years. And specialty chains like Bass Pro Shops and Home Depot are becoming more important customers for snack marketers, where a Hershey brand like Payday might appeal to shoppers looking for a quick pickup.
"We're here to partner with retailers of all sorts," says Todd Tillemans, Hershey president, U.S., who joined Hershey in April from Unilever. As for the rise of e-commerce, he's optimistic. "We're really not intimidated by it at all," he says. At the October trade show for NACS, the association for Advancing Convenience and Fuel Retailing, Hershey showed plenty of ideas for traditional displays, such as putting larger king-size bars next to standard bars. Just putting them side by side leads to a single-digit lift in sales, says Global Chief Sales Officer Rob Gehring, who joined Hershey in early 2016 from Coca-Cola.
His team is also finding less standard ways to get its brands in other spots within those retailers, such as Reese's International Delight coffee creamers and Jolly Rancher-branded slushies.
It's tinkering, too, with how to display snacks when people pick up online orders at grocery and mass merchandise stores, taking cues from places like Britain where that click-and-collect model is more established. Britain's Tesco began letting shoppers order groceries online and pick them up at the store in 2011, while leading U.S. grocer Kroger didn't start a similar service until late 2014.
"If we play this right this unlocks opportunity," says Raup. "As people's shopping habits really change, and there's more click and collect … as they have more home delivery of packaged goods, and we are an impulse category, really, cracking the code on that is going to be a very big deal."