Hershey to increase ad budgets for key brands

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Hershey Foods Corp.'s new President-CEO Rick Lenny is taking a page from competitor M&M/Mars' playbook with his strategy to increase ad spending behind the company's top brands, improve creative and pare the product line.

Mr. Lenny will boost spending for key brands-among them Reese's, Hershey's bars and Hershey's Kisses-by reallocating money from lesser brands. Just as important, Hershey soon will have an additional source of ad money: It expects to save $65 million annually in corporate expenses when a current restructuring is completed. It plans to invest half that money in sales and marketing, putting half the savings into advertising.

Hershey has not been leveraging its "scale brands," spending only 3.8% of net sales on advertising in 2000 vs. a food company average of 6.4%, Mr. Lenny told analysts last week. More than half of Hershey's ad spending has gone in recent years to products that generate just 30% of revenue, he said.

Mr. Lenny intends to focus most of Hershey's ad budget on just a handful of top brands.

A veteran marketer who most recently was president of Nabisco's cookie and cracker division, Mr. Lenny joined Hershey earlier this year with a charge to re-energize the business. A new Hershey management team, including senior VP-Chief Marketing Officer Wynn Willard, is working closely with roster agencies WPP Group's Ogilvy & Mather Worldwide, New York and Omnicom Group's DDB Worldwide, New York to make sure creative is compelling, Mr. Lenny said.

"Superior advertising is clearly one of our top brand-building initiatives," he said. In addition to evaluating copy, the agencies are also conducting tests of heavier spending levels and plan to build efforts around "big events" such as a 2002 tie-in to the rerelease of "E.T." for its Reese's franchise. Mr. Lenny would not comment specifically on whether Hershey will conduct an agency review.

Mars, newly renamed Masterfoods USA to reflect recent consolidation of its U.S. business units M&M/Mars, Kal Kan and Uncle Ben's, has long held to a business model that heavily supports fewer larger brands. Masterfoods spent $195 million on U.S. chocolate and confection brands in 2000 (more than 7% of those brands' net sales), per Taylor Nelson Sofres' CMR. But Hershey spent only $175 million despite its far larger roster and greater revenue.

Mr. Lenny told analysts that while M&M/Mars gets 67% of its sales from its top three brands, Hershey gets only 35% of sales from its own top three.

"Rick Lenny is in line with how [Masterfoods] sees the world and is addressing that," said Credit Suisse First Boston analyst Dave Nelson. "By marketing big brands, you don't have to spend as much to connect with the consumer, so return on investment is naturally higher."


Hershey will gain efficiency by focusing on the top 200 varieties of its more than 1,800-item portfolio. Those top-sellers have in the past made up 59% of sales.

However, Mr. Nelson said, Hershey not only needs a more efficient brand strategy, it must "come up with good campaigns that are relevant and resonant. I think they could do better."

With the launch of Reese's FastBreak next month, Hershey will try to battle M&M/Mars' hold on what it says is a $416 million nougat-based candy bar segment, most directly taking aim at Snickers.

Snickers recently revamped its longtime, "Hungry, why wait?" campaign using humorous spots from Omnicom's BBDO Worldwide, New York, that show the bad choices hungry people make as "Another unfortunate side effect of hunger."

Snickers has built a powerful connection with consumers, while Hershey's "own strategy in the past has not been to connect with consumers emotionally as much as simply to keep its name in the forefront," one marketing executive said.

A campaign for the new Reese's entry starts in January with a heavy TV ad schedule. Mr. Lenny has his work cut out for him: Industry observers are skeptical that the new Reese's extension will be able to take on a brand as powerful as Snickers.

Contributing: Lisa Sanders

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