Hershey Pledges to Up Ad Spending

20% Planned Increase Aims to Turn Around Business

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CHICAGO (AdAge.com) -- Hershey Co., beset with rising commodity costs and a tumbling share price, has vowed to increase ad spending 20% over each of the next two years in an attempt to turn the business around.
Hershey will focus its increased dollars on brands including Reese's, Hershey's Kisses, Kit-Kat, Twizzlers and York.
Hershey will focus its increased dollars on brands including Reese's, Hershey's Kisses, Kit-Kat, Twizzlers and York.

The company has long been criticized for under-spending on advertising, particularly compared with rival Mars. Hershey will focus its increased dollars on brands including Reese's, Hershey's Kisses, Kit-Kat, Twizzlers and York.

"To reignite our core, we dramatically increased levels of consumer support behind much-sharper portfolio roles and better brand-positioning," Hershey CEO David West said in a meeting with investors this morning. "Our spending is now clearly on the core. Results already show the impact of our spending increase."

Wrong focus in past
Mr. West said spending will increase 20% to $155 million to $160 million in 2008, and vowed a "20% plus" increase in 2009. He noted this level will represent a 55% compound growth rate over the company's 2006 spending, when he said the company wrongly focused on cookies and new brands such as Take 5.

According to TNS Media Intelligence, Hershey spent $103 million in measured media during 2007. Mr. West promised increased advertising in January, but did not give specific details. At the time, analysts were skeptical that the company's messaging and creative were really ready for primetime, but Hershey boosted the budget notwithstanding.

Hershey's agencies are Arnold; North Castle Partners and TracyLocke. The company spent roughly half its 2007 budget, or $52 million, on its Hershey's chocolate brand, according to TNS.

What they found
Mr. West said the company has been through months of research, during which time it interviewed "tens of thousands of consumers," and identified six distinct buying groups, such as "loyal indulgers" and "engaged, exploring munchers."

Hershey's first priority has been getting behind its biggest brand, Reese's, with the "Perfect" campaign from Arnold, New York. Mr. West said the campaign has resulted in a 4% sales increase in food and convenience stores. The company is also launching Reese's Whips for health-conscious consumers and Reese's Clusters for the indulgers.

The company will next turn its attention to the Hershey's chocolate brand, and target "younger women who look to chocolate as a source of simple happiness and comfort," Mr. West said. Hershey has also been targeting women looking for an indulgence, and an upgrade, with its newly-launched Bliss brand.

Hershey has seen numerous executive departures in the past year, including a massive board walkout in November, and the retirement of the Hershey Trust CEO, announced in April.

Merger rumors
Merger talk involving Hershey and other food companies has been commonplace for over a year, but it reached a fever pitch in May when the combination of Mars and Wrigley was announced. Recent speculation has pegged Nestle, Cadbury and Kraft as potential suitors for Hershey.

Current Hershey Trust Chairman LeRoy Zimmerman sought to quash rumors in a recent "Patriot-News" op-ed saying, "Simply put: We will not sell the Hershey Co." During today's meeting, however, Mr. West underscored Hershey's need to do a larger portion of its sales in international markets. Those sales now comprise just 14% of the company's total.

In addition to the inner turmoil, the company's market-leading position with its namesake chocolate bar was lost in 2007 to Mars' M&Ms. According to Information Resources Inc., in food, drug and mass merchandisers, sales of Mars' M&M's notched $155 million vs. the Hershey bar's $152 million. In larger-sized snacks, Hershey's bar dropped to third place, behind M&Ms and its own Reese's. Mr. West says these numbers are turning around, thanks to increased spending. He maintains that Hershey is the leader in chocolate, with an estimated 43% of the market.
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