Kisses attempts to smother M&M's

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Look out M&M's: Hershey Foods is plotting a direct attack on the nearly $1 billion franchise with candy-coated Kissables, the first move in a bold extension plan to topple the Masterfoods megabrand.

Shaped like Hershey's Kisses but bite-size and coated in familiar red, blue, yellow, green and orange hues with similarly colorful bags, Kissables is expected to be the base line for a variety of extensions a la M&M's, which has been skillfully extended over the years to include Minis, Megas and Peanut varieties among others. The strategy, according to executives close to Hershey, is to move Kisses beyond home candy dishes into take-along snacks with a variety of sizes and package types that cater to different occasions.

Under CEO Rick Lenny, Hershey has redoubled its efforts to build Kisses with limited edition flavors and varieties, but sales of the individually-wrapped treats are at $250 million in food drug and mass merchandisers, according to Information Resources Inc., compared to M&M's $450 million. But those figures don't include Wal-Mart, convenience stores and vending, which account for the majority of candy sales.

To keep the packaging from foiling its ascent, Hershey's Kissables will tout the candy's take-along convenience which won't require the work of peeling pesky silver.

Looking at the numbers, the Kissables launch may be a bit of hubris, some industry observers suggest. "I think they'll do OK, not great," said one Midwest retail executive, adding, "Is this M&M's? No."

Still, the great American chocolate purveyor is expected to give it its all-and will likely have to more than double its measured media spending of $22 million to at least rival what TNS Media Intelligence/CMR reports was a $52 million outlay for M&M's last year. TV and print ads, from WPP Group's Ogilvy & Mather, New York, will begin in January. The company will also launch a variety of consumer promotions including a tie-in to Nascar's Daytona 500.


Hershey confirmed the launch but declined to offer details. Masterfoods did not return calls for comment, but it's unlikely the M&M's characters are shaking in their shoes, given the huge sales disparity between the two brands at present. According to Convenience Store News' 2004 ranking of top candy and gum products, M&M's varieties hold the Nos. 5 and 7 slots, while Kisses did not make the top 10. (Masterfoods' standard-size Snickers ranks No. 1.)

Wall Street analysts receiving packages of Kissables immediately noted their similarities to M&M's (despite the company's denial of a comparison). Hershey also unveiled to analysts a slew of other products, among them caramel-filled Hershey's bars and Reese's cups, Kisses with peanut butter and a dark-chocolate Hershey's bar lineup.

Prudential Securities analyst John McMillin offered that some of Kissables' sales will likely come from M&M's, but he said, "the nicest thing about the confectionary category is it grows and not everything seems to come out of somebody else's hide." He noted that Hershey has "thrown a lot against the wall" in terms of product innovation in recent years, hoping something will stick, and has had some successes, among them its Take 5 bar, which it is just now extending into a snack size.

Credit Suisse First Boston analyst Dave Nelson was more bullish on the company's innovation track record offering that "Hershey is continuing to take share against everyone because they are innovating more and better than everyone."

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