Hershey's Ad-Budget Rethink Pays Off With Sweet Rewards
For much of its history, Hershey Co. downplayed advertising. Milton Hershey, who founded the company in 1894, was more interested in product development and quality. And his philosophy endured for decades: Hershey did not launch its first national media ad campaign until 1970, according to company archives and the Ad Age Encyclopedia of Advertising.
How times have changed. Since 2006, the marketer's ad spending has grown from $108 million (2% of sales) to a projected $580 million this year (8% of sales), according to a recent report by Citi. And the results have been sweet, to say the least. The company reported net sales of $3.34 billion for the first six months of the year, up about 6% from the same period a year earlier, while forecasting full-year sales growth of 7%. Euromonitor International projects Hershey will finish 2013 with 34.4% share of the competitive chocolate-confectionery market in the U.S. That's up from 34.2% last year, with Hershey widening its lead over No. 2 Mars, whose share is expected to decline to 29.1% from 29.2%.
"Everything is going right for Hershey," stated the report by Citi, which in July made the company its top stock pick among large packaged-food companies.
What's working for Hershey? The marketer is pouring money behind its flagship Hershey and Reese's brands, while also methodically investing in smaller brands. For instance, the Rolo brand returned to TV advertising last year after a 25-year absence. And Hershey spent more than $21 million in measured media on PayDay in both 2011 and 2012, compared with less than $10 million in 2010, according to Kantar Media. One recent TV ad touted the "sweet energy" produced by PayDay, whose sales increased by 4% in the year ending July 14, according to IRI. Rolo sales, meanwhile, jumped 48% in that time.
Hershey's lead agency is Arnold Worldwide.
In recent years "it became increasingly clear to us that great advertising well executed can have a greater growth impact in the category than perhaps the company has historically understood," said Chief Growth and Marketing Officer Mike Wege.
But as it embraces advertising, the company has not strayed from the product development strategy originally pushed by its founder. Hershey is just taking that philosophy to new places, like China. That's where the company earlier this year launched a candy brand called Lancaster. The milk-based candies, which were inspired by similar candies Milton Hershey once made in Lancaster, Pa., represent the first time the company has launched a brand outside the U.S. The company also opened an innovation center in Shanghai, where it plans to develop other products customized to the tastes of Asian consumers.
Back in the states, Hershey is moving aggressively into the premium-candy market with its Brookside brand of dark-chocolate-covered fruit-juice pieces in exotic flavors such as acai with blueberry. And the company continues to make big gains by putting its brands in miniature form for on-the-go eating. For example, Reese's Minis were rolled out in 2011 at the Consumer Electronics Show as the brand sought to mimic a Silicon Valley-type launch. The dime-size candies this year made Nielsen's list of "breakthrough innovations," which recognizes products that have sustained popularity after the initial launch.
And that's something even Milton would be proud of.