Confectionery Market Update – Product Innovation &
Consumer Trends – 7 July 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Ann-Marie Tan (AMT)
Former Lead, Global Permissible Snacks Innovation, Hershey’s & Reese’s at The Hershey Co
Agenda:
1. Ingredient trends towards health and wellness
2. Market activity – Hershey’s completed acquisition of better-for-you confectionery brand Lily's
3. Better-for-you product innovation
4. Category growth outlook
Contents
Q: Could you provide an overview of the confectionery industry and how it’s evolved over the last few years? 4
Q: Who are the top players in the confectionary market and how has the competitive landscape
transformed? Has it become more competitive or consolidated?
4
Q: How hard is it to maintain shelf space in supermarkets? Shelf space has become extremely competitive in
retail grocery and bigger chains are sometimes less likely to run with new players. Is it difficult or do
supermarkets want to get as many better-for-you products as possible?
5
Q: How do companies typically define better-for-you and the criteria a product has to meet to be categorised
5
as such?
Q: How would you define the maturity of the better-for-you market? You mentioned that there are now
complete aisles dedicated to these products. Which trends are gaining the most steam in better-for-you? Is it
5
sugar reduction or clean labelling?
Q: What are your thoughts on Hershey’s decision to purchase Lily’s confectionery brand
Q: Were you surprised Hershey perhaps didn’t have the technical know-how to address the better-for-you
environment or lacked a true presence in the market, given the company’s historic place in confections?
6
6
Q: Are companies able to price better-for-you products effectively, given the higher production cost? Are
these better-for-you products commanding a generous price premium, or is the category still adjusting to the
7
consumer and players are barely breaking even vs pure indulgence products?
Q: What are your thoughts on branding and the importance of building brand affinity for better-for-you or
permissible snacks? How does that impact market share positioning and pricing power?
7
Q: How do companies refresh brands and build trust with consumers? How common is brand switching in a
category such as better-for-you within confection? Are consumers likely to continue trying new products, or
do they typically stick to one brand?
7
Q: Have the barriers to entry in this category evolved given the shift to a digital marketing environment?
Have they been lowered for new entrants who could take advantage of channels that the big players are using
8
to market efficiently? How has that impacted confections and branding?
Q: How would you compare the marketing effort or spend for better-for-you products vs traditional
indulgence or pure indulgence confection? Would a better-for-you or an indulgence product be allocated
more marketing spend and how would that be used over a brand campaign?
Q: How might a company approach innovation when considering launching a new better-for-you product?
How does that compare vs traditional pure indulgence products? Would a company take a pure indulgence
product, consider popular revenue drivers and try to clean the ingredient list up and apply it to a better-for-
you category? Alternatively, is it a more unique and creative process?
Q: What is the biggest challenge around creating a new product or reproducing a brand? Is it about
ingredient sourcing? Are there many bottlenecks where procurement is unable to customise the product in
the right way? Is it about being able to market that product efficiently, whether it’s enhancing the clean
labelling or the product’s new ingredients?
Q: You mentioned how some retail grocers are creating entire aisles for better-for-you products and are
incentivising players to launch products in that segment. Could you outline the private label competition in
this segment from these retail grocers?
8
8
9
9
Q: Which snacking categories have been driving growth in the past two years?
Q: How would you describe consumers’ elasticity and their willingness to pay higher prices for more
premium confections or products?
10
10
Q: What are your thoughts on the sugar reduction and sugar-free confections trend? Are there any types of
ingredients playing a particular role in driving this shift? Is it stevia-based products or other alternatives?
How might companies think about picking ingredients that satisfy consumers’ desire for indulgence, but also
10
significantly reduce the health implications associated with a higher-sugar or higher-calorie product?
Q: To what extent can a company claim its product is healthier vs actually being a healthier product,
considering calorie counts, stevia and consumers thinking it’s better for you when it isn’t necessarily?
Q: How does Hershey or a confections brand such as Lily’s think about distribution at a time of large e-
commerce and digital sales? Is it about getting D2C or expanding footprints and on-the-go channels as
mobility returns post-pandemic? How has the distribution landscape changed in this environment around
better-for-you confections?
Q: Where do you think will be the biggest distribution opportunity in a post-coronavirus environment?
Retail grocers are adjusting accordingly by creating or building out the appropriate shelf space for a better-
for-you area. Could the next opportunity be within convenience stores?
11
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12
Q: What are your best- and worst-case growth scenarios over the next 6-12 months around confections,
chocolate or any particular products within Lily’s portfolio that you think are ripe for growth under new
management and new leadership within Hershey?
12
Confectionery Market Update – Product Innovation &
Consumer Trends
Transcription begins at 00:00:11 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Confectionery Market Update – Product Innovation
& Consumer Trends. I’m Nyree Hinton and I’ll be facilitating today’s Interview with Mrs Ann-Marie Tan,
former Lead, Global Permissible Snacks Innovation, Hershey’s and Reese’s at The Hershey Corp.
Ann-Marie, before we get started with today’s Interview, please state I agree or I disagree to the following
statement: You understand the definition of material non-public information and agree not to disclose any
such information, or any other information, which is confidential, during this Interview.
AMT: I agree.
NH: Could you introduce yourself and your background?
AMT: Hi, sure. I have been an Innovation Lead at The Hershey Company. I led the permissible snacking
category, really the better-for-you category at Hershey, and I took care of all of chocolate from Hershey’s,
Reese’s, KitKat, some of our organic chocolate brands, like Dagoba, and, yes, I’m excited to talk to you and
share with you guys today.
[00:01:33]
Q: Could you provide an overview of the confectionery industry and how it’s evolved over the last few years?
AMT: I joined Hershey at a very interesting time. I think it was a time where consumers, especially
millennials, were really looking for better-for-you foods or a way to eat healthier and more organic, and when I
joined Hershey, the portfolio was really not geared towards this trend and this group of consumers. It was
really more pure indulgence and we were looking to say, “How can we transform most of our pure indulgence
brands to better-for-you and what would be that transition?” As we were doing that, we were doing a lot of
market research and we also saw that almost every competitor out there was doing the same thing, and we
needed to find a way to break through and it was really between us and Mars, trying to come up and compete
with better-for-you snacks that can transform the portfolio, so it was a very exciting time, I would say, to have
joined The Hershey Company.
[00:03:05]
Q: Who are the top players in the confectionary market and how has the competitive landscape transformed?
Has it become more competitive or consolidated?
AMT: I think that previously, a lot of the confection brands was really us and Mars, and during that time we
started to see a real fragmentation in the industry, and also there were a lot of small new players, new niche
brands that started to come into the market. The supermarkets have opened up a new aisle which they call
better-for-you, organic, and they started to have new shelf space where previously confection was limited to
the candy aisle. That new shelf space was littered with a bunch of really small players, Lily’s being one of them
that we acquired, Scharffen Berger, and so there were so much new better-for-you chocolate that was trying to
Private and confidential 4
steal market share and really more small players than anything, so Mars and Hershey, and in some cases
Mondelez in the snacking category were really trying to keep up. They and Hershey were not as nimble
because of the infrastructure that was built around pure indulgence, and all those other small little brands
were able to cook up dark chocolate, like really great, better-for-you kind of stuff, faster than the big
companies could.
[00:05:08]
Q: How hard is it to maintain shelf space in supermarkets? Shelf space has become extremely competitive in
retail grocery and bigger chains are sometimes less likely to run with new players. Is it difficult or do
supermarkets want to get as many better-for-you products as possible?
AMT: In the candy aisle it’s extremely difficult to get shelf space. You almost have to discontinue a product in
order to put in another product, so it wasn’t like there’s an expansion of shelf space in the candy aisle. Here,
when we have grocers, grocery stores like Kroger and all, opening up a new aisle just for better-for-you and
organic, there was free shelf space, not free, but more shelf space for every confection brand to try to get hold
of, and it was a little frustrating, because when we wanted to launch new stuff we said, “Can we put it in this
organic aisle?” and a lot of the buyers have very stringent criteria on what they considered organic or better-
for-you. For some time, Hersey was not able to participate in that space, and that meant a lot of loss of dollars,
but the moment we could, we tried to grab as much shelf space as possible in this organic, better-for-you aisle.
This aisle was also much cheaper at the start, because the buyers wanted to incentivise more of such snacks,
and so it wasn’t as expensive as being in the candy aisle where we had to pay a bunch of fees to be there.
[00:07:34]
Q: How do companies typically define better-for-you and the criteria a product has to meet to be categorised
as such?
AMT: I think that every buyer or every different chain has their own criteria, and also the criteria evolves,
depending on how sophisticated the chocolate suppliers or the chocolate companies are. Initially, when they
first started this out, it was really, “Let’s do organic,” and if you are certified organic you’re kind of there. Then
you have, of course, Hershey, Mars starting to use their influence on the space and saying, “I have pretzel in
my chocolate,” or, “I was able to do a little less in terms of formatting or packaging,” and trying to use that
muscle. I think the buyers initially, when they first started were like, “Because we don’t want the aisle to be
empty,” they were willing to compromise and give way to chocolate that maybe had some snacks or had some
nuts, pretzels, and that was better for you, but as you start to have more and more players in the space, they
started to be really more stringent in saying that, “You have to be a certain calorie count, like 100 would be
better, or 150,” or a lower format, bite-sized pieces. They started to really, I would say, refine their guidelines
as the market got more and more mature.
[00:09:57]
Q: How would you define the maturity of the better-for-you market? You mentioned that there are now
complete aisles dedicated to these products. Which trends are gaining the most steam in better-for-you? Is it
sugar reduction or clean labelling?
AMT: I will say that the space is really, I would say, semi-mature, because there are a lot of players, but not a
lot of big players, and the space, particularly in the chocolate section of this aisle, is really defined by dark
chocolate and the percent of cacao that you have. We know as a fact that you need to have at least 70% cacao to
really have a health benefit, and there are not many dark chocolate brands that carry that level of cacao and
still taste good. In order to sweeten that bitterness you also have a lot of nuts, fruits, pretzels, sometimes even
Private and confidential 5
yoghurt. Also all the healthier alternatives that we normally would have outside of the chocolate aisle, we
would put in the chocolate to kind of position it as a better-for-you snack. That’s one. Another trend of course
is, as I mentioned, the packaging formats where it’s little bite-sized pieces or the chocolate appears thinner,
smaller, and so, therefore, that’s how you get the reduction in calories or a different claim on the product
package. It’s not really so much that it’s low-calorie chocolate. In fact, I tried to launch a low-calorie chocolate
and it tasted so awful. I think we launched it and it did so bad that we just took it off the shelf, so it was a mix
between whether the product tastes good and whether it appears or is positioned to be better-for-you and I
think that sweet spot is where the consumer really likes it.
[00:12:45]
Q: What are your thoughts on Hershey’s decision to purchase Lily’s confectionery brand?
AMT: Since I joined, the infrastructure was not built for better-for-you snacks, meaning that all the factories
and the manufacturing capabilities that we had would have to be completely redone, and we’re talking about
millions of dollars to change out lines in order to develop certain better-for-you chocolates. The easiest ways of
doing that was to start acquiring chocolate permissible brands, and it started with Scharffen Berger and
Dagoba, then we bought, in Austin, Skinny Pop and the whole snacking category under that company, and so
Lily’s is another better-for-you chocolate brand that is part of the acquisition intent that Hershey always had. I
think, as we see Hershey’s portfolio transforming, acquisition is going to be key to the game, because it’s going
to take many years in order to transform that supply chain capability. It’s faster to just go out and buy.
[00:14:16]
Q: Were you surprised Hershey perhaps didn’t have the technical know-how to address the better-for-you
environment or lacked a true presence in the market, given the company’s historic place in confections?
AMT: I don’t think it’s the lack of technical know-how. It’s just that the market was never trending that way
and by the time, I would say, the lux confection brands, and not just Hersey, were able to react, they had
already put in millions of dollars in machinery for pure indulgence, and it’s not as easy to just convert lines to
do better-for-you chocolate, because there’s a different cleaning process. In order to be organic certified there
needs to a certain manufacturing process and very stringent, so it’s not much the lack of technical know-how.
It’s more the amount of investment and resource it would take to make better-for-you chocolate. I referred to
the organic process, because even the whole room in which the machinery would have to be housed has to go
through certain criteria of cleaning that you would not normally need to do in a non-organic chocolate
development process.
NH: What are your thoughts on this trend vs indulgence and better-for-you and how this translates to market
share? Indulgence is still a very well-growing category and has resurged throughout this pandemic. How do
you prioritise which category or market to build a strong presence in and to remain competitive?
AMT: From the data we have seen for, I would say, the last five years, pure indulgence is always, and will be
so far, the revenue driver. Much as consumers want to eat better, there’s always a moment where they just
want that good old decadent chocolate, and I think our portfolio would always be catered to pure indulgence,
so a large percentage. That said, we know that there’s this new trend, and it’s a fast-growing trend, but super
small still, compared to indulgence, of permissible snacks. It’s almost that you have to balance the portfolio
out to ensure that you are capturing all kinds of consumers, and the better-for-you snacks, with the whole
organic and dark chocolate, we see that, in the next 10-15 years, especially as millennials grow up, and as more
and more then want to be health conscious, we see that this could potentially become a big market, but in the
next few years, it’s still really, really small. I think it’s more risk mitigation, it’s more, “Let’s make sure that we
are on top of the trend in case this really blows up and we are not left out cold.”
Private and confidential 6
[00:18:28]
Q: Are companies able to price better-for-you products effectively, given the higher production cost? Are these
better-for-you products commanding a generous price premium, or is the category still adjusting to the
consumer and players are barely breaking even vs pure indulgence products?
AMT: Unfortunately, because it’s so, I would say, expensive to make this better-for-you, just because the
ingredients are more expensive, the process is harder, and the market is just not there in terms of efficiency in
making this kind of chocolate, the cost of goods is much more than that of a indulgent chocolate brand.
Therefore, usually it’s passed on to the consumer and it becomes premium chocolate. If you look at a lot of the
really delicious, better-for-you chocolate brands, the ones who have found that sweet spot I was talking about
between high percentage cacao but still tasting really good, they are really expensive and they are positioned as
premium chocolate.
[00:20:01]
Q: What are your thoughts on branding and the importance of building brand affinity for better-for-you or
permissible snacks? How does that impact market share positioning and pricing power?
AMT: I think branding is very important, that brand loyalty. Hershey and Reese’s have great brand loyalty, so
whatever we come up with, we know that there would be a trial factor and that the consumers would just tend
towards it, so there is a certain, how do I say, base volume that we already buffer for. For new players, the new
chocolate brands, they have to find ways to really incentivise a lot of trial, and the promotions are much
deeper than what a brand-loyal Hersey would do. That said, packaging, the look and feel, how yummy and
how fun it looks, how premium it looks, all play a factor. Particularly in the permissible snacking space, there’s
a story a lot of the brands have this corporate social responsibility initiative or an origin story that they try to
market while selling the chocolate. I think it’s very interesting that consumers who are turning to this better-
for-you chocolate also are all about sustainability and also about, “Where did this cacao come from, and a
percentage of the proceeds, where does it go to?” It just seems to be that this brand, if they don’t do anything
in this area of CSR, they suffer a little bit, and the one brand I know that, actually I can’t really say what this
brand is. The one brand that was under The Hershey Company that didn’t do this did not see the kind of sales
lift that we expected, and so we had to refresh the brand and the brand is actually going through a real rehaul
right now to be repositioned.
[00:23:05]
Q: How do companies refresh brands and build trust with consumers? How common is brand switching in a
category such as better-for-you within confection? Are consumers likely to continue trying new products, or do
they typically stick to one brand?
AMT: For the better-for-you category, consumers are very curious, because it’s a new category and they
always want to try new flavours, new formats, and so they’re not as brand loyal as in the candy aisle. Sure,
there’s the go-to, like sea salt and dark chocolate is number one all the time across any brand, usually it’s their
best-selling SKU, but, in general, when some brands come up with like bacon and chocolate, but then they call
themselves organic, I’m like, “How did that happen? Really?” but that was the way they tried to introduce
sweet and salty in there. You can be a no-name brand and you come up with a flavour like that and you
suddenly would have a lot of consumers going, “This is interesting,” and they just go ahead and buy it. It’s not
as brand loyal, and therefore, you almost have an opportunity to refresh and refine the brand as needed,
especially if you’re not doing well and there’s very little eyeballs or attention on you. Also, because there are so
many new players that come in, the consumer can’t really keep up, and so for them, even if you take away this
brand and you just relaunch it with a different brand name, which is very extreme, they’re not going to know
any different, but usually with The Hershey Company we don’t do such extreme measures. It’s really more a
Private and confidential 7
repositioning brand campaign that will go out and target media, it will show up on packaging and then a lot of
it is just digital, building a brand education and brand awareness to target consumers.
[00:25:42]
Q: Have the barriers to entry in this category evolved given the shift to a digital marketing environment? Have
they been lowered for new entrants who could take advantage of channels that the big players are using to
market efficiently? How has that impacted confections and branding?
AMT: I would say almost seven or eight years ago, if I really want to pinpoint, because I’ve been in marketing
for over 20 years, the change to or the media shift from traditional advertising like TV to digital started to
happen, and today, for a brand to be very successful and to be very cost efficient, I would say that 60-70% of
their budget is actually digital, and so you almost build your brand campaign all around digital and very little
on traditional advertising. With that said, it’s also much easier. A lot of the digital channels are very
sophisticated, Facebook being number one, where they can customise and you can really hyper-select all the
different categories of consumers that you would like the ad to be served, and when we do a lot of media spend
research we find, for example, which are the media channels that give us the best ROI, and Facebook, for sure
you can get ROI of five times, six times serving an ad. The ad will be much cheaper than going through
traditional TV advertising. I guess my answer to your question is you build your brand awareness campaign on
digital channels and then everything else is ancillary to capture the rest of the consumers.
[00:28:10]
Q: How would you compare the marketing effort or spend for better-for-you products vs traditional
indulgence or pure indulgence confection? Would a better-for-you or an indulgence product be allocated more
marketing spend and how would that be used over a brand campaign?
AMT: You would spend more money on the pure indulgence one, because, again, that’s your base revenue
driver and continues to be the largest volume share, but you would apply the same digital strategy and the
same brand-building campaigns both for the indulgence and the permissible better-for-you category in
general. With that said, Hershey is a little bit different for Hershey the chocolate brand, because under
Hershey they have many brands and they have different marketing tactics. For Hershey, because it’s a
household brand and it really reaches out, a lot of the consumers that reach out are consumers that watch a lot
of TV, and even in rural areas, and so we find that the TV consumption is more than digital, because
sometimes cell phone coverage is not available, they are not on the phone as much or they are a bit of a net
lower-income consumers, and so Hershey continues to advertise heavily on TV as part of their marketing
strategy. That said, that strategy has evolved a lot to include digital.
[00:30:18]
Q: How might a company approach innovation when considering launching a new better-for-you product?
How does that compare vs traditional pure indulgence products? Would a company take a pure indulgence
product, consider popular revenue drivers and try to clean the ingredient list up and apply it to a better-for-
you category? Alternatively, is it a more unique and creative process?
AMT: It’s both. I think when you look at transforming your portfolio, so I was looking at 14 confection brands
under The Hershey Company, and, out of those, you have your traditional household names, your Hershey’s,
Reese’s, KitKat, and then you have all the other smaller brands and the approach is a bit different. When
you’re looking at a brand like Hershey, when you’re looking to transform that portfolio, you’re saying, “How do
I keep the pure indulgence piece and just make it a little better for you?” Hershey’s Gold, for example, was one
such innovation where we kept the indulgence factor in the base chocolate, but we threw in pretzels and nuts
Private and confidential 8
and peanuts to position it as better-for-you. Reese’s Thins, I developed Reese’s Thins and this was just a
thinner format of the Reese’s Peanut Butter Cup. Is it still indulgence? Definitely so, but now I can claim lower
calorie count, consumers feel better eating a smaller piece or thinner piece than that of the traditional, and all
of these ideas really came about through consumer research, through references. Like the Reese’s Thins idea
came out from Oreos, and I had to work really hard with the different R&D and manufacturing on how we
could transform the line, the manufacturing line, to come up with thinner Reese’s Cups. That’s a bit different
in the permissible snacks category.
We have a brand called Brookside, and Brookside was not doing so well, but when we repositioned it as dark
chocolate with almost exotic fruits in there, acai and blueberry, it really helped take the brand to the next level.
A lot of this stemmed from suppliers coming to us and saying, “Here are new upcoming trends. Here are new
different ingredients that we have that you could put in your chocolate.” It could also be big ideation sessions
that we have with different groups of consumers and we just ask consumers, “What are you looking for in a
better-for-you chocolate?” and sometimes they give us great ideas that we then take and we concept test it to
see if it really resonates, and if it does, we turn it into a project and we try to make that chocolate that the
consumers are asking for, so it really comes in many different directions.
[00:34:19]
Q: What is the biggest challenge around creating a new product or reproducing a brand? Is it about ingredient
sourcing? Are there many bottlenecks where procurement is unable to customise the product in the right way?
Is it about being able to market that product efficiently, whether it’s enhancing the clean labelling or the
product’s new ingredients?
AMT: It’s really financial and supply chain driven. My biggest challenge has been how do I make sure that this
product I develop is profitable? Because a lot of the ingredients and the processes are expensive, and then even
if I could make the financials work, can I actually have the supply chain operations to back me up? Most of the
time it’s no, because changing out a line is millions of dollars. Even if I would be willing to put in that
investment, it’s going to take several months. I remember when we were trying to develop an organic
chocolate, we had to literally rent or look into buying an entire new space and then putting the equipment we
have in that new space, and the new space was really because of that whole cleaning process I mentioned to
you, and also because we are maxed out in our capacity. Anything new that we want to do, we try to do it on
existing lines, and if not, then it’s not just new equipment, it’s a new line, new equipment, new everything,
trying to build a new factory.
[00:36:28]
Q: You mentioned how some retail grocers are creating entire aisles for better-for-you products and are
incentivising players to launch products in that segment. Could you outline the private label competition in
this segment from these retail grocers?
AMT: I think they have definitely tried to, but, first of all, I think we have very strict agreements with them,
because we share with them our innovation plans, and so because we are such revenue drivers for them, they
try not to shake that relationship. They have tried to in the past, but whatever they have launched, I think
consumers really go towards brand loyalty, The Hershey Company and Mars being most of it in the confection
space, and when you have private label coming in, they question the indulgence, they question the taste, and
they don’t really try it, so it becomes a really, really small enterprise that is not so much a threat. I think it’s
really because confection is not so much a staple and when consumers are looking for that sweet bite and they
really want something that’s rich, they want something that really helps satisfy their craving, and so, therefore,
they tend towards the things that they know are delicious.
Private and confidential 9
[00:38:40]
Q: Which snacking categories have been driving growth in the past two years?
AMT: I would say bars. I think the protein bars and any form of bars is really taking off, and I think it’s
interesting, because, a lot of times, we found in consumer research that it was positioned as a breakfast, and
we’re like, “How are you eating a bar for breakfast?” Usually it’s like a snack on-the-go, but I guess when you
wake up sometimes, we were surprised to find that people wake up and they want that sudden burst of flavour
in their mouth to kickstart their day. It was a very unique insight we found that they then turn towards eating
something sweet and salty, and a lot of these bars I see coming up with flavours like that. Then you also have
energy drinks or shots that give you that boost. That’s a space I think that’s really going to grow super fast and
people are considering it as a snack, like on-the-go, because you could have a really solid beverage that would
satisfy your craving and your hunger with just a shot.
[00:40:43]
Q: How would you describe consumers’ elasticity and their willingness to pay higher prices for more premium
confections or products?
AMT: I think that it runs the gamut. This group of consumers are willing to pay for the kind of flavours and
the causes, the brand story and stuff, compared to the ones from the candy aisle, who are more price sensitive.
I was looking at the pricing of Dagoba and Scharffen Berger that were in our portfolio, and you could price it
up to USD 8.99 and USD 10 a bar and people would buy it, whereas if you go the candy aisle and you increase
price by like a few cents or a dollar, boom, they go and they buy the next competitor, because the candy aisle
has so much yummy-tasting chocolate that it’s really hard for choice, because you’re at the candy aisle and
you’re like do you buy a Reese’s bar, a Reese’s Cup vs M&Ms? Do you buy dark chocolate or do you buy Twix?
It’s just so price sensitive there.
NH: How far do you think consumer willingness to pay higher prices for premium products will go, given high
unemployment and structural changes in the economy? Do consumers typically revert back to pure indulgence
where the price point is a lot lower in such instances, perhaps diverting dollars away from the confections
category in the form of better-for-you?
AMT: Yes, sure. Definitely we see that. For example, we struggled for a long time to sell the traditional
Hershey bar when Hershey was coming up with so many other interesting innovations, and people would
choose to buy all the new Hershey innovations instead of the traditional Hershey’s Milk Chocolate Bar, and we
have always tried to position it as a small chocolate. We saw, before the whole COVID and the whole
pandemic, that people were staying home, people were depressed and people wanted to find moments where
they could be together, and we saw a great rise in Hershey’s Milk Chocolate sales because of the whole, people
just doing fires around their gardens, bonfires, and wanting to eat s’mores. We also saw that nothing beats a
pure indulgent chocolate when you’re not feeling too great, and that’s a bigger price. That’s why I said that
good and bad, no matter the economy, indulgence will always be the revenue driver and that will continue to
sustain. I think Hershey posted like, what, a USD 17m increase in sales just from this whole COVID for the
Hershey’s Milk Chocolate Bar.
[00:44:42]
Q: What are your thoughts on the sugar reduction and sugar-free confections trend? Are there any types of
ingredients playing a particular role in driving this shift? Is it stevia-based products or other alternatives? How
might companies think about picking ingredients that satisfy consumers’ desire for indulgence, but also
significantly reduce the health implications associated with a higher-sugar or higher-calorie product?
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AMT: I think the industry has been finding it very hard to develop delicious low-calorie chocolate, because
there are a few things that need to give. One is you can have a low-calorie chocolate if you minimise the
chocolate, and therefore, it wouldn’t be as indulgent anymore. Kinder Bueno, for example, has tried to position
as a light and airy snack, because a lot of it’s made up of wafer and because of the way they do it with two
sticks in the packet, and so they’re able to then claim a bit of a lower calorie, because it’s all the labelling
regulations that goes into how a chocolate is formatted. The second way is you have a sugar alternative, like
stevia, and that’s not necessarily better for your health, but a lot of consumers don’t know that, and also it
doesn’t taste as good. Then the third is just smaller formats or packaging. You see a lot of packs with mini sizes
and a proliferation of that in the candy aisle. That’s one way, and therefore, you can then claim 100 calories or
less than 80 calories a pack. You are able to make all those claims, but actually, and maybe because I’m a
cynic, you don’t really actually have a low-calorie chocolate. There used to be 100-calorie bars and they tasted
so awful they just started to get discontinued over time and nobody was really buying it. I feel like, yes, there’s
a really small group of consumers that really need this low calorie, but it’s not a sustainable financial
proposition unless you are able to do something about the taste of it.
[00:48:11]
Q: To what extent can a company claim its product is healthier vs actually being a healthier product,
considering calorie counts, stevia and consumers thinking it’s better for you when it isn’t necessarily?
AMT: I think perception is everything, right. I think it’s just a lot of times consumers really don’t know what
they’re buying and what they’re eating, and they rely a lot on the claims on packaging, on advertising, and I
think marketeers have done a really great job in shaping perception and telling stories, so unless you are a real
nutritionist or a real food scientist, just looking at the ingredients on a pack, it’s extremely hard for you to
really know how much healthier one snack is from another. With the calorie count in particular, we can get
away with a lot of the way we claim it, depending on how the packaging comes together. If you come back,
usually at the back label is like different serving sizes and the grams and the calories for the different sizes.
There are just a lot of creative ways to design claims so that it just looks like a more attractive proposition
when it comes to better-for-you.
[00:50:18]
Q: How does Hershey or a confections brand such as Lily’s think about distribution at a time of large e-
commerce and digital sales? Is it about getting D2C or expanding footprints and on-the-go channels as
mobility returns post-pandemic? How has the distribution landscape changed in this environment around
better-for-you confections?
AMT: I think it has been interesting, because before this COVID, selling confection on digital space, that’s
been very challenging when it comes to making the financials work, because in order to be profitable you have
to sell the chocolate in bulk and not one bar by one bar, and so it has been a deterrent to consumers to buy
chocolate in bulk. Second of all, chocolate melts, and a lot of times when you get it in the box delivered to your
house, you do see, I would say, effects of this whole melting, especially when postal was delayed, on the
chocolate, so a lot of people still continue to go buy in traditional stores. That said, when the groceries or the
supermarkets started to do deliveries and they started to do one-day deliveries, that was when we really saw
upticks in chocolate, because now I can get my groceries delivered to my door in a few hours. That really took
away the equation of buying in bulk and things like that, so that has really helped, I would say, change the
distribution channel to some extent where we see a lot of people now buying online, but it remains to be seen if
this is going to continue, because a lot of the supermarkets have stopped this service. I live in Utah and the
Harmons supermarket was all about home delivery, and as fears of COVID started to subside, they also started
to pull back on that, because that’s really expensive for them. Now I cannot just order and have it delivered. I
have to literally order and drive through and pick it up, so it’s going to be very interesting to see how the digital
space will continue to sell chocolate post-COVID.
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NH: What about large e-commerce players such as Amazon, who can get product to consumers very quickly?
How does a confection company think about the market opportunity for such a big player?
AMT: We were actually on Amazon, we are actually on Amazon, and even before COVID we were not making
a lot of revenue from that. If you look at the chocolate then, we had to sell in bulk on Amazon for it to work,
but when Amazon came out with their Whole grocery, that helped a little, so it was maybe a few bars vs a
carton of bars that (audio distorts 54.30) and again, this depends. It’s such a new market and as the grocery
section on Amazon continues to grow, this could be a real viable, I would say, distribution channel for us, but
it’s still very small compared to the traditional channels.
[00:54:54]
Q: Where do you think will be the biggest distribution opportunity in a post-coronavirus environment? Retail
grocers are adjusting accordingly by creating or building out the appropriate shelf space for a better-for-you
area. Could the next opportunity be within convenience stores?
AMT: It’s very interesting. The (? 55.29) space, Costco, for example, is known for coming up with new and
exciting chocolate brands, and that’s an area now that people go and try, and if they really like it, it’s almost
like you make it in Costco and then you branch out to others, so that’s one interesting area. The second is we
see a lot of on-the-go snacks, so places that allow for this on-the-go, like gas stations and things like that, are
getting a resurgence, which is very interesting. I think, of course, as we mentioned, the digital space, which is
not fast growing, but you have to buy a pack of six or 12 or 24 on the digital channel, so unless you have a
brand that you love, like I love Reese’s Peanut Butter Cup, I wouldn’t mind buying a whole carton of it and
saving it, but that again is a question of consumer behaviour change after COVID and learning to stock up,
because previously we didn’t have to stock up. Then, when we were all quarantined, we learned that behaviour,
“We’ve got to go stock up on toilet paper, stock up on candy,” so it really is a question of, post-COVID, who
knows? Nobody really has the answer to that.
[00:57:11]
Q: What are your best- and worst-case growth scenarios over the next 6-12 months around confections,
chocolate or any particular products within Lily’s portfolio that you think are ripe for growth under new
management and new leadership within Hershey?
AMT: I think traditionally Hershey’s style is after we acquire brands, we try to then use the scale of the
Hershey’s sales force to expand it really big. I remember when we acquired BarkThins, it was a really small
brand. I would venture to say it was like maybe USD 60m when I was there, if I remember correctly, and it was
only in limited stores. BarkThins was a brand that was founded in Costco, and when we bought it we said,
“Hershey’s and all these other channels, we’re going to expand BarkThins into every single avenue we can get
out hands into to make it a USD 120m brand,” and of course with the power of Hershey’s sale force, we were
able to do that. Was that the right thing to do? Not so much, because there was a great growth, but then it was
not sustainable growth, because BarkThins had a different proposition that catered to a group of consumers
that was not as mainstream, and the reason I bring that up is because Lily’s will probably go through a similar
trajectory. Any brand that’s acquired by Hershey, usually we want to double the sales and we try to use our
sales force in all our distribution channels to do that. I would imagine a similar trajectory and I would say that
we will continue to acquire more and more brands in order to transform this portfolio. I think after COVID,
where people are out and about again and get back to normal lives, we will see better-for-you snacks will
continue to grow, and this category is not going to go away any time soon.
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[01:00:02]
NH: We’re just about out of time, but let me close by saying thank you, Ann-Marie, for your input. It was a
really good call, very insightful in this category and the opportunities available, and thank you, clients, for
joining Third Bridge Forum’s Interview today. If any clients would like to arrange a private meeting or
consultation, please contact your relationship managers. Have a good one.
AMT: Thank you, bye.
Transcription ends at 01:00:19 of the recorded material
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