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CSNews Exclusive: Retailers Find Sweet Sales in Pegged Candy

NEW YORK -- Although convenience store candy and gum unit category sales slipped last year, pegged candy has been a sweet spot for retailers.

C-store dollar sales of pegged/bagged candy were up more than 9 percent in 2009 compared to 2008, reaching $776 million, as volume rose 2 percent, according to Nielsen figures. Building on that, for the 52 weeks ending March 20, 2010, c-store sales were up 8.2 percent to $784.7 million as unit volume rose 2.3 percent.

"The increased sales in this economy aren't surprising, as they seem to be playing into consumers' desire for value," noted Scott Ramminger, president and CEO of American Wholesale Marketers Association (AWMA), based in Fairfax, Va.

While typically carrying a 40 percent margin, brand name pegged candy retails from $1.50 to $2.99 for 4- or 5-ounce bags. Similarly sized private label brands usually retail at between $1 and $1.50 -- $1.19 is a common price point -- while 2- or 3-ounce value brands are often marketed at two for $1 or two for $2.

At Express Mart stores in upstate New York, 40 SKUs of branded candy are merchandised near the checkout. At the chain's newest convenience store locations, pegged candy is displayed between two registers, the merchandise reaching from the floor to higher than the counter top. Another 20 SKUs of private label bags hang elsewhere in the store.

"The pegged section has always been a focus for us," Jerry Straub, marketing manager, Express Mart/Petr-all Corp., operator of 59 corporate stores and eight franchised locations based in DeWitt, N.Y. told CSNews Online. "We've seen increases year over year."

The segment represents more than 14 percent of the chain's candy sales and 17 percent of profit, he added.
Express Mart retails national-branded pegged items at $1.99-$2.99, and its private label pegged candy sells for $1.49. While the retailer makes less profit margin on pegged items than on singles, the chain makes more penny profit per transaction, as margin dollars are higher on the higher ring, Straub said, crediting consumers' perception of pegged candy as a value and the segment's variety as keys to sales success.

"Some of our best sellers, like gummies, aren't available in singles," he noted, explaining some shoppers may be using pegged bags as a way to control portions.
Farley's and Sathers Candy Co. Inc. experienced "significant growth -- both organic and through new distribution" -- of its non-chocolate pegged business, according to Mike Sprinkle, vice president, sales for the Round Lake, Minn.-based company, which sells national brands, such as Trolli, and the value-priced two-for-$1 Sather's line.

"Relative to everything else in the store and rest of the candy category, pegged candy is a great value with an attractive dollar point. Looking at pennies per ounce, pegged candy can meet consumer needs," he told CSNews Online.

According to SymphonyIRI Group figures provided by Sprinkle, for the 52 weeks ending March 21, 2010, the c-store pegged category excluding gum reached $500 million; $426 million of that was non-chocolate sales.
"I'd attribute that to the chocolate candy bar business being so well established that consumers are conditioned to go to that singles rack for chocolate," Sprinkle said.
Sugar candy has much more visibility in the pegged segment, thanks to large brands including Mike and Ike, and others with lower visibility in a singles candy set, noted John Scardina, vice president, merchandising, Eby-Brown Co., a wholesaler based in Naperville, Ill., who explained six manufacturers drive the bulk of the branded pegged segment, and there are definitely distribution gaps of chocolate on some candy sets.

"If you get a bag of chocolate, you run the risk of it melting in your car if you don't eat the whole bag," said Express Mart's Straub. "We do sell Reese's Pieces and M&Ms as pegged, and they sell pretty well, but I think it comes down to chocolate not being convenient as a pegged item."

While the segment is not known for extensive product innovation, Straub said he is seeing a number of new items in the pegged line recently, including Willy Wonka Candy Co.'s items. "I bring in line extensions occasionally," he said. "If a new pegged candy is available in a shipper, we get one and test it. If it works, it goes into our set."

Eby-Brown's Scardina said the segment's new products are most likely to come from existing line flavor extensions. "That keeps the segment energized, but keeping the core right is what drives volume," he said. "That is a challenge, because the pegged portfolio is much smaller -- usually 4 feet or 8 feet -- than the in-line set."

In E-Z Mart Inc.'s 300 stores, a 4-foot pegged section holding 32 SKUs of high-volume value and top-brand candy is in place at most stores, according to Danna Huskey, candy and snack category manager for the Texarkana, Texas-based chain.

"We've not seen as much innovation as in some of the other candy segments, such as gum with all of its flavors," she noted. "However, we're seeing a nice swing up in sales. For the first quarter 2010, we're showing an increase in units purchased of almost 8 percent over the same quarter last year."

Even better: The chain has been able to maintain the same profit margin on pegged candy as it has on its single bars.

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