Hershey Sets Sights on Becoming Snacking Powerhouse

NEW YORK — Michele Buck, president and CEO of The Hershey Co., may only be days into her new role, but she is already ushering the company into the next phase of innovation, sustainability and profitability.  

"Hershey has tremendous assets — its iconic brands, remarkable people, and a history of executional excellence — that position the company well to deliver top- and bottom-line growth," the chief executive stated during a company-sponsored investor conference held March 1 in New York.

With the confection and snacking arena now entering "a period of unprecedented change," where the once-traditional three-meals-a-day consumption has morphed into smaller meal consumption coupled with on-the-go snacking, and as technology alters the landscape ubiquitously, Hershey is looking at 2017 as a transformative year, Buck explained.  

To adapt to the evolving needs of consumers and stay ahead of trends, Hershey — which reached nearly $7.4 billion in net sales in 2016 — has one very specific vision for the future: become an innovative snacking powerhouse.   

In order to achieve this status, Hershey is embarking on the "Margin for Growth" program, a multiyear initiative designed to improve overall operating profit margin through supply chain optimization, streamlining the company’s operating model, and reducing administrative expenses.

Buck outlined the three tactical elements of "Margin for Growth:"

1. Grow — reignite core confection, and expand breadth in snacking.
2. Expand margins — reallocate resources to expand margins and fuel growth.
3. Invest — strengthen capabilities and leverage technology for commercial advantage. 

As confectionery remains at the core of Hershey's business model, it continues to be the company's top priority, Buck said. The $24-billion confectionery category — comprised of chocolate, non-chocolate candy, gum and mints — lends itself to: high household penetration/purchase frequency; expandable consumption; high impulsivity; responsiveness to investment support (e.g., media and merchandising); channel ubiquity; and seasonality.

In the overall U.S. snack market, Hershey is ranked No. 2 (with $103 billion in market share) behind PepsiCo Inc. and followed by Mars Chocolate North America, Mondelēz​ International Inc., and Kellogg Co. However, in the confectionery category, Hershey was the leader in 2016, reaching 31.2 percent in U.S. market share, according to the company.

Keys instrumental in reigniting Hershey's growth include:

• Deepening consumer connections through higher brand engagement and top-of-mind awareness (e.g., through social media).
• Innovation to invite new users and occasions, leading to incrementality. This no longer applies just to traditional celebrations like holidays, but everyday moments.
• Reinventing the shopping experience by making products easier to find and creating omnichannel availability.

Merger and acquisition (M&A) activity will also bolster Hershey's snacking presence as the company "pursues opportunities to diversify our portfolio," Buck explained. Hershey plans to focus on smaller, yet targeted M&A approaches, giving the company the ability to grow in scale and create synergies. The CEO declined to speculate on any future M&A activity for the company.

Among Hershey's most notable acquisitions as of late are Brookside and barkTHINS, which capture premium users and new occasions. The purchase of Krave also marked the company's first foray into the meat snacks category.

In 2017, the goal for Krave is to build brand awareness and provide culinary-inspired innovation to reach new consumer usage occasions.

In the long-term, Hershey expects a net sales growth of 2 percent to 4 percent for 2017, and has estimated its adjusted gross margin will reach 45.8 percent, a slight rise from 45.6 percent in 2016. Adjusted earnings per diluted share are expected to increase 7 percent to 9 percent this year.