With U.S. candy category dollar sales increasing by 2.5 percent, totaling $33.6 billion, and volume sales beginning to rebound, 2013 was a comeback year for the confectionery industry, according to Larry Wilson, NCA vice-president of trade relations.
“This is a category that got more attention this year, and consistently we are seeing dollar sales go up, demonstrating consumers’ willingness to pay for products they want. We’re now starting to see units track with dollars, and that’s very encouraging,” Wilson says. “If we can continue to convert those shoppers and make them loyal to your stores, there is a significant opportunity.”
He adds the industry is estimated to grow by nearly $6 billion during the next five years. In order to rein in a portion of those gains, retailers and manufacturers need a firm understanding of the diversity of consumer demographics, balancing the needs of ethnic and millennial shoppers as well as varying income-based consumer groups.
To illustrate the diversity of consumers, Wilson gives for example the preference of milk chocolate among younger consumers versus dark chocolate’s popularity with older shoppers, and Hispanics’ preference for non-chocolate items and chocolate products with hazelnuts.
To appeal to all consumers, Wilson says the industry should focus on three things: brands, moods and total pack prices, or value.
“Brand is really about variety,” he says, explaining that in addition to a strong mix, regionality is important, as it takes 1,700 items to reach 80 percent of total category sales on a national basis.
Further, the same research in two major U.S. markets, Chicago and Dallas, found it also takes more than 1,100 items to reach that 80 percent threshold, he explains, adding: “That shows the importance of regionality. Those emotional connections to brands run deep, and retailers and manufacturers really leveraged that this year.”
Wilson adds that leveraging emotion is a key to driving shopper loyalty, as this can lead to consumers who are three times more likely to recommend a product and repurchase. In addition, they are more likely to spend more in the category.
“How do you jump on that?” Wilson asks, continuing: “Think like a shopper, consider usage occasions and celebrations — think about what goes with those. Think as if you are pushing a cart instead of selling products, and these things will become intuitive.”
Further, building that in-store experience and bringing fun back to the aisle are paramount for success, as 42 percent of shoppers find browsing the candy aisle no different from shopping the bread aisle.
Chocolate Subsegments Grow
While demographic diversity leads to a need for an eclectic product mix, chocolate still reigns in sales. During the past year, the segment increased 2.5 percent. This total is anticipated to grow by some $4 billion dollars during the next five years, according to Sweet Insights.
Milk and dark chocolate continue to dominate the segment, with sales gains of six and nine percent, respectively. However, chocolate items with hazelnut inclusions shone this past year, as sales grew 16 percent. The industry also saw chocolate with other types of nut inclusions, such as almonds, showing solid growth. Further, white chocolate took up the comeback theme, as the subsegment increased sales 14 percent.
On the back of strong merchandising support and efficiency, seasonal chocolate also performed well in 2013 as it contributed $25 million to category sales.
“Seasonal chocolate is all about what you get over and above everyday sales,” Wilson says. “While there was a slight dip in incrementality, seasons dialed it up this past year.”
This was a result of higher-quality merchandising and promotional vehicles, which “translated into being more efficient,” he explains.
Further, chocolate grew base and incremental dollars 4.4 and four percent, respectively. Wilson notes that retailers carrying 6.5 more chocolate items per store, on average, coupled with a three percent gain in price helped lift base sales. Incremental dollars were raised by better execution at retail, as promotional lifts, merchandising, features and displays, and promotional pricing all became more prominent.
Chewy Candy Leads Charge
Non-chocolate also had strong 2013 results, with chewy candies leading the charge, outpacing the overall segment with gains of 5.6 percent. The subsegment contributed $150 million to the category, one third of which came from seasonal sales, according to Sweet Insights.
Wilson explains this growth was driven by retailers promoting chewy candy with features and displays.
“We’re seeing more in terms of participation — it’s about availability on the floor. When you feature products and complement with displays you can see lifts despite price gains from inflation,” he adds.
Looking at the overall non-chocolate market, Wilson says there are three themes running throughout: value, fun and fruit flavors, and traditional favorites.
Concerning value, he notes assorted items in a single pack, which allow consumers to stretch their dollar, contributed some $30 million to the category. Nostalgic favorites such as caramel, wafers and circus peanuts also performed strongly in 2013, as each had sales in excess of $1 million. Finally, fruit-flavored items made up the bulk of segment sales, with more than $83 million during 2013.
Chewy candy might be the segment’s largest portion, but breath fresheners took the spotlight in 2013 as dollar sales grew 8.5 percent.
“It’s interesting: We started to see breath fresheners get hot again and it might have something to do with the aging population and the tendency to shift from gum to mints as consumers get older,” Wilson says. To continue to re-capture younger consumers for gum, manufacturers are driving innovations that appeal to millennials.
While non-chocolate base dollar sales were strong, gaining 4.3 percent on the back of more items being carried by retailers and a nearly three percent price increase, incremental sales were challenged, as they fell off 1.4 percent. This softness can be attributed to declines in trade efficiency and merchandising, Sweet Insights finds.
Gum Shows Signs Of Revival
While the gum segment remained soft in 2013, offsetting gains from chocolate and non-chocolate, the market is beginning to show bright spots, according to Wilson.
He explains 83 of the top 200 items in the segment grew, representing $252 million in sales gains. In addition, 57 of those top 200 products had double-digit increases this past year.
Further, promotional sales contributed $10 million and were driven by higher-quality merchandising.
“The opportunity is in assortment mix and promotions,” Wilson says. “This is the time for collaboration for this segment. You’ll see a variety of innovations and new occasions with matching merchandising. Retailers should always remember this is a profitable segment that matters, especially in front ends, that is truly incremental.”
Also boosting the category were functional product innovations and new merchandising solutions that help drive off-list purchases, Sweet Insights reports.
Carrying Success Into 2014
The performance of 2013 can be carried into this year with continued early collaborative planning between vendors, retailers and brokers; maximizing promotional lifts during holidays; and leveraging the 2014 seasonal calendar, which has longer selling periods for Halloween, Easter and the winter holidays.
In addition, Wilson notes future success can come from embracing and educating consumers on health and wellness, including candy’s role in the diet and the importance of moderate consumption.
Placing additional importance on consumer health education is the fact that 92 percent of shoppers say they are personally responsible for maintaining a balanced diet. Further, three-quarters report viewing candy as a little indulgence, treat or reward and another 74 percent see moderate chocolate consumption as part of a healthy diet.
“Only five percent of consumers say they would eliminate chocolate from their diets,” Wilson says. “Moderation is key, and consumers get it. The message is very important and one we should continue to share. Our industry is committed to responsibly offering consumers the enjoyment they seek in treating for key occasions and for rewarding themselves and their families.”
Concerning this last point, Wilson says manufacturers are already taking action, as portion-controlled item releases accelerated during 2013 compared with the year prior.
Further, the industry supports a voluntary front-of-pack labeling initiative that has already begun rolling out and features easy-to-read labels highlighting nutrition information to help consumers make informed choices, he adds.
Understanding the impact of changing promotions on volume and executing higher-quality support across retail will also improve overall performance and increase the effectiveness and efficiency of promotions.
Regarding execution, Wilson notes it is important to track emerging ad vehicles, such as digital, social media and e-commerce; increase the number of points of interruption across the store; make the category easier to shop; and “wow”consumers with in-store theater.
“Make candy front and center for key seasons,” he says, as this improves the shopping experience and drives retailer and category loyalty, in turn improving return on investment.
Finally, focusing on out-of-season promotional events and product innovations and variety will help stimulate deeper engagement from category loyalists and attract new shoppers.
“Building that experience increases dwell time by 30 percent, which leads to improving
in-store sensory experience even further,” he adds. CST