“In the second quarter, we saw healthy one-year and two-year trends in our confection brands, driven primarily by increases in chocolate consumption. Whether it’s at-home or away-from-home, chocolate has provided consumers with comfort during stressful times and helped make time with family and friends even more special," said Hershey CEO Michele Buck on the company’s Q2 2021 earnings call last week.
"NPD [Group] estimates chocolate per capita consumption increased 9% during the first year of the pandemic, and retail sales have remained elevated since that time."
For the full year, Hershey anticipates this strong growth trend to continue with expected net sales growth in the range of 6-8%, an increase from the company’s previous forecast of 4-6%.
The increase to expected net sales growth is driven by stronger than anticipated recovery in the company's away-from-home business, international markets, and the acquisition of no-sugar-added chocolate brand Lily's, which has contributed a 0.7% benefit to the company’s bottom line so far this year, said Hershey.
“Our market share remains well above pre-COVID-19 levels, with our confectionery share 135 basis points higher, and our snacking share 200 basis points higher than the same period in 2019,” Buck commented.
Reese’s, a $2.5bn brand
One of Hershey's major confectionery brands, Reese’s, saw sales grow over 10% during the latest 12 weeks compared to the same period last year. The company has been rolling out a slew of new innovation – including its limited-edition Peanut Butter Lovers cups and Reese’s Big Cup with Pretzels – and increased advertising efforts to support recent new product launches has contributed to its continued sales success, noted Buck.
“Over the past three years our Reese’s brand solidified its leadership position in confection, becoming a $2.5bn brand, growing at a CAGR of over 8%, and gaining 150 basis points of marketplace share. We have added three new manufacturing lines over the past four years and are adding another next year to further expand capacity and better service this strong growth. We expect continued strength in this franchise in the second half and beyond,” said Buck.
Lily’s acquisition: ‘What we really like about Lily's is, it is a scale business’
Hershey has a mixed track record when it comes to acquiring and scaling brands. The company sold back Krave jerky to Sonoma brands earlier this year after an unsuccessful run at scaling the brand. And in the premium chocolate space, Hershey recently sold back bean-to-bar craft chocolate brand Scharffen Berger to private ownership and divested Dagoba organic chocolate as well.
Asked what why the company believes its acquisition of Lily’s will be different, Buck said, “What we really like about Lily's is, it is a scale business… it is close to that $100m in size (compared to Scharffen Berger and Dagoba, which combined made up around $30m),” commenting that reaching that $100m mark means the brand has built to a large enough degree and proved its product-market fit in order for Hershey to leverage its “capabilities around distribution, manufacturing, synergies, additional marketing… to really help to make the acquisition a success.
“The other thing I would say is Lily's is single-mindedly focused on better-for-you. So while it is premium, it has a very distinct understandable benefit that those consumers understand… that also gives us a lot of confidence,” noted Buck.
Snacks and bars deliver strong growth
In snacks, retail sales for SkinnyPop rose by 25% in Q2 2021 compared to Q2 2020.
Meanwhile, “Pirate’s Booty sales were impacted by the shift to remote schooling, and trends improved notably as we lapped last year’s closures, and more students returned to the classroom. Retail sales grew approximately 25% in the last 12 weeks, resulting in a two-year share gain of over 20%,” said Buck.
After a challenging year for the bars category, the company’s ONE Nutrition Bars rebounded with retail sales growth of 18% for the quarter, consistent with broader category trends, Buck noted.
“This more than offset last year’s declines, with sales approximately 3% higher than Q2 of 2019,” she said.
Baking products business
Not every part of the company's business continues to accelerate, noted Buck.
"Sales for our baking products were down 18% in the latest 12 weeks, lapping 30% growth in the year-ago period."
However, when looking at the segment's performance compared to two years prior, Buck said, "While we have seen some declines in at-home baking as consumer mobility has increased, sales for this part of our portfolio remain well-ahead of pre-COVID-19 levels. Sales for our cocoa, chip, and syrup products in the second quarter were approximately 10% higher than the same period in 2019."
Out of the woods?
While encouraged by its recent Q2 2021 performance, Buck remarked that the pandemic is continuing to put pressure on the business.
"While the US has made tremendous progress recovering from COVID-19, the recent rise in cases in the US and continued struggles in many international markets are a reminder that the world is not yet through the pandemic and business volatility and uncertainty is likely to persist.
"Change has become a constant, and our teams have shown tremendous adaptability at dealing with change and turning it into opportunity."