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The Candy IndustryJenna Boyle, Kerry McDermott and Rob Whitehead

Name the Brand??Taste the rainbowMelts in your mouth, not in your handGimme a break, gimme a breakNobody better lay a finger on myTheres no wrong way to eat a

AgendaIndustry OverviewAdvertising AnalysisPivot Table AnalysisTarget MarketPerceptual MapAdvertising StrategiesMars Inc.The Hershey CompanyThe ElegantsWhere the Industry is GoingRecommendations

Why is it relevant to us?65% percent of all American branded candy bars have been on the market more than 60 years.

Americans eat approximately 25lbs of candy each a year (7.7 billion lbs total), about 60% of which is chocolate

Engrained in American culture.

Candy is EVERYWHERE!!!Industry DefinitionThe Candy Production industry acquires raw materials such as cocoa, sugar, cornstarch, fruit, preservatives and flavorings to process them into a range of sugar and non-sugar based confectionery products.

Major Products:Chocolate candiesSugar candiesSugarless candiesGum

5Product Segmentation

PRODUCTS AND SERVICES SEGMENTATIONProduct/ServicesShareCandy or chocolate bars32.70%Soft candy23.40%Block chocolates12.20%Industrial chocolate9.40%Hard candy8.90%Gum4.70%Chocolate spreads and drinking powders4.70%Box chocolates4.00%

6Market Segmentation

MAJOR MARKET SEGMENTSMarket SegmentShareConfectionery wholesalers61.30%Supermarkets and grocery stores16.70%Food manufacturers8.10%Hospitality trade5.70%Discount stores4.30%Direct to public3.90%

7Cost Structure

COST STRUCTUREItemCost %Purchases58.30%Wages10.10%SG&A6.80%Depreciation3.50%Rent1.20%Utilities1.10%Other6.70%Profit12.30%

Cost structures can vary widely among industry players, depending on their size and scale of production, ease of access to production inputs, level of8The Production of Confectionery

9Government RegulationThe level of regulation is heavy- All cocoa, chocolate and sugar manufacturers must meet the standards of the FDA. - Manufacturers also must comply with the hygienic regulation- Environmental regulation- Stricter labeling

10Industry StructureLife Cycle StageMatureRegulation LevelHeavyRevenue VolatilityLowTechnology ChangeHighCapital IntensityMediumBarriers to EntryLowConcentration LevelHighCompetition LevelHigh11CR and HHIThe HHI for just the top 4 companies in the industry is 2941.81.The CR for the industry is 78.1%.Therefore, the industry is highly concentrated with only a few major firms holding a majority of the market share.

HHI = 49.5+21.6+4+3=2941.81CR = 49.5 + 21.6 + 4 + 3= 78.1%

*Hershey and Mars Inc. alone hold 71.1% of the market share.-Many mergers occur.ConcentrationConcentration in this industry ishigh

This concentration of ownership is primarily a result of an increase in acquisitions, along with natural growth for a majority of major players encouraged by continued product innovation, strong brand loyalty and aggressive marketing.

Ways for companies to survive:- adaptability to new trends- economies of scale- product differentiation- successful supply chain management- powerful marketing strategies******CompetitionQualityPriceDistributionInnovation and differentiationSubstitute ProductsImports

14Candy v. ChocolateHHI (for top 4)= 2941.81Cr = 78.1%High level of concentrationHHI (for top 4) = 1141CR = 59%Medium level concentration->Concentration is increasing!

CANDYCHOCOLATE518 Businesses overall!!1,039 businesses overall!!15Revenue for candy v. revenue for chocolateCandy Production in USREVENUE GROWTHRevenue $ millionGrowth %20007,079.603.120017,201.601.720027,240.500.520036,504.50-10.220046,621.701.820057,610.9014.920066,763.10-11.120076,919.402.320087,082.602.420097,298.10320107,621.204.4REVENUE GROWTHRevenue $ millionGrowth %200016,613.30N/A200116,563.30-0.3200215,700.10-5.2200316,074.002.4200416,150.200.5200516,366.501.3200616,185.50-1.1200715,200.10-6.1200813,801.20-9.2200913,180.10-4.5201014,861.6012.8Chocolate Confectionary Production in USSubstitutes?16Total Sales for Confectionery Industry

17Confectionery Seasonal Sales(** in millions of dollars)2006200720082009 2010 projections *Valentines Day - $971$1,036$1,024$928$935*Easter - $1,884$1,987$1,846$1,990$1,970*Halloween - $2,146$2,202$2,209$2,207$2,225*Christmas - $1,389$1,420$1,376$1,401$1,420** projections for 20102010200920082007 2006 2005 VALENTINES +0.7%*-9.4%-0.2%+6.7% +0.1% -4.0% EASTER -1.0%*+7.9%-7.1%+5.4% +7.0% -7.6%HALLOWEEN +0.8%*Even+0.1%+2.6% +2.8% +2.3% CHRISTMAS+1.4%*+1.8%-3.1%+2.2% +1.0% +2.4%NCA projects a 0.4% increase in 2010 for total seasonal sales 182010 US Confectionery MarketRetail Sales $22.5B Imports $4.7B Exports $1.895BCategoryRetail Sales$ BillionsImports$ billionsExports$ billionsTotalConfections$22.5$4.7$1.895Chocolate$14.862$3.0$1.3Non-Chocolate$7.621$1.7$.595In the past five years, imports have increased. Confectionary and chocolate production has become increasingly globalized over the past decade, and the domestic industry is not immune to these structural changes. Until the recent downturn in the domestic economy, consumers of confectionary products made with purchased chocolate inputs were looking abroad for alternative options. The major sources of imports are from Canada and Mexico, due to favorable trading conditions under NAFTA.192008 Per Capita Retail Sales

According to the US Department of Commerce, the average US consumers spent $93 on confectionery in 2008. You can see that chocolate is a bigger sector of the company than non chocolate. But overall, $100 annually is pretty large average consumption. With 300 million Americans that is pretty close to 30B in sales for the industry as a hole. 20

Overview of IndustryThe recent desire for healthy alternatives has required companies become more innovative.Strong brands and customer loyalty.Economies of scale and value addition during production.Despite recession, consumers still continuously consume the same amount of candy because it is and inexpensive and feel good luxury. Growth segments such as sugar-free confectionery and organic and fair-trade chocolate have shown considerable promise and are expected to continue in the next five years.21Demand DeterminantsChanging Consumer LifestylesPricing and DistributionPresence of SubstitutesProduct InnovationCulture and Tradition

22How to Reach Consumers: AdvertisingSweepstakesPoint of Sale DisplaysOnlineRadioTelevisionMagazinesNewspapersTheme Parks232010 Total Advertising Expenditures for Top PlayersHershey$404,092,700Mars$422,510,500Lindt$51,094,100Nestle$743,163,800Tootsie Roll Tootsie Pop$784,500Jelly Belly$3,939,90024Advertising Analysis (2010)25Pivot Table DataAdverting Based on Location27Advertising Expenditures based on Population When we control for the population of the cities that were advertised in we see that the most money per capita is spent on Salt Lake City and Honolulu. The cost patterns for the other cities do go up and down but for the most part they are constant. Thus this suggests that the candy industry is further targeting these two cities above others and they are willing to pay much more to do it.

It could be possible that these cities just cost more to reach or that they do not watch as much television so in order to get the same level of exposure you may advertise more. However, the more likely option is that these two markets currently do not consume large amounts of candy. Thus the industry may be trying to use a persuasive advertising strategy to try to change consumer tastes and increase demand in the market for candy.

On the otherside of the coin, the largest city there which is Los Angeles has the cheapest cost per 1000 people living in the city. 28Advertising Based on Day of WeekWe can see from the following graph that the most money are spent on Tuesday ads and then Monday night ads. Ads are run with fairly consistent expenditure during Monday through Saturday except there is a large decrease in spending on Sunday. This is most likely due to the fact that the programming during the days of the week is better and therefore, they get more exposure by advertising on those days.29Total TV Advertising30

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Mars 32

33Target market (based on Pivot Table)Majority of the MarketChildren Age 5-24 is main targetHealth Conscious Parents- also a major targetIncreased advertising to parents about healthier candy choices, may be why parents are still so heavily targetedPremium Producers-Target educated consumersSell luxuryTarget all adults

34AnnualAdvertising35Advertising to Sales Ratio for 2010SalesAdvertising ExpenditureAdvertising to Sales RatioMars Inc.28,000,000,000422,510,5001.51%The Hershey Company5,670,000,000404,092,7007.13%Lindt2,740,000,00051,094,1001.86%36How were going to break it down:Adventurous Classy Family-Oriented Free Spirited Mars Inc.The Hershey CompanyLindt&Sprungli + Ghirardelli 37BrandsAdventurous Classy Family-Oriented Free Spirited Mars Inc.HersheyLindtGhirardelliSkittlesTwixM&MsSnickersDoveKit KatReesesHershey KissesHershey Bar38Experience AttributeDont use informative Dont advertise placeDont advertise price Dont use combative/comparativeDont do comparisons to others

MEMORY JAMMING HUGETypes of Advertising Used in IndustryHumor appealHolidaySweepstakesPoint of SalePricing StrategyNegative to PositiveHeritage AdvertisingProduct DifferentiationBrand Identity

Mars OverviewMars was founded in 1911 by the Frank C Mars, and the Mars Family remains privately owned to this day.Mars Inc. is one of the world's biggest private companies, with annual sales approaching $30bn.Candies included: Snickers, Twix, M&Ms, Skittles, Starburst, Milky Way, 3 Musketeers etcSeen as Adventurous and Free-Spirited #18 Advertiser according to Advertising AgeMemory JammingTarget Market:41

Mars Incorporated Advertising

Mars now owns Wrigleyas of April 200849.5%Similar strategies throughoutHeritage Advertising Product DifferentiationBrand identitySweepstakes AdvertisingPricing StrategyHoliday AdvertisingNegative to Positive AdvertisingHumor Appeal

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Brand IdentityStick to RootsSpokescandyHuge in DifferentitationMelts in your mouth not in your hand

http://www.youtube.com/watch?v=SMrLz9tUrewhttp://www.youtube.com/watch?v=4gtM_mmvDww43

What is real?Unreal situationsTaste the Rainbow

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Americas favorite candy bar!Satisfies hungerCelebrity

Youre not you when youre hungry

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Need a moment Chew it over with a Twix

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General Conclusions about Mars Inc.Stick to rootsDifferentiation is keyEven among own productsStarburst: Its a juicy contradiction3 Musketeers: A lighter way to enjoy chocolateMilky Way: Lifes better the milky way47

The Hershey Company Overview Founded in 1894 Hershey Manufactures chocolate and confectionery productsLargest chocolate manufacturerMajor brands include:

48Why Hershey has been so successful? Strong financial performance

Leader in confectionery products in the US due to its well-known brands

Brand Equity

Marketing Strategies (Obtaining Sales)

Ability to determine consumer trends49Financial Performance

2010 Sales$5.67B1-Year Sales Growth7.03%2010 Net Income$509.80M2010 Sales% of totalUS85Other countries15Total10050Hershey ProductsHersheysBlissCookies N CrmeHersheys Milk ChocolateHugsKissesNuggetsSticksReesesFast BreakNutrageousPeanut Butter CupsPiecesReesesticksWhippsOther5th AvenueAlmond JoyCacao ReserveCaramelloEat MoreGood &HeathJolly Rancher Kit Kat Milk Duds Mounds Mr. GoodbarPaydayPot Of GoldRoloSpecial DarkSymphonyTake5TwizzlersWhatchamacallitWhoppersYorkZagnutZero

Refreshment productsBreath SaversBubble YumIce BreakersYork51Hersheys Brand Equity

52Harris Interactive PollRANK25 Highest Ranked Brands1Hershey's Kisses Chocolate Candy2M&M Plain Chocolate Candy3Hershey's Milk Chocolate Candy Bars4Google.com5Duracell Batteries6Reese's Peanut Butter Cups Chocolate Candy7Heinz Ketchup8Kleenex Facial Tissues9Oreo Cookies10Neosporin Ointment11Cheerios Cereal12Ritz Crackers13Kraft Foods Inc.14Arm & Hammer Baking Soda

15Campbell's Soups16Snickers Chocolate Candy17Coca-Cola 18Sharpie19Dawn Dish Detergent20Johnson & Johnson21Energizer Batteries22UPS23Hershey's Chocolate Chips24M&M Peanut Chocolate Candy25Hallmark Greeting Cards53Advertising StrategiesBrand Image/Identity

Holidays

Community

Amusement Park54Brand IdentityOld-fashionedWarmFamily-OrientedHappyNostalgicLovehttp://www.youtube.com/watch?v=EV0u08SnL0g Rascal Flattshttp://www.youtube.com/watch?v=Plf9bzri6Rw&NR=1 Kisses55Sticking to Roots

1930spresent

56Hersheys SlogansTheres no wrong way to eat a Reeses "Sometimes you feel like a nut, sometimes you don't" (Almond Joy)"Makes mouths happy (Twizzlers)"It's more than a mouthful - it'sWhatchamacallitTheres a smile in every Hershey BarHave a break, have a Kit Kat.

57Hersheys JinglesHersheys is the GREAT AMERICAN, GREAT AMERICAN chocolate bar!!!http://www.youtube.com/watch?v=47-blY2vZMYGimme a break, Gimme a break, break me off a piece of that Kit Kat Bar. http://www.youtube.com/watch?v=DLJgyr-g3Ck&NR=158HolidaysEaster

Valentines Day

Halloween

Christmas

59CommunityMilton Hershey School

American Red Cross

Habitat for Humanity of Central Pennsylvania

Children's Literacy Initiative - Lancaster, PA

Hershey partners with Childrens Miracle Network60Amusement ParksWay for fans of Hershey to interact with the company.Increases revenue for the companyAnnual Sales: $270.96MAnnual Net Income: $6.94M

61Chocoladefabriken Lindt and SprungliFounded in 1845 in SwitzerlandLeading world producer of premium chocolateBrands carry the name Lindt, Ghirardelli, Caffarel etc.

62Strengths of the CompanyStrong brand name Easily able to penetrate new markets Strong Global Operation with diversified revenue base

Effective Use of Advertising

63Lindts Main Marketing Strategies Product DifferentiationPremiumLuxuryAffordable Public Relations

Point of Sale Advertisingand Free Samples

Bundling

64Product Differentiation Premium quality = Premium Ingredients

Affordability

Public Relations

65Upcoming Trends Showcasing your valueSugar-freeWho you can advertise tooObesityHealthy LifestyleEmployee MoraleDarker Chocolate (higher cocoa content)Exotic Flavorings (e.g. citrus, fruits, spices)More upscale private label chocolate

66Things Companies Need to Think About:Age GroupCost of AdvertisingHealth ConsciousnessPer Capita Disposable IncomePrice of Inputs67Keys to Success in Future:Economies of ScaleAbility to adapt to changeProduct DifferentiationBrand LoyaltyCustomer Retention

Our Recommendations68Questions?

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