North America’s profitable growth market
The company’s net sales grew between 2012 and 2014, with a CAGR (compound annual growth rate) of 4.5% during the period. In the same period, its operating margin grew by 170 basis points to 30.2%, and in 2014, Hershey reported a sales growth of 2.7% compared to industry average of 1.8%.
By comparison, Barry Callebaut reported a CAGR of 5% in its America region for the same period (2012–2014), and its operating income grew by 440 basis points.
In 2008, Hershey lost some market share in North America due to the merger between Mars and Wrigley. In 2009, there was a market share deficit of 4.6% between Hershey and Mars, but over the years Hershey has regained a larger market share to become the leader. Hershey attributed this success to its dedicated sales force.
Increased media investments
The confectionery category is more responsive to advertising. Confectionery purchases are more impulse, but it also enjoys planned purchases. With its “iconic brands,” Hershey believes that “advertising is one of our [Hershey’s] most powerful growth levers.” In 2015, the company has increased its GRP (gross rating point), a measure of the size of an advertising campaign, by 7%.
With three times more digital investment than it had previously, Hershey has allocated 40% of its advertising budget to mobile. By comparison, Mondelez International (MDLZ) and Nestle (NSRGY) are also planning to raise their advertising budgets from 8% of revenue to 10% of revenue by 2018.
Hershey’s initiatives in North America
Along with advertising, Hershey has begun to focus on cross-merchandising complimentary products like beverages and snacks in 2015. This focus should help to expand consumer consumption of the company’s products. In 2015, Hershey also began operating innovations like precision-targeted media. In this move, the company will launch a new product and an expanded permanent set within a retailer. In this way, the retailers’ customers should become perfect consumers for Hershey’s new products.
Continue to the next part of this series for a look at Hershey’s new focus on international growth opportunities in 2015 and beyond.