Hershey ‘very excited’ about mystery new product, reckons Brookside could be $500m brand

Hershey CEO: "I see this is a brand that has global relevance."

Hershey’s chief executive John Bilbrey says he is “very excited” about a mystery new product that will unveiled later this year, and believes fruit and choc snack brand Brookside could become a $500m global brand.

Speaking on the firm’s Q4 earnings call Thursday, Bilbrey made reference to“a yet to be announced new product that we're very excited about” aside from previously announced new products such as Hershey's chocolate spreads, on-the-go packs of graham crackers sticks and Lancaster Soft Crèmes Caramels.

Asked whether the mystery new product was “in the core confectionery sort of wheelhouse or something more on the fence like a spreads-type thing”, he said: “We're probably not going to talk about that quite yet because we want do a really good job with the release and announcement of that, so you’ll get a chance to see… later in the year.”

Elsewhere in the call, he said that while 2013 had been the year of chocolate innovation, Hershey would be “making solid investments in 2014 with some innovative new products that we believe will result in non-chocolate candy gains”.

Brookside: ‘I don't have any problem in thinking about it as a $500 million brand’

He is also convinced that Brookside Foods, a British Columbia-based company specializing in chocolate-covered fruit juice pieces which Hershey acquired in December 2011, has huge potential.

Asked by Citigroup analyst David Driscoll if the brand is now worth around $200m at retail, he said: “Your estimate around where Brookside is currently at is certainly a good one.”

And it could get a lot bigger, he predicted: “I don't have any problem in thinking about it as a $500 million brand [although] I don't have a date on that.

“I see this is a brand that has global relevance and we have to do a good job and make the most of it, but I think, this is the terrific brand that will establish itself truly as a big brand.”

Hershey’s new chocolate spreads: ‘What's great for us is, this is really incremental’

Asked about Hershey’s new spreads, which come in chocolate, chocolate with almond, and chocolate with hazelnut flavors, he said: “What's great for us is, this is really incremental. It's not cannibalistic to what we do already.”

He added: “This a $3.4bn category [that] includes peanut butter, marmalades and other kinds of things and the fastest-growing sub-segment is chocolate spreads.

“One of the unmet needs … was a breakfast occasion, and we believe we can bring great chocolate credentials to that space, we're also looking at variety and day parts that are different than what was happening… It can be on traditional bread at breakfast occasions, but it makes for a great tasting and a way to get also healthy snacking throughout the day.”

‘Gum continues to be a drag’

While much of the earnings call was devoted to fast-growing markets in China, Brazil and Mexico (where combined net sales rose 25% in 2013), there is still significant potential to grow at home, although “gum continues to be a drag”, he said.

“For the full year in the xAOC+C channel  [all outlets including c-stores, Walmart, partial dollar, club and military], the increase in candy and mint outpaced other snack alternatives such as salty snacks, snack nuts, cookies and crackers.

“As has been the case for the last few years, the gum category has been challenged. Including the full year decline of 5.6% for gum; candy, mint and gum (CMG) growth was 2.5%.

“Specifically, Hershey CMG retail takeaway for the 12 weeks ending December 28, 2013, in the xAOC+C channels that account for about 90% of our U.S. retail business, was up 5.2%. For the full year, Hershey U.S. retail takeaway and was up 6.3%.”

He added: “Consumer needs and behavior continuously evolve. We've been building on our proprietary IDP [Insights Driven Performance] platform and look to leverage the vast amounts of available data related to consumer patterns around everyday events and how they tie into shopping, purchasing decisions and consumption.

“This initial work has resulted in accelerated profitable organic sales growth and enabled Hershey to reclaim its CMG category leadership position in the US, with a 31.1% share of the market.”

The Q4 figures: Profits up 24% to $186m, revenues up 11.7% to $1.96bn

Group net sales rose 11.7% to $1.96bn in the fourth quarter of 2013, while net income rose 24% to $186m. Full-year 2013 sales rose 8% to $7.15bn.

Hershey expects 2014 net sales growth of 5-7%, including the impact of foreign currency exchange rates.

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