When the convenience store industry tries to breathe new life into a sluggish category, one of the first suggestions often made is to reduce price. But when it came to the chocolate candy category in 2004, retailers and suppliers did the opposite of what their natural instincts told them to do. Instead of lowering prices on old standbys, the industry benefited from a veritable invasion of new, high-margin products.

"Candy bars made a huge comeback [in 2004]," says Grady Cleckler, vice president of retail sales and marketing at Farm Crest Milk Stores (Denver, CO). "In fact, 2004 was the first year in three years that we saw a decline in non-chocolate. With Halloween and Christmas in the final quarter, our gross sales in the chocolate category were up 14.6%."

In the Low-Carb Age, it might seem odd to some that a convicted diet killer like chocolate rallied to the extent to which it did in 2004.

"I think it was because of the innovative products we saw last year," Cleckler says. "In particular, Hershey’s led the charge in new chocolate introductions. It’s going great here."

It’s going just as well on the other side of the country, too. In Maryland, Dash In Food Stores (La Plata, MD) also saw a spike in chocolate sales last year. "It was an outstanding year," admits Don Hamberger, candy category manager for Dash In. "We were up in units and in retail dollars. We were up about 8% in the entire candy category, and chocolate candy represented about 75% of that growth."

Like Cleckler, Hamberger credits new product lines from several manufacturers with producing much of the growth, singling out Hershey’s.

"We got very aggressive with Hershey’s Limited Editions line," Hamberger says. "In addition to nice counter units and floor units, they had a tremendous amount of new item introductions that are in and out very quickly. And we worked through McLane so, logistically, we didn’t miss a beat on those products. The great thing is that the margin can be pushed up into the 50% range. Folks aren’t looking for discounts on new items, so I can go with full-margin retail and still get a great sell-through. Our counter shippers were 144 units and floor displays were 288 units, which is very manageable for us."

Hershey’s didn’t reinvent the wheel with its Limited Editions line. Instead, it tweaked the wheel slightly.

"They had almost 20 new chocolate offerings this year," Cleckler says. "It gives consumers new tastes and new looks on candy bar brands that they’ve always loved, like Kit Kat and Reese’s Peanut Butter Cups."

A short lifespan
Both Cleckler and Hamberger give new products only a few weeks to prove themselves.

"If we blow through a shipper in a week, that’s excellent," Cleckler says. "Two weeks is the average. And if it takes longer than two weeks, we’re disappointed in that candy."

Hamberger gives new products just a little more leniency.

"On a counter unit, I’m looking for a three-week turn and no more than four weeks on a floor display," he says. "We try 95% of what’s offered in the marketplace, and we have a long memory if we bomb on something. We had a problem with the display and the sell-through on the old Dr. Seuss’s ‘Cat in the Hat’ stuff. In cases like that, we try to learn our lessons and move on."

But the candy bar wasn’t the only member of the Chocolate Family to put up big numbers in 2004.

"If Limited Editions were a ‘home run,’ then bag candies were a ‘triple’," Hamberger says. "Consumers really seem to want the [chocolate items in to-go bags] products."

Cleckler says that both the M&M/Mars line of POP’ables and Hershey’s To Go packs performed well in his stores.

"It’s probably the most convenient way to eat chocolate because of the portability and because they’re smaller pieces of chocolate, so they’re ready to share and pass around," Cleckler says. "They were designed for convenience. Plus, it makes the ring higher because they range in price point from $1.59 to $1.99."

Since new product lines pop up consistently, both Cleckler and Hamberger agree that it’s important to monitor planograms closely and utilize impulse areas to grow chocolate candy sales.

"We just did an entire planogram revision," Hamberger says. "I’m dedicating six shelves to chocolate and four to non-chocolate, so I have 36 feet of chocolate and 24 feet of nonchocolate."

Size-wise, Dash In’s new layout is about the same as before, but the product mix has changed. "I moved from two shelves to three shelves for king-size bars because out of our top 10 sellers, seven are king-sizes," Hamberger says. "I didn’t increase overall chocolate space, but I did change the mix."

Hamberger also credits the decision to put a candy rack at the checkout counter with helping to grow the category. "It’s custom-designed—two feet wide and three shelves," he says.

"Gum and mints are on the top shelf. Limited Edition chocolate bars have their own shelf. And day-in-day-out winners like the Snickers standard-size have a shelf."

Hamberger feels it’s best for Dash In to stay away from price-driven selling. He says it’s not about price; rather, it’s about "hitting home runs" by getting good turns on key items at full margin.

Repeat performance?
While chocolate candy margins were great for Farm Crest Dairy Stores and Dash In Food Stores last year, Cleckler has a feeling that things might get tighter in 2005.

"Now, all of the major manufacturersare taking a price increase because the price of chocolate in the world market has continued to rise in the last 14 months," he says. "Vanilla’s pricing has gone up in the past year as well. I think there was a storm in Madagascar that wiped out a huge vanilla crop."

He’s right. Last March, Cyclone Gafilo obliterated Madagascar’s vanilla crop. The tragedy dramatically affected the price of vanilla because Madagascar exports nearly 4 million lbs. of vanilla each year—about 75% of the world’s supply. Still, Cleckler has confidence in the category.

"America’s love affair with chocolate isn’t going to end as long as we have Santa, the Easter Bunny, and ghosts and goblins at Halloween," he says. "Retailers have to look at seasonal opportunities. We’re supposed to have new items first so that our customer does the sampling at our stores. So whether or not the item has legs, you still increase sales initially."

Based on early performance, 2005 is shaping up to be another good year for chocolate on the East Coast, as well. Like Cleckler, Hamberger remains bullish on sales prospects for the candy category’s Dark Mistress.

"Hershey’s has come right back this year with six or seven Limited Edition items," he says. "And I have booked them in our stores throughout the entire year."