CHICAGO -- Grocers are well aware they're losing candy sales to other classes of trade. But do they know how and why? More importantly, do they know how to stem the tide?
Brach & Brock Confections here, the country's fourth-largest candy manufacturer, has some answers to this retailing conundrum, starting with the mass merchandiser challenge.
"The mass merchandisers have realized the potential of the candy category by emphasizing larger sizes," said Brach & Brock's vice president of sales, Scott Frey, in an interview with SN. "They're doing that by trading the consumer up with lay-down and family bags that are anywhere from 13 ounces to 16 ounces."
Many chains are stocking more peg candy items to better compete with mass merchandisers. However, this trend has caused an erosion in penny profits due to the lower retail price point of hanging bags vs. family and lay-down bags, Frey said.
The mass merchandisers and a number of leading grocery retailers have realized that candy -- no matter what size the package -- is consumed quickly. "Consumers are right back the next week," said Frey. "We need to better educate all retailers on the impulse nature of the candy category and how well candy responds, vs. other categories, to off-shelf display activity.
"That certainly doesn't mean retailers shouldn't continue to take advantage of the hanging bag segmentation," said Frey. "What's important is that retailers provide a variety of sugar and chocolate items and sizes while taking advantage of the purchase dynamics of candy and encouraging consumers to 'trade up' to larger family-sized bags with off-shelf display activity."
"This way, it's a win-win situation," said Frey. "The retailer is making more profit per transaction and the industry is selling more candy."
For those retailers who say they can't compete with the retail prices of their formidable opponents, Frey asserted that Brach & Brock research shows price is not a major motivating factor when it comes to the impulse-driven candy category.
"It's the branding, the freshness of the product and the accessibility of the product to the consumer when they walk into the store," he said.
That raises the issue of off-shelf display activity -- an important factor to the success of mass merchandisers, who build massive displays of products to trigger the impulsive nature of consumers.
"Supermarkets have done an outstanding job displaying candy during the four key holiday seasons of the year," said Frey. "But there's still an untapped potential in the category that mass merchandisers have taken advantage of year-round.
"They have created 'seasons' by merchandising mass displays of large-size bags on an everyday basis. It's a great opportunity for grocery retailers to expand the size of the category by creating their 'seasonal' events."
While supermarket retailers have watched their gondola candy sales trickle out to drug and mass merchandisers, yet another form of competitor has begun to gobble up bulk business.
The interloper? Bulk candy specialty shops, many of which are found in the shopping malls across the country.
"The total bulk candy segment is a $1 billion category. And total bulk in grocery is $350 million. Sixty-five percent of every dollar is being spent [at] mall stores [and drug and mass merchandisers, among] other formats," said Frey.
As the category leader in the bulk segment with its Pick-A-Mix products, Frey added, "we need to do a better job of bringing the facts to the retailer so they can make a more-informed decision on building their loose candy business."
In fact, if retailers sharpen their loose candy programs, they not only can recapture the mall shop sales, but gain some ground on mass merchandisers as well.
"The drug and mass merchandisers have an additional hurdle to sell loose candy that doesn't exist with supermarkets," Frey noted. "Their stores do not always have scales to weigh the candy."
Frey suggested grocers play up the fact that their bulk candy is markedly cheaper than other formats -- compare the supermarket $1.99 to $2.39 a pound to the average price of $5.99 at specialty shops.
"It's a huge opportunity for the grocery trade class. If we could educate the consumer with new updated branding, clean racks with fresh product, and new varieties, we could pick up more of those sales."
Thus, according to Frey, Brach & Brock is taking steps to help to reach out to consumers to add more value. Most notable is its recent venture into product branding.
"Our focus in the past was really selling everything in a general-line mentality," he explained. "We had our pink bag and all we did was change the product descriptor on the bag. Now, we've created brand names with their own distinct package design and brand identity." For instance, their butter toffees are now known as Special Treasures. "By differentiating the product as opposed to under one pink and purple banner, we're able to highlight the key selling attributes of each product. "As a result of the branding, our sales have gone up," said Frey. "We have done nothing different with our approach to marketing other than these initiatives, and we have seen an increase in our sales in less than six months of being fully implemented. This will lead to leveraging the equity of our brands through line extensions."
All this, he pointed out, means an increase in turns per stockkeeping unit and more profitability for the retailer.
Brach & Brock also has carried the branding theme to its bulk Pick-A-Mix business with special labels for the display racks.
"We've printed brand labels that look just like the [bag] packaging and placed them on the bulk bins," Frey said of the labels that will appear on thousands of Pick-A-Mix display racks across the country.
Those displays, he said, show decidedly better sales if merchandised in the produce department, he added.
"We have done extensive research with Information Resources, and when Pick-A-Mix is merchandised in the produce department with a walk-around rack, sales will go up in grocery about 40%."
While its finger remains firmly planted on the pulse of the gondola and bulk business, Brach & Brock is stretching out to encompass new territory, namely, count goods.
"We're about to enter the $1.4 billion count-goods segment," Frey said of his Mighty Morphin Power Ranger fruit snacks and gummy products.
"This is one of the advantages between the merger of [E.J.] Brach and Brock [Candy Co.]. The Brock folks have lined up this licensing agreement and they're able to leverage the strength of our distribution and sales network."
Frey said count goods will allow Brach & Brock to compete more effectively in additional trade classes, such as convenience stores, as well as at the front end of grocery stores. He said the company has plans for more count-good introductions to follow the Power Ranger items.