While chocolate may be the gift of choice on Valentine’s Day, the sweet treat remains a year-round staple for convenience stores.
By Anne Baye Ericksen, Contributing Editor
Sales of chocolate bars, chocolate-coated candy or fruit and chocolate bites continue to grow as convenience store customers indulge in their favorite confectionery.
In fact, demand for the occasional sweet appears immune to economic swings. According to the market research firm Information Resources Inc., total U.S. sales of chocolate candy grew 3.5% in 2014.
That’s good news for many c-stores that depend on their own chunk of $18 billion in annual chocolate sales.
“Chocolate sales have been strong the last 2-3 years, driven by the king-size and the new hand-to-mouth segment with Hershey Minis and Mars Bites,” said Stephanie Poitry, category manager for West Des Moines, Iowa-based Kum & Go, which operates more than 430 stores in 11 states.
For the most part, large-scale chocolate manufacturers haven’t introduced brand-new products in recent years, but variations on favorites are what are new for 2015. A continuing trend has been to release new flavors, such as 3 Musketeers Mint Bites, which came out in December. Mars also re-issued some past fan-favorites, including M&M’s Crispy Chocolate Candies and the Snickers Xtreme Bar, which advertises 50% more caramel and 14% more peanuts.
There are also holiday-themed versions, like Hershey’s Hugs or Kisses wrapped in pink foil and packaging decorated with hearts. Carrying various sizes seems to appeal to customers, too.
“We are considering reallocating space to add more multi-serve sizes, such as peg and stand-up pouches,” said Poitry.
According to the National Confectioners Association (NCA), sales of chocolate candy in the 12-month period ending April 2014 grew by more than 4% over the previous year.
For convenience chain CST Brands, chocolate sales have remained reliable.
“Chocolate has been relatively flat in the last year. In previous years, the growth has been much stronger,” said Judy Gleason, category manager for the San Antonio-based corporation, which under the Corner Store and Nice N Easy banners, operates approximately 1,900 locations throughout the Southwest and Northeast.
MARKETING VALUE
Outside of holidays, such as Valentine’s Day and Halloween, when people buy large quantities of candy, a substantial portion of chocolate sales are single servings bought without much forethought or planning.
That impulse-purchase characteristic makes chocolate bars and chocolate-coated candy, nuts or fruit ideal product categories for convenience stores.
According to research firm Euromonitor, more than one-fourth of annual chocolate candy sales come from forecourt retailers, including c-stores and gas stations.
Indeed, last spring John Bilbrey, Hershey’s president and CEO, named the c-store segment as a company point of emphasis and announced a marketing campaign to entice this customer base by promoting king-size bars as well as limited-edition items. Both Gleason and Poitry agree that larger servings have earned top-selling honors.
“We carry standard, king and bite-sized, [but] king is the bestselling,” said Gleason. “I believe it has to do with our everyday low price and multiple pricing strategies.”
“With the current pricing, I believe king-size has the best perceived customer value,” added Poitry. “We also tried some hot price points on king-size products that we advertised at our fuel pumps.”
Within stores, Poitry positions chocolate products in multiple locations.
“We have a core offering of top sellers that remains consistent, and we rotate other items monthly based on current promotions,” Poitry said.
STICKING WITH WHAT WORKS
In terms of product variety, the mainstays continue to be the most popular; however, many stores mix up inventory with seasonal and high-end options.
“We do bring in Lindt for the holidays as an in/out [product] that performs very well,” said Poitry.
In 2014, Lindt released four new items within its traditional segments, including the Lindor Coconut Truffle and Lindt Chocolate Bark, part of its Chocolate Specialties line. Such specialty offerings are proving to win at the register for CST.
“We continue to look at gourmet items, and when something that seems interesting and correct for our channel comes out, we will try it,” added Gleason.
HEALTHY FACTORS
Perhaps the most influential factor that will affect chocolate’s performance in 2015 is a growing commitment to healthier lifestyle choices and people’s willingness to pay for these choices. According to Nielsen’s Global Health & Wellness Survey, released in January, approximately one-fourth of respondents would pay a premium price for items they believed to be better for them.
And contrary to some stereotypes, younger customers are more willing to pay the higher price tags—41% of Generation Z consumers and 32% of Millennials, according to Nielsen.
“As Millennials’ purchasing power increases, manufacturers and retailers that make the effort to understand and connect with this generation’s needs increase their odds of success,” said Susan Dunn, Nielsen’s executive vice president of global professional services.
Despite the positive health properties associated with chocolate—particularly dark chocolate—many people still view the confectionery as a guilty pleasure and may opt for a more nutritious snack.
“I believe chocolate may have increased competition for share of stomach with items perceived to be ‘healthier,’ such as nuts and nutrition bars,” Poitry said.
Additionally, if retail prices continue to inflate, customers may rethink chocolate as an impulse purchase. “Consumers are looking for value, and I believe increases in candy retails and increasing health conversations have impacted and will continue to impact chocolate,” Gleason said. “There is a higher price value perception in other categories, and I believe consumers are comparing and moving to other options.”
GROWING COSTS
Over the past 10 years, chocolate bars and candies have incurred several retail price bumps, but usually in small increments. Then last summer, manufacturers announced one of the biggest price increases in decades—the Hershey Co. issued an 8% hike and Mars nearly matched it with 7%. In a conference call with investors in October, Hershey’s Bilbrey cautioned that prices could continue to climb in 2015.
Part of the greater cost is tied to rising commodity prices for several of the ingredients necessary to chocolate production. The International Cocoa Organization reported cocoa prices in 2014 rose 13.6% more per metric ton than the previous year.
Other reports issued alerts regarding widening supply deficits as global demand for chocolate continues to grow, especially in China and India. Contributing to the situation is the fact that a large percentage of cocoa farms are located in developing nations where political instability affects markets.
Also, the plants are highly susceptible to pests and land can be over-farmed, both of which can limit annual production. All these factors have led analysts to express concern about meeting future demand. In fact, media reports have asserted that existing cocoa surpluses are shrinking, which could lead to additional price spikes. “Stakeholders are focusing on becoming more transparent and sustainable to stabilize the supply chain of cocoa,” said Syed Rizvi, a professor of food process engineering at Cornell University’s College of Agriculture and Life Sciences..
Cocoa isn’t the only raw material experiencing market fluctuations. In fact, prices for bulk sugar jumped 50% between March and September 2014. On a more encouraging note, the price of cocoa butter, which had been consistently going up over the past year, began dropping in November.
“I believe units will be consistent with inflationary sales growth driven by pricing and promotional changes,” Poitry said.