Q2 2017 results

Hershey hints at seasonal opportunity in e-commerce upon posting Q2 growth

By Douglas Yu contact

- Last updated on GMT

Hershey looking at subscription model for seasonal and occasion-based purchases.  Photo: ©iStock/memoriesarecaptured
Hershey looking at subscription model for seasonal and occasion-based purchases. Photo: ©iStock/memoriesarecaptured
Hershey’s Q2 2017 net sales reached $1.66bn, increasing 1.5% compared to the same period last year.

The company said the net sales growth was mainly driven by the North American segment and the barkTHINS brand acquisition​.

Additionally, earlier than anticipated shipments of new stand-up packaging​ and distributor changes by some customers resulted in greater levels of inventory in retail.

Hershey’s North America net sales were around $1.48bn in Q2, an increase of 2.2% versus the same period last year.

“Second-quarter results were solid and we’re making progress against our strategic initiatives in a rapidly changing marketplace,”​ Hershey’s CEO Michele Buck said.

2017-HSY 2Q_Earnings_Infographic_Final (1)
Photo: Hershey

Buck added Hershey’s core brands, including Reese’s, KitKat and Kisses, drove US retail takeaway of 4% during the period, and the company gained 1.6 market share points over Easter​ this year.

Seasonal in e-commerce

Candy, mint, and gum (CMG) and snacks have inherent advantages such as impulse purchasing, seasonality and multiple pack types for usage occasions, Buck said.

“This facilitates merchandising and display with different parts of the box where there is foot traffic, like the perimeter and check-out​,”​ she said.

But can confectionery still have those advantages in e-commerce? Buck said Hershey is using digital front-end design to drive category growth.

“Our absolute annual e-commerce net sales dollars are small, low single digits on a percentage basis, but it’s the fast-growing platform for our business,”​ she said. “As shopping and consumption patterns change, there’s been an acceleration of online snacks purchases in 2017.”

“The seasonal component of our core business gives us an opportunity to engage with consumers and potentially leverage this into a subscription or occasion-based purchases,” ​Buck pointed out.

Screen Shot 2017-07-27 at 11.13.22 PM
Source: Hershey

“While we have come a long way, we believe we’re still in the very early innings, with a long runway of opportunity ahead of us in the e-commerce space.”

International markets

Hershey’s Q2 net sales for its “international and other”​ segment declined 3.6% to $186m, primarily caused by China’s softening chocolate category sales.

However, Buck said Mexico and Brazil achieved combined constant currency net sales growth of 12% during the period.

“Excluding China, our international and other segment constant currency net sales are expected to increase mid-single digits this year,” ​she said.

Hershey started implementing the Margin for Growth Program in China in Q2, Buck added. The program has helped increase China chocolate category sales by 1.9% compared to Q1 2017.

“Our e-commerce​ team [in China] continues to make progress, and we estimate that our online market share increased 0.6 points in Q2 to 8.6%,”​ she said.

Diversifying into snacks

Commenting on Hershey’s efforts of diversifying into other snack categories, Buck said the company feels “particularly great” ​about chocolate.

“If you look at the chocolate takeaway numbers that we delivered this year, the category softness was primarily driven by gum and mint,”​ she said. “Chocolate is the biggest price of the category, and we need to win the growing consumers.”

Hershey is expected to explore snacking innovation and is considering potential mergers and acquisitions to leverage its snack business as well.

Hershey recently entered the popcorn category for the first time through the Popwell brand​ launch in the US, BakeryandSnacks previously reported.

By the end of 2017, Hershey’s full-year net sales are expected to increase around 1%.

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