Extending the Opportunity
Line extensions in snacks, candy offer incremental gains if handled right.
“Innovation”: a dirty word at times when it comes to the center-store categories, as any retailer who battled the flood of limited editions in the candy category a few years back can attest.
“True innovation and incrementality are really important,” says Jim Hachtel. “But a line extension for the sake of having a 14th flavor of strawberry gum just doesn’t do anything for the category.”
Hachtel is senior category manager of BP’s ampm franchise of 1,200 sites, based in La Palma, Calif. He has personally experienced the double-edged sword of product extensions. “Innovation is always important to our categories; it helps us grow the snacking category every single year,” he says. “But it has to be differential. It has to add to the category, not just be something that further lengthens the tail or further waters the category down.”
From his perspective, there has been true innovation in candy and snacks, rooted solidly in consumer research. “If you take a look at the innovation over the past couple of years, there have been really solid performers,” he says. “The chocolate and sugar manufacturers have really gotten down to quality vs. a lot of quantity in line extensions.”
He cites Hershey’s Rolo Minis and Reese’s Minis, and Mars’ Snickers PB Squared as examples of line extensions that have had an immediate effect on the category: “They’ve gone from being new to core items immediately.”
Manufacturers are being more strategic with line extensions and new products, agrees Kit Dietz of Dietz Consulting LLC, Huron, Ohio. “Over the past four to five years, we have gained more insights about the convenience consumer and how they shop the store,” says Dietz, who spearheaded research on the importance of the top-selling SKUs—or core—in snacks and candy.
“We have better data from multiple sources,” he continues. “Converging those things to better optimize assortment and capitalize on what the consumer wants— we’re in a much better position today than we’ve ever been.
“It’s a matter of stepping back and being willing to trust the analysis and test it in some stores. You have to be willing to do some things differently to move the meter the way it could be moved in this channel.”
New Customers, More Sales
Terry Holshouser, director of category strategy and insights for The Hershey Co., Hershey, Pa., says the candy manufacturer has learned a great deal about the art of creating a viable line extension since the heyday of limited-edition items.
“We’re a lot more cautious and surgical when it comes to line extensions, or anything that would be considered a limited edition,” he says.
Limited editions and line extensions have been a bigger issue within the gum segment, where proliferation of new items has not sufficiently grown sales and profits, he says: “If a line extension is not adding value for shoppers and retailers, we’re not advocating placement of that item, especially on the refreshment side.”
While acknowledging gum’s recent challenges, Hachtel of ampm has seen manufacturers shift away from multiple line extensions with shallow roots toward a more strategic, consumer-centric approach—for example, 59-cent packs of gum tailored to customers’ value focus [CSP—Oct. ’12, p. 139].
“We know people are chewing less gum than in years past, and part of Wrigley’s strategy for reigniting the gum category is giving retailers the right pack types and price points to meet consumers’ needs,” says Jennifer Jackson-Luth, senior manager of corporate affairs for Chicago-based The Wm. Wrigley Jr. Co., via e-mail. In addition to focusing on a vertical expansion with various usage packs for different chewing occasions, Wrigley still believes in the power of a solid line extension to help maintain excitement for a base product and maintain brand loyalty. For example, Jackson- Luth cites Extra’s Dessert Delights line, which launched in 2010.
“That’s the right approach,” Hachtel says. “At least we’re trying to go after a new customer in a more savvy way that speaks to them more directly than putting a product out and saying take us or leave us.”
Kelly Fulford, senior category development manager for General Mills, Minneapolis, describes how its new product unit works closely with its consumer insights team to determine whether to add a line extension to its biggest c-store brands: Chex Mix, Bugles and Gardettos.
“We work closely with the consumer insights team to really understand what’s important to the consumer and how they shop this particular category,” she says. “From a flavor standpoint, is there an opportunity to create a different flavor profile that is going to be incremental to our category? That would be key in the success to any line extension: Are you offering some point of differentiation to the other items in that category?”
She cites the Muddy Buddies Chex Mix line, which began with a chocolate and peanut butter flavor. Next came a cookies-and-cream variety for consumers who did not like the combination of chocolate and peanut butter. Just recently, General Mills introduced a cinnamon and sugar Snickerdoodle variety.
“Again, that has a different flavor profile: the consumer who wants something sweet but not chocolate,” says Fulford. “That has been our philosophy: targeting strong brands that have performed well over time that we feel we can differentiate by the flavor profile.”
Lisa Costigan, business unit manager of convenience for Kellogg Co.’s Food Away From Home division, Battle Creek, Mich., says via e-mail that the company’s line extensions are designed to provide consumers with additional options of their favorite brands and products, “overcoming potential flavor fatigue while offering new textures and food forms to keep snacking exciting.” She cites the fact that 60% of Pop-Tart volume (in all outlets) comes from consumers who buy four or more flavors.
“We typically do market research on new product launches to investigate the level of cannibalization within the category, as well as acceptance by non-purchasers of the category,” she says. “Line extensions build sales when you bring new consumers to the category and/or persuade current consumers to purchase more often.”
“We talk to consumers, identify trends in the market and gather feedback on existing products to determine what consumers want,” says Greg Lanides, brand manager for Planters at Kraft Foods, Northfield, Ill., via e-mail. “This could be a new flavor, product form or package.”
Kraft strives to ensure that new items meet needs the category is not delivering, he says, or offer a new flavor or package type absent from the category. He points to the company’s Planters NUT*rition line, which includes heart-healthy nuts, snack mixes and peanut butter.
“We also test new products with consumers and ask them about when and how they would purchase it, and if it would replace something they are currently buying,” he says.
Costigan says Kellogg has been successful with brand extensions as well, which serve the same purpose. For example, the Special K brand has been extended to breakfast and protein bars, as well as snacks. Kellogg recently announced two new flavors for Special K Cracker Chips (Southwest Ranch and Sour Cream & Onion) and introduced the new Special K Popcorn Chips line, which offers another chip alternative with a different texture and flavors.
At General Mills, the Gardetto’s brand, originally a snack mix, has expanded to filled sandwich crackers, with cheddar bacon and garlic cream cheese flavors. “This type of new item launch focuses on bringing something new and exciting to the consumer from a brand that they know and trust,” says Fulford.
Larry Lupo, vice president of sales for the convenience and drug channels for Mars Chocolate North America, Parsippany, N.J., says via e-mail that Mars does not offer as many “limited edition” flavors as in the past, but believes they can serve as a strong indicator of success and as a way to keep on trend. He cites Mars’ limited edition Milky Way French Vanilla and Caramel Bar, which will launch early next year. “The vanilla flavor segment is outpacing growth in all major categories, and this new item will fulfill that trend,” he says.
“A limited-edition flavor must capture the attention of consumers and our retail customers,” Lupo continues. “If sales are brisk and we receive positive feedback from our retailers, there’s a chance the flavor could be developed into a line extension.” For example, both M&M’S Coconut and M&M’S Mint Chocolate candies moved from limited-edition seasonal items into permanent line extensions based on sustained strong c-store sales.
Retailers must avoid replacing a core item in the main set with a limited edition, says Lupo. Otherwise, “this will take away sales from a strong core contributor. Limited editions should always be displayed off-shelf in a high-traffic area.”
Making Room for Innovation
In between resets, which typically take place only once a year, Dietz suggests retailers incorporate flex space into their snack and candy sets.
“We can work new items in, help them perform well, make sure consumers see them, give them a chance to succeed, and work them into the set on the next plan-o-gram change if they are successful, but also be willing to eliminate new items if they are not performing, and look at the next item,” he says.
Because ampm is 100% franchised, it directs franchisees to dedicate 80% of center-store sets to core SKUs and 20% flex. Category managers make recommendations for the flex SKUs, but they also give franchisees leeway to add local or regional favorites, better tailoring the store to its customer base. The chain performs resets once a year; for categories with a lot of innovation, such as candy, the company reviews the sets much more often.
A wave of innovation in warehouse-delivered snacks has kept ampm busy in exercising its approach to new items. Hachtel cites the new Cracker Jack line from Frito Warehouse, which features nine new SKUs, as an opportunity ampm considering. The company currently has no space among its warehouse snack brands carved out for Cracker Jack.
“It’s going to present pretty big challenges: How do we get it in the store, where do we put it, what will be cut to make room for it?” he says.
“Retailers should gather information through quantitative and qualitative testing about their customers’ purchase habits and needs to ensure they are meeting them,” says Lanides of Kraft. In addition, the manufacturer advises analyzing sales data to see what sells best by store or geographic region, and what is incremental.
“Retailers should not ignore incrementality of certain SKUs,” Lanides warns. “Not every SKU is going to be a top seller. Many SKUs are smaller volume but highly incremental and bring in new users to the category.”
“We do sets based on category planning; we don’t have a set amount of space for any one manufacturer’s product,” says Hachtel. “But when a manufacturer comes to us with a new item, our first question is always, ‘Which of your items will this outperform?’ We want them to try to justify for us why we should be looking at removing an item in our set to put one of these new items in.” The retailer also gives the manufacturer whose item is about to be cut an opportunity to justify why it should stay.
“It might make sense for us to reconfigure the space we have dedicated to warehouse salty and try to come up with different solutions that don’t require a space cut,” Hachtel suggests. “At the end of the day, core items will always have a place. We’re always going to make sure products performing well and that customers prefer are spaced appropriately in stores, and have the space and support they deserve.
“It’s all about getting bottom performers out and bringing in innovation and new items.”