Why c-stores should celebrate seasonal candy's sales opportunities.
It’s OK for McDonald’s to ramp up its coffee program to McCafé. It’s fine for Walgreens to roll out Café W. And there have been no complaints about Walmart ushering in new, more nimble store concepts. So why shouldn’t c-stores branch into natural extensions that trespass onto the turfs of other channels? Specifically, why not seek to steal some share from drug chains on the seasonal buying surges around holidays such as Easter, Halloween and Christmas?
If you’re looking for some optimism, go no further than last year, when seasonal sales of candy jumped 6.8% as a percentage of gross margin, according to the NACS State of the Industry Report of 2010 Data.
“We’re not talking about getting into [seasonal-candy sales]; we’re talking about getting back into it,” says Steve Montgomery, president of Lake Forest, Ill.-based b2b Solutions LLC, pointing out that the convenience channel actually has long dabbled in seasonal candy but in recent years has moved away from a full variety of the products.
Retailers who are committed to seasonal candy can see it account for 10% to 12% of their total confectionery revenues, according to Mike West, national convenience store director for The Hershey Co., Hershey, Pa. Considering that a successful binge on seasonal candy could yield double-digit revenue increases for the year, why aren’t more operators aggressively pursuing this treasure hunt? A few reasons:
- Competition. Bigger-box players, from drug chains and grocers to mass merchants such as Walmart and Target, sell seasonal candy with a very different operating philosophy; they use it largely as a way to drive traffic. Also, for convenience stores, “It’s out of their strike zone,” says West. “Food/drug/mass is so good at it, they ask: Is the trip mission for that convenience shopper really in their wheelhouse? Should they just stay true to destination items, such as carbonated beverages or foodservice?”
- Distribution. In many cases, it is hard to convince suppliers to deliver sufficient inventory to justify the stores’ investment. “I just don’t think there is a lot of availability,” says Diane McCarty, president of Sherman, Texas-based Lone Star Food Stores. “We don’t even have a lot of options to choose from.” While most Lone Star customers “seek us out for an individual purchase,” she says, most candy companies are focused on seasonal multipack bags. This problem, however, may be shifting in a way that will benefit c-stores. Mars, for example, recently expanded its line of gifting items across a range of price points, according to Larry Lupo, vice president of sales, convenience & retail, for Mars Chocolate North America. The Hackettstown, N.J.-based candy manufacturer now sells M&M’s Characters stocking tin ornaments for $1.99 retail and will soon debut Dove Chocolate holiday gift boxes at $5.99 retail, among other new gift products. C-stores, Lupo contends, would benefit by selling small gifts priced less than $5 or $6.
For now, many c-stores are content to pursue a strategy that focuses primarily on single-sell items. Jim Monroe, director of foodservice/QA manager for Handee Marts Inc., a Dallas-based 7-Eleven licensee, estimates that seasonal candy makes up 3.5% of the company’s annual candy sales. His seasonal-candy sales are overwhelmingly single-sell items, including Snickers Eggs and Reese’s Peanut Butter Eggs, which the stores begin selling as early as late January to maximize Easter baskets.
“I think the reason Easter works better is because a lot of people just come into the convenience store and they grab a bunch of eggs and bring them into the office,” Monroe says.
Montgomery doesn’t believe there is any reason an operator of a single store or several stores couldn’t do a great job with seasonal candy. “Anyone could start out by carrying Cadbury eggs or small packages of Peeps,” he says. Indeed, it seems that the overwhelming lesson of the seasonal candies market is choosing an entry point and building from there.
“But if you’re going to do it, you’ve got to do it,” Montgomery says. “Make it visible for the customer so that they know you’ve done something. If you’re going to do it in a bigger way, it becomes more complicated.”
West of Hershey agrees. “You have to create a destination for it and make sure you have good signage, tagging and pricing around it so it stands out,” he says. “A lot of retailers just put it in the main aisle or they don’t draw attention to it. It won’t be a destination the way it is in Target or Walmart.”
There is, of course, a middle ground between selling only single-item candies and selling multipack items (which would require competing against supermarkets and drugstores). Larry Lindenbaum, vice president of sales for novelty confectionary specialists CandyRific LLC of Louisville, Ky., suggests that some kinds of boutique candy may provide this middle ground. He is familiar with the arguments for why c-stores are handicapped when competing against supermarkets and pharmacies, but he doesn’t think these challenges apply to sales of boutique or high-end candy.
“I can understand that philosophy with commodity-type candy, but with novelty candy, it doesn’t work that way,” says Lindenbaum. “They’re getting the person who’s walking through the door and saying, ‘Easter is coming up. I’ve got to buy this for my kid.’ That person is not shopping at Kmart, Walgreens or anywhere else; it’s an impulse sale.”
In addition, the significant revenue these items generate can offset the risk involved with the products.
“Our product is more high-end than most; we have play value and lights and that kind of thing,” Lindenbaum says. Some of the boutique candies that CandyRific sells are $4 or $5 items. “You have to look at the fact that it’s an incremental high-dollar sale that you wouldn’t have otherwise.”
Lupo of Mars agrees: “This gives c-stores a higher ring and the opportunity to compete with drug stores for last-minute items.” He is especially bullish about the Christmas season, when c-stores can exploit stocking stuffers.
Easter accounts for 80% of Hershey’s seasonal sales, according to West. That’s partially due to the fact that Easter has the longest selling season of the holidays. Hershey’s No. 1 seasonal seller, the Easter-related Reese’s Peanut Butter Egg, brings new customers into the candy category without cannibalizing sales of traditional Reese’s, West says. “Our shoppers start looking for the Reese’s Peanut Butter Egg at the end of December,” he says. “How do you take that same mindset and get other holidays to be that big?” There’s tremendous opportunity in the Halloween and December holidays, he says.
To minimize getting stuck with excess inventory, Monroe says Handee Marts sells products manufactured by a local Canonsburg, Pa.-based premium chocolate company throughout the entire year. The company, Sarris Candies Inc., guarantees all its candies, so during the seasonal periods Handee sells the novelty candies without having to worry about markdowns.
However, markdowns are a recurring hazard. Aside from selling Sarris products, Monroe doesn’t sell much premium candy: “We don’t sell high-end retail like those big Santa Clauses, because you have too much inventory and too much risk,” he says. “We would just get stuck with those items.”
To reduce markdowns requires operators to establish realistic expectations and not overleverage inventory, says Mongtomery: “You have to be willing to say, ‘It makes sense. I can buy in a pack that makes sense. I’ve got a space I can put it. I can put it out at a price that is competitive.’ ”
That’s precisely where Handee Marts stands. “We have it down pretty close to a science by now because we look at our scan data from the previous year and we order based on that scan data,” Monroe says. “We really don’t have any left over; we sell through it at full retail.”
West of Hershey says retailers need to understand what the shopper’s expectation is. “Once you understand that, and go through proper item selection, pricing and merchandising, then you can start to work on the right quantities to start with for the program,” he says.
While working with a manufacturer can help retailers effectively prepare for seasonal sales, associations can help as well. The National Confectionery Association, for instance, produces a calendar for members that forecasts the effects of seasonal candy sales by year, using the day of the week that the holiday falls on and projecting candy sales per day.
Once customers expect to see seasonal candy in a retailer’s store, West says, it will become natural for them to look to that store for their next sweet holiday treat.
“All of a sudden your shopper will get used to you being in seasons,” he says. “Then it starts to become incremental and building upon customer base vs. taking away from it.
“You have to be committed and not give up.”
Getting Started with Seasonal
- Don’t let fear keep you away. Start with one small step, and expand your strategy as you gain more experience.
- Give holiday candy its own section; don’t just blend it with the single sizes sold year-round.
- Drive impulse. Put single-sell items, such as Cadbury Creme Eggs, Snickers Eggs, Hershey’s Peanut Butter Eggs or Peeps, on the counters where customers will see them.
- If you expand your inventory, consider plan-o-gram changes to ensure your seasonal candy strategy ties to the rest of your store.
- Prepare for the possibility of markdowns and factor this into the price that you set for seasonal items.
- Consider selling novelty items, boutique and seasonal gift candy, which are better for the c-store channel than multipacks.