Hershey Connects with Consumers
As an ‘Innovative Snacking Powerhouse’
By James Tenser
“A huge proportion of our business is instant consumption decisions made at the checkout,” said Doug Straton, Chief Digital Commerce Officer, The Hershey Company, before an audience at the recent Shoptalk conference in Las Vegas. “How are we to manage that in a frictionless future?”
Packaged food companies like Hershey, which sells a large volume of product to consumers through major chains, are sometimes seen as playing catch-up to some more nimble digital-first brands.
“Food was late, due in large measure to our logistics model and distribution power,” Straton acknowledged. “Our company was set in its ways, relatively speaking. More recently, we’ve done some good work on the back-end logistics and digital media.”
An institution in the chocolate business that plays the category captain role for virtually all its retail partners in North America, The Hershey Company is in the midst of a redefinition of its business into what it calls an “innovative snacking powerhouse.”
This includes broadening its product offerings through two key non-chocolate snack acquisitions over the past fiscal year. In October 2018, it paid $420 million in cash to acquire Pirate Brands, a maker of cheese-puff snacks, from B&G Foods. The line includes baked, trans-fat free and gluten-free varieties under the Pirate's Booty, Smart Puffs and Original Tings brands.
In January 2018 it invested $1.6B to acquire Austin, Texas-based Amplify Snack Brands, gaining its popular better-for-you snack brands including SkinnyPop, Oatmega and Paqui. Hershey stated that the acquisitions would help it to “capture more consumer snacking occasions by creating a broader portfolio of brands.”
This looks like classic range diversification for a company that has maximized ACV distribution in North America for its core chocolate brands like Reese’s, Hershey’s, Kisses and Almond Joy. The moves come during a period when the company is also making sweeping changes to its data platform and digital systems to support a more complex business that faces new forms of competition from online sellers and digital-first snack brands.
From the company’s 2018 10-K, released in February: “Recently introduced strategic initiatives include our efforts to continue to expand our presence in digital commerce, to transform our manufacturing, commercial and corporate operations through digital technologies and to enhance our data analytics capabilities to develop new commercial insights.”
When Straton took the stage as a panelist at Shoptalk, he referenced the “Innovative Snacking Powerhouse” strategy several times, but his focus was on the “digital transformation” he has been leading for about the past 18 months. This cuts across not only Hershey’s chocolate and non-chocolate confections and salty snack brands, but also its theme park, hospitality and specialty store businesses and its forays into direct-to-consumer sales, for gifts and its luxury brands.
“We think of our own properties as data acquisition properties, to learn more from and about our consumers,” he said. “We don’t seek to compete with our retailers online. The focus is on gifting and other things that drive the brand.”
He said those insights help inform Hershey’s approach to category captaincy for its major retail partners. “We are able to provide a more expansive view of category management, but different from one based solely on retailer transaction data.”
When it comes to driving incremental sales for its top brands, Hershey faces a bit of a quandary, he said, since confections have a 97 percent household penetration. “That’s higher than toilet paper.”
He continued, “So for our big, big brands, will I get the ROI from say, an Albertsons, versus our other retailers? Generally, if they win, we win. For our smaller brands, it can be a very different balance. Clearly retailers are becoming our media partners.”
He added that Hershey’s way of working with retailers is evolving. “Right now, it can be really painful. Sometimes it’s fairly ugly.”
Asked by an interviewer to self-rate the company on its progress so far with both internal and shopper-facing digital systems, Straton replied frankly: “Internal 3-4; external 6-7.”
“We have many of the foundational layers in place, but we’re still not very good at the integration point,” he said.
The digital transformation process commenced with a review of Hershey’s various internal systems, which were developed and controlled by different functional groups within the organization. “We asked ourselves, ‘How many data platforms do we have? Why do we have them? What are they for?’”
Straton added, “We had to be very intentional about this process. The data platforms in use were far too many.”
On his watch, Hershey’s has reduced its data storage resources by about 50 percent, and trimmed its roster of tech suppliers also by about half.
Many decisions came down to growth versus efficiencies, he explained. “How do they tie in with our strategy? We’ve since rebuilt the governance around this.”
Straton said a major part of his method has been to focus the internal conversation around an organizing principal he called “Five-Cs,” for Consumer, Connection, Content, Conversion Points, and Community.
“A good 50 percent of my time is spent evangelizing this across our various internal groups,” he said.
His approach begins with some carefully-framed questions aimed at creating a common vocabulary that enables his digital experts to collaborate effectively with leaders on the business side: “What do we want to do culturally? “What do we want to strive towards?”
For Hershey, Straton said, the touchstone is always its innovative snacking powerhouse strategy.