Finding the sweetest spot: feeding America's sweet tooth is big business. Here's a look into the $24 billion industry with three financial executives of popular-brand companies.

• Author: Heffes Ellen M.
• Position: Cover Story

For the approximately 1,000 manufacturers of some 12,000 brands in the snacks/confectionery industry--whether a giant multinational manufacturer, a regional or a mom-and-pop boutique candymaker--pressing business issues are strikingly similar. Differentiation comes in the scale, scope and breadth each brings to the task. And, while most share similar customers--the giant Wal-Marts, Costcos, Sam's, convenience stores, newsstands, drugstores and other chains and distributors of all sizes--each delivers its own unique style of product and focus.

It's an old industry, steeped in traditions and family and community values. With the exception of about 15 or 20 big players (such as a Hershey, Mars or Nestle), most are smaller regional or local boutique firms. Many are older than a century, started by an individual with a single idea built around a community--which either grew with, or away from, its origins. Hershey made chocolate affordable; Just Born (owner of the Marshmallow Peeps® brand) began as a chocolate-maker; and The Topps Co., began as a bubble-gum company, adding major-league sports trading cards as a marketing tactic.

Continuing their founders' ideas to perpetuate product lines and grow the business through the years, candy manufacturers/marketers grapple with a host of issues that mirror those in other manufacturing industries: modernization, production (in the U.S. or abroad), customers, profits, revenues, distribution, pricing, employees, G&A, technology, sourcing, R&D and innovation, competitors, marketing, dietary and health issues, shareholders (for public companies), boards of directors and more.

Financial Executive is taking a look at the industry and some of its key concerns through the eyes of three financial executives representing popular U.S. and global brands.

* Frank Cerminara, senior vice president and CFO of Hershey Foods Corp., is concerned with leveraging his brands by constantly introducing new products and new versions of popular brands to maintain customer and retailer interest--although his company already has some of the industry's most recognizable brands (such as Hershey's Kisses®, Reese's®, Hershey's® chocolate bars), as well as its highest revenues.

With a new CEO, the first from outside the Hershey family, and a new focus, the 100-plus year-old company--incorporated in 1927 as successor to a business founded in 1894 by Milton S. Hershey)--has more than 40 brands in the U.S. alone. It's a leader in all the candy categories and has over 2 million points of distribution domestically, and has revitalized its new product program as one step in making a good business better. It's also focused on growing gross margins.

* Ronald J. Izewski is CFO of Just Born Inc., the manufacturer of Mike and Ike®, Hot Tamales@ and other well-known brands including the Marshmallow Peeps brand, touted as the number one nonchocolate Easter candy. While competitors enjoy certain offshore cost advantages, he is concerned with controlling costs while also preserving the family-owned business traditions of commitment to its employees and community.

In its first acquisition in 50 years, the 80-year-old firm sought a partner with similar values--making the integration process relatively easy, and bringing it back to its roots as a chocolate maker (in 1923, founder Sam Born introduced "French Chocolates" to New York City, marketing his brand's freshness as "just born") and in line with its strategy to move from a manufacturing-driven to a market-driven approach.

* Stuart D. Barlow is controller of The Topps Co. Inc., a confectionery and entertainment and sports-trading card company. He notes that trading card profits have slid sharply in recent years, making its confectionery products--Push Pops®, Ring Pops®, Baby Bottle Pops® (mostly manufactured offshore in Taiwan, Shanghai and Thailand and shipped in refrigerated containers back to the U.S. market)--the most profitable and the fastest growing segment of the business. Topps is managing distribution costs through sharing a Scranton, Pa., warehouse and trucks with an industry peer with common customers and non-competing products.

Begun as a bubble-gum company 65 years ago (it manufactures the Bazooka® brand, in its 50th year, under contract in a Hershey-owned facility in Memphis), the family roots are evident in the publicly-traded company, which is looking to add to its product mix by making its first confectionery acquisition outside the lollipop area (a deal is now pending) and creating new versions of its brands, for example, by combing two already-popular products.

The Environment

The candy/gum segment (39 percent) of the $62 billion U.S. snack market has issues that range from seasonality to discounting to strategic planning to its position on dealing with the nation's health problems related to obesity. Candy sales in the U.S. totaled $24.3 billion at retail in 2002 (up slightly from $24 billion in 2001) according to industry figures, with chocolate accounting for over 50 percent, at $13.2 billion. Much of the sales are seasonally-related, with the leading holidays Halloween/back-to-school, Easter and winter holidays (Christmas, Hanukkah, Kwanzaa and Valentine's Day), in that order.

A challenge for candy makers is to extend everyday business by adding line extensions of popular brands, promotions and marketing programs, and to even acquire businesses to fill in missing areas to smooth out seasonal earnings.

When Just Born acquired the Rodda Candy Co. in 1953 for its jelly-bean technology, Marshmallow Peeps came with the deal--at that time, hardly a blockbuster product. Just Born has grown the franchise of the brand, which is now celebrating its 50th year. Originally, Peeps were individually hand-squeezed through pastry tubes; Just Born mechanized the marshmallow-forming process and it now produces more than 4.2 million per day and over 1 billion a year. At first, Peeps were just available at...