The Hershey Co.’s acquisition of Grupo Lorena, coupled with its partnership with Thalia Sodi, has “significantly” expanded its presence among Hispanic consumers.

Fernando Topete, the man who invented the Pelon Pelo Rico product in his home more than 30 years ago, is not the kind of man to forget his roots nor his employees. The founder of Grupo Lorena, the Guadalajara, Mexico-based manufacturer of spicy confections that was acquired by The Hershey Co. last November, thought long and hard about the kind of company he wanted to pass his brainchild to.

As Juan Carlos Zayas, director of marketing from Hershey Mexico in Guadalajara points out, the company motto for Grupo Lorena, “Good people working well,” dovetails nicely with Hershey’s vision, “Great people building great brands.”

Still, similarities in mission statements don’t necessarily equate to a smooth transmission or synergistic integration. In less than a year since the acquisition (November 2004), Hershey Mexico’s assimilation of Grupo Lorena appears to have progressed faster than anticipated. Indeed, on the sales end, Hershey has already seen “significant” growth across both borders.

As Jay Cooper, v.p. – U.S. marketing, explains, Hershey’s acquisition of Grupo Lorena leads the company’s earnest effort to “win the hearts and mouths of U.S.Hispanic consumers.

“Currently, Hispanics comprise 14% of the U.S population,” he says. “And they are continuing to grow. By 2020, they will make up 20% of the population. That constitutes one trillion dollars in purchasing power that is growing at a 7% annual rate, which is three times that of the general market. Considering the role that Hispanic culture, music and fashion plays in the United States, Hershey needs to be competitive and a leader in this sector.”

As the leading spicy candy brand in Mexico, Pelon Pelo Rico provides Hershey with an instant “power brand” within the Mexican community.

“It has unbelievable equity in Mexico as well as in the United States,” acknowledges Cooper. “What we are focused on is doing what we do best, which is leveraging the Pelon Pelo Rico brand as we do with our Hershey brands.”

 What’s also enabled Hershey to be particularly successful with its thrust into the Hispanic community is that it has found the perfect spokesperson. By signing a multiyear partnership with Thalia Sodi, a popular Latin singer and even more popular Mexican soap opera actress in April 2004, Hershey has gained immediate access and acceptance by several generations of Mexicans as well as Latinos.

By collaborating with Hershey in creating her own La Dulceria Thalia line, literally Thalia’s Candy Store, both parties have expanded their empires.  The superstar’s line currently consists of Dulce de Leche Kisses, Hershey’s Miniatures, Jolly Rancher lollipops in both tropical fruit and hot and spicy flavors, and Cajeta Elegancita, a chocolate-covered bar of crispy wafer sticks layered with cajeta flavoring (Cajeta is the Mexican caramel flavor that’s called dulce de leche in most Latin countries.).

“The initial success of the Thalia line, coupled with the addition of the Pelon Pelo Rico business, followed by the impact of our advertising campaign with Thalia, has helped Hershey’s break through into the U.S. Hispanic community,” Cooper says. “We’ve seen great retail takeaway in the last 12 to 18 months as well as great share gains in the total Hispanic category.”

Cooper emphasizes the importance of all three aspects contributing to that success, both in Mexico as well as in the United States. Zayas, Hershey Mexico’s marketing director, concurs, adding that the timing represents another significant step in the company’s ongoing evolution in Mexico and with U.S. Hispanic consumers.

He explains that Hershey’s presence in Mexico goes back 30 years when the company formed a joint venture with Nacional de Dulces. In 1993, when Mexico changed its rules regarding foreign investment, Hershey acquired 100% of the stock and changed the company’s name to Hershey Mexico.

Eight years earlier, the company had relocated its manufacturing facilities from Mexico City to Guadalajara, establishing its chocolate processing and manufacturing base there. The acquisition of Grupo Lorena provided Hershey Mexico with an interesting manufacturing proposition: Can one integrate chocolate processing, spicy confections production and a milk drink operation (introduced in 1990) all under one roof?

It does demand special attention, admits Otto Nadal, director of operations for Hershey Mexico. Moreover, in Grupo Lorena’s case, the acquisition involved combining operations from two facilities into the existing plant.

The decision was made to expand the plant with a two-story addition. Aside from moving the equipment to the new area, the company paid particular addition in bringing over the employees.

“It was critical to have their expertise, not just the equipment,” says Nadal. “After all, what they are doing is art.”

Pelon Pelo Rico products undergo a very specialized process that necessitate an elaborate packaging assembly and self-engineered depositing machines to make Mexico’s iconic spicy candy.

First, the key ingredients are mixed together to produce Pelon Pelo Rico’s famous spicy taste. A combination of conveyors feeds the colorful packaging to assembly lines and labeling lines.  

After the paste is then dispensed into Pelon Pelo Rico’s colorful, push-up packaging, the individual units are capped. The pieces are packed into boxes and shrink-wrapped before being placed into cartons.

 During the production process, samples are religiously taken from each batch to ensure the products meet specifications. In addition to on-site laboratory testing, samples are also sent to outside labs for analysis.

That analysis reinforces the company’s assertion that all of its products are perfectly safe for consumption. A 2004 Orange County newspaper investigation reported that some popular Mexican confections contained high levels of lead stemming from either unwashed chiles or substandard packaging. Both Cooper and Zayas emphasize that Pelon Pelo Rico products meet all safety criteria, including the most recent California law that will go into effect next year (See Newsletter, p. 8, for details).

Replicating a strict control process was one of the keys to consolidating production at the Hershey Mexico facility. And while Nadal is pleased with the integration process to date — “We began construction on the addition in January, finished in May and within six weeks moved the lines into the new area,”  – he points out that his crew continues to find ways to improve efficiencies.

“It’s a continuous process,” he says. Nadal also points out that 99% of Grupo Lorena’s production crew made the move, which enabled a quick and fairly smooth transition. The inclusion of spicy confection processing hasn’t disturbed the company’s other operations, chocolate and milk drinks. First, the processes are physically segregated. Chocolate production focuses on Kisses, Hershey Miniatures, Hershey bars with almonds, and some novelty items.

The Hershey milk drinks line, which is produced on a Tetrapak aseptic system, debuted in 1990 and remains a strong partner to both other components.  

“We refer to all three segments as our sources of competitive advantage,” Zayas says.

Pelon Pelo Rico and Hershey milk drinks both own the No. 1 slot in their respective categories.

Hershey Chocolates holds a “leadership” position and continues to grow with the introduction of products like the La Dulceria Thalia line.  

“Our strategy is innovation, innovation, innovation,” declares Zayas. He quickly cites several new items that have been launched or will be rolled out that underscore the company’s commitment to the new millennium’s buzzword.

“We just came out with Pelon Reloaded, a spicer version of our original Pelon Pelo Rico product,” he says. “This quarter we have two new items that we believe will do extremely well for us: Tu-Box and Pelon Mix.”

Tu-Box features a lollipop in a plastic cylinder that contains a spicy chili mix. Consumers dip the lollipop into the mix to deliver a broad range of spicy/sweet taste sensations.  Pelon Mix combines the tamarind flavor with a new pineapple flavor in a two-way dispenser.  Again, it’s the combination of authentic sweet and sassy that holds particular appeal for Hispanic consumers.

Recognizing that not all mainstream American consumers can handle piquant candies, Hershey Mexico came out earlier this year with its Jolly Rancher Crayon products for the U.S. market, a combination of tropical flavors a la Pelon Pelo Rico packaging. Children and/or adults can twist out exotic fruit paste to demand.

“They’re selling like hot cakes,” adds Nadal.

“It’s all about bringing news to the product,” continues Zayas. That news can take the form of advertising, aka the Thalia campaign, or via promotional programs and contests.

“This year we’re running our Happiness promotion, whereby any consumer who purchases our product receives a prize,” he says. Granted, not everyone will win a Mini Cooper automobile or an iPod player, Zayas acknowledges. Everyone, however stands a chance of winning  an opportunity to download music or images for their cell phones or screen savers for their computers. Moreover, the promotion is generating excitement about the brands, about the products, he says.

It’s also part of doing business in Mexico, where persona and product – a la Thalia  — play a critical role in business.

“About 60% of all confections are sold through wholesalers, who, in turn, sell to mom-and-pop operators,” explains Zayas. Yes, the continuing growth of supermarket/ mass merchandiser chains, particularly Wal-Mart, is changing the retail landscape, he admits. Yet, wholesalers remain a force, one that can move plenty of confectionery products daily .

“Candy consumption is high in Mexico,” says Zayas. “People like to buy products such as Pelon Pelo Rico everyday. In a sense, with so many mom-and-pops selling our product, we’re doing mass merchandising everyday.”

It’s hard to calculate specifically the impact that Pelon Pelo Rico’s popularity as a confection in Mexico has had in boosting Hershey’s overall sales. It’s certainly expanded distribution and – as Cooper alluded to earlier – “leveraged” its lineup significantly.

Add to that the Hershey line of drinks, and – as Zayas points out – “we have a pretty balanced portfolio.”

It’s a portfolio that Jorge Peña, the company’s recently appointed general manager of Mexico, believes has only scratched the surface. Given Mexico’s demographics — the median age is just under 25, under 14s represent almost one third of the population and the nation enjoys a fertility rate of 2.45 — the numbers seem to be working in Hershey Mexico’s favor. That, coupled with the ever-growing Hispanic buying power in the United States reaffirms Peña’s assessment of opportunities.

Peña sees the integration of Grupo Lorena into Hershey Mexico as more than just a timely acquisition; it is an imprimatur of authenticity that promises to deliver double-digit growth across both sides of the border.

Fernando Topete couldn’t have asked for a better caretaker.