Novelty/Interactive

This category is plenty of fun, but getting in the door at retail and maintaining the set in-store is challenging.
Novelty/Interactive Candy Estimated U.S. Retail Market Size
$240 - $300million
Source: Confectioner estimate based on input from industry players

Overview
Let’s be straight here. Novelty/interactive candy is high maintenance.
Merchandising it well requires more attentiveness than, say, the front-end singles section.  It’s not rocket science, of course, but maintaining a viable novelty/interactive set takes extra effort. The category has to be kept refreshed, which may mean reviewing the assortment every several months; licensed products need to be timed appropriately to coincide with theatrical and DVD releases; and when a license has run its course, you’ve got to move the product out ASAP.
Persuading a retailer to stock novelty/interactive SKUs is not child’s play either. In-store real estate is limited to begin with, and the proliferation of limited edition SKUs from major players has tightened it up even more. Many retailers are opting to stick with a short list of tried-and-true vendors, making it tough for a new player to break into the market. And, by definition, the category is focused on the new and novel, so demonstrating a track record is not so easy to do. Meanwhile, retail sell-through standards are as high as they are in any other segment of the market; sell-through in the vicinity of 80 to 90 percent is expected.  
Then there are the formidable challenges of product development — creating a product with great play value and appealing taste that meets product safety specifications — and can still carry a suggested retail price of, say, 99 cents. Vendors who approach the category seriously must walk a fine line — investing the time required to develop truly innovative, possibly even patent-worthy, items — but moving quickly enough to stay in tune with the market. It’s clearly a tough business to crack, but that hasn’t stopped plenty of creative types from having a go at it, so there’s a lot of competition.  
Target Audience
For a novelty/interactive product to succeed, members of the six- to eleven-year-old set have got to love it, of course. But don’t forget to factor in the gatekeepers as well. Most purchases by younger kids, at least, must pass the parental veto test. If an item is too gross or too far over the top, mom may put the kibosh on the purchase. A product that stimulates creative play or perhaps something that has a craft component will win extra points with parents seeking to keep their kids challenged and stimulated.
Kids and Teen Market Population Forecast
Age Group 2005 Population (in millions) 2010 Population (in millions) % Change 2005-2010
0 – 524,40925,610+4.9%
6 – 1123,64224,405+3.2%
12 – 1725,58824,416-4.6%
Total: < 18 73,639 74,432 +1.1%
Source: Mintel/U.S. Census Bureau Interim Population Project, Released 2004
Parents don’t want to see parts so small that they are a choking hazard (not just for the child for whom the item is purchased, but for younger siblings as well) or so numerous that they make the task of household clutter control more onerous. For this reason, some of the best novelty/interactive SKUs come with plastic covers or carriers that allow the child to save it for later and/or to easily corral any wayward small parts.
And while we’re on the topic of parental issues, here’s another biggie — portion control. With health concerns running as high as they are right now, savvy vendors and retailers are moving their offerings in the direction of “small treat, big play value.”
Pricing/Positioning
The largest segment of the market is clustered at the 99-cent level. This is a price point that works in virtually all classes of trade, although retailer receptivity to products in the price range of 99 cents to $1.99 and even beyond is growing — provided the offering truly is value-added. That added value may be delivered in a variety of ways. A product that can be “repurposed” for additional play after the candy is consumed is a plus, and, of course, extra bells and whistles, perhaps via an electronic component, add value as well.
Some would argue that — in theory, at least, and in some markets — novelty/interactive candy pricing is highly elastic. This is, after all, the era of the $3.50 cup of coffee. If mom is spending that amount to treat herself to a venti decaf latte at Starbucks, isn’t there the potential for her to spend equally on a cool novelty/interactive candy SKU? That’s provided it delivers some bona fide play value — preferably enough to allow her to savor that latte in peace!
Mass merchandisers and specialty retailers are more likely to opt for the higher price points than retailers in other classes of trade. One other encouraging note: Some vendors report an emerging opportunity on the dollar store front, provided that the SKUs are value-priced.
Adjacencies
Creating a novelty/interactive set is optimal, category experts concur. Most retailers don’t allocate significant front-end space to novelty/interactive products, but certainly a destination with plenty of kid foot traffic is important.
Inline in a grocery store isn’t the ideal spot, contends one consulting guru. “Moms don’t bring their kids on $200 shopping trips,” he says. “They bring them on convenience trips.” Thus a perimeter location that’s accessible for the dash-in/dash-out shopping occasion can work well.  
As for other adjacencies, here’s some food for thought from another one of our contributors: How about placing a novelty/interactive set or endcap near the cereal aisle? Cereal marketers do a great job of targeting kids, and wouldn’t it be great if novelty/interactive candy makers could ride on their coattails in the store?  
Placement near the toy aisle may make sense in many classes of trade. For countertop displays, the footprint needs to be kept as small as possible — say 10 to 12 inches in width and 10 to 14 inches in depth.      
Marketing/Promotion
Licensed novelty/interactive SKUs afford a natural opportunity to tie promotions in with a DVD purchase (or maybe even a rental, if we’re talking video store). Packaging can be an especially effective salesperson; bold graphics showing the product in use — and/or how to assemble it — help make the sale.
Seasonal Opportunities
Although they are not a huge part of the market yet, seasonally themed novelty/interactive SKUs represent a good growth opportunity and can be a vehicle for vendors to cope with the challenges encountered in the everyday segment of the market. Many vendors are identifying opportunities to “seasonalize” some of their established everyday novelty/interactive SKUs, adding in colors and shapes appropriate to the occasion.
Outlook
There’s seemingly no limit to the creativity demonstrated by makers of novelty/interactive candy. Vendors put light chips and sound chips to excellent use last year, creating a myriad of offerings that deserve top marks for entertainment value. As technology becomes cheaper, we’ll see novelty products become even more interactive.
With shelf space remaining tight, the time-tested rule of survival of the fittest will prevail. Look for retailers to stick with vendors of record, and for those companies that lack truly innovative offerings to fall by the wayside, much in the fashion of a child’s cast-off toy.
Macro View of Kids/Teen Population Trends
(5- to 19-year-olds as a percent of the population)
2000 21.7%
2010 20.0%
2020 19.6%
2030 19.5%
2040 19.2%
2050 19.3%
Source: U.S. Census Bureau, 2004
Wal-Mart’s decision to discontinue the test of its Kid’s Connection candy boutique and its failure to embrace the category within its stores contribute to the challenges facing this fun and vibrant category. According to some vendor reports, the world’s largest retailer had considered testing a four-foot novelty/interactive candy section, but opted not to go that route because of the rigors of servicing it. There’s also some buzz, however, that Wal-Mart continues to give this segment serious consideration. Certainly if Wal-Mart were to demonstrate a bit more enthusiasm for the novelty/interactive category, it might prove contagious to other retailers.
Merchandising Musts
• Keep it low. You’ve heard it before, but it bears repeating: If you want to target someone who stands from three- to four-feet high, then plan-o-gram the product on a lower-level shelf.
• Keep it simple. As we’ve mentioned, this category can be high-maintenance in the store. Lots of little hands will be grabbing it up and — quite frequently — dropping it back down wherever if mom says, “not today.” Having a full-service distributor to manage this category may be the best way to go — although it will have an impact on the margin. For easier category maintenance, bins that extend along the base of shelving fixtures may be worth considering.
• Move it. For a floor-stand or power-wing display fixture, incorporating a moveable or light-up component can help attract the eye.
The Secret to Success
What is the secret of successful marketing and merchandising of novelty/interactive candy?
One seasoned — and successful — novelty/interactive candy vendor responded to the query in this way. “The secret is that there are no secrets. In order to be successful, you have to treat the category like all others at the retail level.
“When you visit a retailer and they have several aisles of toys, and one or two novelty candy SKUs, it is something that causes you to wonder why. One would think that novelty candy is just as appealing since it is impulse in nature. Furthermore, it is a product that can sell all year long, as opposed to just spring and fourth quarter, which are the big seasons for toy sales.
“I’m not saying that there have to be a thousand novelty candy SKUs in a store. However, depending on the type of retailer, there could be two to four feet of space dedicated to these products.”  
Retailers may want to consider taking a long, hard look at their overall SKU assortment, this vendor suggests. A small, but compelling novelty/interactive candy set may make more sense in a grocery store than, say, four feet of hardware SKUs. Who really goes to the grocery store to pick up a screwdriver, after all?