June 1, 2006
By Mary Ellen Kuhn
The candy category is gaining a firm foothold in nontraditional retail locations.
Much of the buzz in the candy business this spring has focused on the fact that Home Depot is introducing candy sets within its sprawling stores. That a giant retailer like Home Depot is selling candy along with sinks, studs and ceiling tiles is a welcome development for confectionery vendors — not to mention candy-craving do-it-yourselfers nationwide. But it’s only the latest example of a nonfood retailer opting to try its hand at candy merchandising.
Consumer electronics retailer Circuit City took the sweet plunge nearly two years ago. FedEx Kinko’s introduced candy sets in more than 600 business centers in March, and it’s currently expanding the rollout to nearly all of its 1,300 U.S. locations. Michaels craft and hobby stores began catering to candy lovers eight years ago, and this year the chain increased the space allocation for both everyday and seasonal candy.
Candy sales have never been confined strictly to supermarkets, drug stores, mass merchandisers and convenience stores. In the past couple of years, however, candy’s reach into nontraditional channels has expanded substantially. Jim Corcoran, vice president of trade relations for the Washington, D.C.-based National Confectioners Association, credits manufacturers, brokers and distributors with spreading the confectionery gospel and estimates candy sales growth in nontraditional channels at 10 percent annually.
“They have convinced [nontraditional] retailers that space devoted to candy returns real money, and retailers are listening,” says Corcoran. “It makes all the sense in the world.”
Make that dollars and sense: “We project that in 2006, candy sales in all of these nontraditional, national-chain retailers will approach $1 billion,” says Corcoran. He adds that it’s hard to gauge the total because the definition of “nontraditional” or “alternate-channel” retailer is a bit fuzzy. He notes, for example, that his estimate of nearly $1 billion does not include candy sales in dollar stores, movie theaters or video stores, but does factor in hardware stores, book stores, garden shops and party goods retailers, to cite just a few examples.
The definition of “alternate” or “nontraditional” may be vague, but what is clear is that U.S. consumers shop frequently in such channels. Nearly half of U.S. households visited electronics stores in 2005, 46 percent shopped in the office supply channel, and 30 percent or more patronized book stores, automotive supply stores and pet stores, according to the 2006 “Channel Blurring and Consumer Trends” study from Schaumburg, Ill.-based ACNielsen.
Sweet revenue potential
With a profit margin that averages from 35 percent to 50 percent and a strong ability to stimulate impulse purchases, candy’s appeal to alternate-channel retailers is easy to understand.
“Retailers are looking for extra dollars,” says Warren Coopersmith, president and chief executive officer of Landover, Md.-based specialty market distributor Marjack Co. He adds that vendors — many of whom have sales teams that focus specifically on alternate channels — have improved their ability to target this class of trade. “Manufacturers are starting to work a little bit better together,” says Coopersmith.
Specialty retailers typically have space constraints, Coopersmith points out, so vendors may have to content themselves with selling only a handful of SKUs. Working to help get FedEx Kinko’s candy experiment off the ground last year, Coopersmith says his message to vendors was simple: “Guys, you can’t have it all. We’re just taking the top sellers.
“I think there’s starting to be some realization that cooperating with all the parties will result in more dollars on the bottom line,” Coopersmith concludes.
For nontraditional retailers, the added profits come with a few challenges, of course. Here are some of the most typical.
Multitasking is a must. Most often, managing the candy category is just one of many workplace hats worn by the alternate-channel candy buyer. So finding the time to select an assortment, develop a plan-o-gram and maintain vendor relationships can be tough.
“It’s much more challenging,” contends Michaels’ senior buyer, David Beadle, who is responsible for handling not only candy but books, magazines and all impulse products sold in the chain’s 899 stores. “In the mainstream, I had one category; now I have five categories,” adds Beadle, a former Sam’s Club buyer.
Mary Beth Tate, candy buyer for Office Depot, understands Beadle’s situation. In addition to candy, she buys everything from cash registers to cleaning supplies for the 1,009-store chain.
Like Beadle, she turns to Marjack for help. One of the most valuable services the distributor provides is bringing together candy vendors for category review sessions four or five times annually. “We typically don’t have time to schedule meetings day in and day out,” notes Tate.
Just-in-time, store-direct distribution is required. Because they are not food retailers, most alternate-channel retailers do not have perishable distribution networks in place. Nor do they have much backroom space, so frequent small deliveries are needed.
For Office Depot, signing on with Marjack allowed the chain to add chocolate candy bars to what had previously been strictly a nonchocolate assortment, and it has worked well. “We’ve been very successful with chocolate,” says Tate.
Getting store execution up to speed takes time and effort. “My stores are used to selling $4,000 television sets, so the television sets are going to get a lot more attention [from store personnel] than my candy bar selling for $1,” says Circuit City candy buyer Brian Keller.
Keller has made a concerted effort to stay in close communication with store personnel and to respond promptly to their candy merchandising queries. “I’ve made myself accessible, made sure my extension was available to anybody in the stores,” he says.
Still, he continues, “I’d love the store execution to be better. One of the tough parts about [selling candy in] an alternate channel is that if you’ve not had a product with expiration dates before, you need to learn how to rotate stock. Some stores have learned it better than others.”