Peg candy has come a long way from just being an avenue for making use of untapped space in the candy department. Today peg candies are helping to drive overall candy volume, which rose 3 percent from $6.87 billion to $7 billion for the 52-week period ended April 22, 2006, according to ACNielsen data for food, drug and mass merchandisers, excluding Wal-Mart. Retailers report peg candy sales — both rebagged and peg-packaged vertical lines from branded candy companies — are on the increase for the following reasons.

• They offer attractive entry prices that entice shoppers, especially those pinching pennies against rising grocery and gas prices. The small bags can be sold at 2 for $1 or single items for 99 cents. A survey by this publication earlier this year revealed that 62.4 percent of those polled offer 2 for $1 candies and 58.8 percent have 99 cent offers (respondents were asked to indicate all price points that applied).

• Customers looking for sugar-free products prefer the convenience of bagged candy. Peg products are now plan-o-grammed with the same merchandising savvy of traditional candy sets. 

• The programs work well for either private label or national brands. Buyers say they are quick to take on proven new candies in bag form.  In tune with that trend, manufacturers are rolling out peg bag versions of branded candies sooner after the rollout of the original branded SKUs.

Attractive pricing. Dollar stores are gaining in sales of candy products, including bagged items. One president of an extra-value chain said candy was among his top three categories. “We have people come here before a movie and stock up. Why would you pay the prices at a movie?” he questioned.

The drive for value at dollar stores has raised awareness in general, and shoppers pressed with rising gas costs are looking to pinch pennies. Also, retailers are adding more dollar sections. Pegged candy offers the opportunity to sell candy at 99 cents or multiple bags for $2 or less. There can even be a $1 bagged candy section within the peg area. Despite consumers’ love of bargains, retailers interviewed said they are adding more upscale rebagged candy to trade shoppers up closer to a $3 price tag. So although value rules in peg candies, there are indications that retailers are also trying to move shoppers up. 

Diabetic or sugar-free candies. Chocolate dietetic candy sales are down, but non-chocolate are on the rise. The non-chocolate segment dominates peg candy, and that suggests growth and more opportunity for sugar-free in the peg category. People who need to purchase these items prefer a handy package they can take in lunches or snack on at one time. The sugar-free peg selection needs its own home in plan-o-grams with clear signage so shoppers can find it quickly.

At this point retailers report that sugar-free or low-carb is primarily driven by well-known brands vs. private labels. However, once trained to like something, shoppers appear willing to try private labels, buyers said. Sugar-free products are perfect for cross merchandising in a multitude of other store locales such as the diet foods area, the pharmacy and the exercise products aisle.

Peg plan-o-grams. When peg programs first burst onto the market, retailers used wall space over shelves that couldn’t be merchandised with traditional box candy or bars. Often a rack-jobber simply put any candy in any spot.

Now the same science used in the entire candy department is applied to maximizing peg sales. There are sub-segments within peg candy that must be allocated the proper space. For example, there are dietetic candies, small snack SKUs that often come from companies that might be described as a hybrid of snack/candy company, branded programs and private labels. Each peg area has its own shopper profile and needs to have clear delineation on the peg wall.

Plan-o-gramming can be specific to stores, too. Most retailers have a firm handle on whether each store within the portfolio serves a young, family-oriented clientele, or a more mature audience. Fun bag candy can have a larger presence in stores with kids; old-fashioned hard candies might hit a chord in an area where the population skews more heavily toward older consumers.

Sugar-free works in both environments, since people of all ages require these special candies. The same is true for nostalgia candy.

Secondary locations are perfect for peg candy. Candy targeted to dieters and/or diabetics can go in a diet section or near the pharmacy. Sours and shapes are suitable for a toy department. Candy is even pretty with a spinner in cosmetics since so many colors and cosmetics these days are inspired by candy.

National brand vs. private label. Interviews with retailers reveal peg programs work well in both instances. One major drug chain, for example, took the majority of its peg candy program private label. The president of the chain said he liked being able to control the size of the bag to make optimal use of space in the category. He did admit, however, that it is hard for a retailer to be on top of emerging candy trends.

Many retailers said one of the unique aspects of candy is that private label and control labels exist comfortably side-by-side — much like a branded shampoo with a store equivalent. For some, this represents an opportunity to extend the private label offering.

Retailers also noted that peg programs are not cannibalized by the existence of bag-your-own areas, which are on the upswing once again, led by major retailers merchandising these areas as if they were new fashions. “One need only look at what Target has done in candy,” said Wendy Liebmann, founder of WSL Strategic Retail. “They’ve applied the same approach to candy as they have to fashion. You can’t help but buy it,” she said of the self-serve area. However, Target maintains a peg program as well.

Margins. As with many categories, small sizes often yield a few extra points in gross margin. With peg, the prospects are even better since there are sweet margins and rapid turns. What is also attractive, said one leading supplier, is that there are not as many seasonal swings to peg programs, yet shoppers are willing to opt for limited editions when offered. “That represents a win-win situation,” he added.

In conclusion, peg programs are stronger than ever, but must be managed from a merchandising standpoint with the same savvy and market knowledge as the rest of the department. That hasn’t always been the case, but as retailers look to maximize every square inch of sales, those tiny bags present sweet opportunities.