Candy Broker Go-Round
October 1, 2007
Candy Broker Go-Round
By Renee M. Covino
Offering a unique industry perspective, candy brokers state their views on the trends, the challenges and the lifeblood of confections and their businesses.
Bringing candy to the consumer is the retailer, the distributor, the manufacturer — and often times, the broker. Perhaps the least spotlighted of the bunch, some will say they are in the best position to quietly supply a macro view of the candy world before them, and are ready to narrow it down to several micro perspectives for the various players they do business with — players who are becoming increasingly reliant upon them.
What is it about the broker relationship that is so special? And what are the most important values/benefits they provide to the industry lately? First, it should be understood that the role of brokers goes so much further beyond their sometimes synonymous title: “manufacturer´s reps.” Basically, that role is deepening due to the fact that manufacturers and retailers continue to be in great need of strategizing and execution assistance.
The brokerage practice has gotten more complex as industry pressure from nontraditional competitors heats up, and as changing consumer lifestyle needs become even more stratified. As service providers to a myriad of manufacturers and retailers, brokers provide a broader perspective on industry trends and changing shopping patterns; often, their knowledge and expertise goes across product categories that are related to snacks and confections — some that may be just ahead of what´s to come for the categories.
The relationship brokers have with their customers is becoming more “critical,” according to Walt Freed, president/partner of Kahler-Senders Group. “The broker is the ´€˜front line´ representative for manufacturers,” he explains. “We see the opportunities, both long-term and incremental. This, along with critical follow-up to presentations, order placement and problems, is why we exist.”
“Today, so many of our customers have limited time,” adds Audra Vogler, vice president of Hoffmann-Vogler Co. “They count on us to know their business, and to put meaningful programs together for them.” She says the goal is a “win-win” for all involved.
“Time is invaluable for buyers,” agrees Todd Vogler, vice president of Club Stores/Specialty Accounts for Hoffmann-Vogler. “Brokers should be experts on the accounts they service, thus bringing an abundance of opportunities with meaningful programs that ultimately make the buyers more efficient and effective in our dealings.”
But in recent business times, that entails a lot more than it used to, as Tom Booth, president of Booth, Schwager & Associates Inc., outlines.
“Although confectionery brokers have faced significant challenges as a result of the consolidation that has taken place over the last decade, these challenges have created opportunities and need, particularly in the area of service,” he begins. “As margins have tightened, manufacturers have been required to do ´€˜more with less´ in terms of internal personnel and customer service. The broker has been called on to fill the gap, working closely with the customers and regional sales managers to provide more account information and assistance with planning, category review and forecasting. The proliferation of technology has made ´€˜fact-based buying´ the standard. Buyers expect the manufacturer/broker to come equipped to empirically substantiate the claims made and the decision to purchase. A significant amount of time is now spent by brokers in these efforts to insure accuracy and consistent flow of product, with the obvious cost benefits, especially to the smaller manufacturers.”
So, sharper than ever, brokers have a lot of valuable insight into many aspects of the industry today. Perhaps as they speak out in our forum, more will listen.
Q: What is your take on the climate of the confectionery industry currently? What do you see as the source of its strongest growth?
Booth: “The confectionery industry continues to sustain a period of strong growth. 2006 marked the first year in more than five years that confectionery sales posted gains in all four seasons. Industry performance figures from IRI for Valentine and Easter 2007 were equally encouraging, with reported growth of 6.7 percent and 5.4 percent, respectively, over 2006 levels.
“While the gourmet chocolate category, especially the dark and high-cocoa content products, are fueling significant growth in the total chocolate category, the gummy and chewy candy categories are also performing well. An interesting online article published by The Globe and Mail (Toronto) on July 4 highlighted a changing preference among Canadian candy consumers for ´€˜chewy fruit gummies´ over chocolates as a ´€˜less guilt-laden sweet indulgence.´ The article quoted Cadbury Adams Canada reporting a 25 percent increase in sales of chewy and hard candies since the beginning of the year. It will be interesting to see if or how this trend translates to U.S. buying habits. All of the data point to ever-increasing opportunities for the confectionery industry.”
Freed: “We have seen our biggest growth in the premium chocolates with an emphasis on dark chocolate, just like much of the industry has seen.”
A.Vogler: “I see the overall confectionery industry growing. I am seeing growth coming from new and innovative items, many of which are coming from oversees. In addition, I am seeing major growth in premium confectionery items.”
T.Vogler: “The confectionery industry is very healthy and appears to be almost recession-proof. Consumers are willing to spend a few dollars to treat themselves despite other increased consumer costs they experience daily.”
Q: What are the primary challenges you, as a candy broker, are facing this year?
A. Vogler: “Simply put, increased costs and reduced commissions are affecting brokers across the country.”
Booth: “To expand, the primary challenge faced by brokers has been the consolidation — mergers and acquisitions — among manufacturers and customers, resulting in a shrinking supplier and customer base. The net effect is that a greater percentage of business is done with fewer suppliers and customers, which presents the obvious challenges. The competition from offshore confectionery manufacturers not subject to the costs associated with subsidized ingredients, and domestic labor has been particularly challenging for the second- and third-tier domestic manufacturers who traditionally utilized brokers exclusively to get their products to market. Many of these once-strong, family-owned businesses have succumbed and exited the marketplace, shrinking the pool of ´€˜supply side´ customers for the brokers.”
T.Vogler: “Yes, the consolidation of the manufacturers and account base has had a direct impact on our community. Selling more items and categories to the remaining accounts will be the key to survival and success. Many companies, who were once excellent supporters of our brokerage community, have been bought out by direct companies and the opportunity to sell those product lines was removed as a result. In most cases, those lines become lost and/or are less of a priority within the firms that acquired the brand(s). Ultimately, the consumer loses out as all too often the items are no longer found at retail.”
Q: What changes have you seen take place through the years?
Freed: “I agree there are many negative changes that continue to occur. First, the consolidation of manufacturers brings several woes. When a manufacturer buys another one, they often find themselves selling a new category of goods, and then often, call a conflict on other manufacturers that previously didn´t exist. This causes a broker to now have to choose and resign one line, thus we lose income that previously existed through no fault. Also, the consolidation of manufacturers results in one of the two representing brokers to lose the line. This commonly results in the smaller broker losing the line. ... This is causing the traditional, true candy brokers to disappear.
“Reduced commissions are another issue. Manufacturers are struggling to keep their profits sustainable, while having to complete with Hershey, Mars and Nestlé. Thus, one of the ways has been to cut broker commissions, or worse, to create house accounts of the larger customers. There is not much a broker can do about this. By contract, brokers are locked into a geographical territory; customers are disappearing and a broker can only realistically represent so many lines.
“Thus, broker income is shrinking, while demands have been increasing on what is meant to be a selling force. Inventory management, forecasting, retail services all cost money, yet commission percentages have been decreasing, while demand for these services has been increasing.
Q: What are the key ways in which you feel retailers can better partner with you moving forward?
Freed: “I believe the smart retailer will want to have a go-to local representative that can be there for several reasons: new item notice, trends, problem-solving, follow-up on many fronts, and new item/ad presentation and all the paperwork that goes with it. However, the larger retailers are not interested in much of this, but only want the best price and see the broker as overhead. Some use in-house brokers, which results in a profit center.”
Q: How about manufacturers?
Freed: “As long as a manufacturer is only interested in servicing the largest of customers — and believes the smaller will have to follow — then I think many of the issues will remain and grow.
For those manufacturers that want to continue to seek business at the grass-roots level, then I think they need to step up and raise prices accordingly, and pay the commissions that can keep a financially healthy sales force.”
Q: Is the influx of new products an issue to you? Is SKU proliferation a problem or an asset to the industry?
Freed: “I don´t see it as being any more of an issue than it has been in the past. New items are our lifeblood in candy.”
Booth: “Yes, category growth is driven by a constant stream of new products that are created in response to changing consumer buying patterns, for example, dark chocolate, sugar-free candies, and novelty candies. A natural filtering-out process will always take place, with a small percentage of new products enjoying staying power. The steady influx of new products is actually the lifeblood of the industry.”
A.Vogler: “The way I see it, there are two types of products. Product that sell and products that do not. No product can sell if it does not get out to retail. However, once there, the consumer must purchase the item. With the number of new items created each year, it becomes much more difficult to get the chance to go to retail and be successful. I think that if an item is supported, for example, with promotions, advertising, and display vehicles — then it has a chance. The key is to put a program together, and not just to sell an item without support.”
T.Vogler: “A high percentage of new products never make it to the shelf or fail after doing so. Consumer awareness is the key to any successful product. So, yes, if brands or product lines are supported through various avenues such as advertising, promotions, TPR´s, displays, FSI´s, demo´s, etc, they will have a much higher success rate than the product lines which are not being supported.”
Q: What supplier procedures would you like to see changed if you could have your way?
A. Vogler: “Deduction policies. In many instances, customers send all of the backup paperwork to manufacturers with their deductions. There should be a way to streamline the way deductions are resolved.”
Freed: “Yes, the ´€˜pushing down´ of so much of the paperwork and internal administrative responsibilities that traditionally was always at the manufacturers´ level. That includes deduction management, forecasting, computer input of budgets, promotional planning, etc. While it is critical to have broker input, these processes have greatly increased in our industry without compensation for the work. It has basically been a cost shift. I know that my company alone has more administrative support on deduction management then most of our manufacturers.”
A Peek at our Panel
Hoffmann-Vogler Co., Buffalo Grove, Ill.
Vogler began her career in the confectionery industry in 1991. “I am proud to be third-generation in our family brokerage company,” she says. “We have continued to re-invest in our organization since its inception in 1948. Through the years, our company has grown by increasing distribution within our market, covering national accounts, and a variety of acquisitions.”
Vice President of Club Stores/Specialty Accounts, Hoffmann-Vogler Co., Buffalo Grove, Ill.
Like his sister Audra, Todd Vogler is a third-generation partner in the company. “I´ve been involved in the industry since I was a little boy,” he says. “I started on the manufacturing side in 1992 and then joined Hoffmann-Vogler Co. in 1996. Having worked on both sides of the industry — manufacturing and brokerage — I understand the complexities we all face in this ever-changing market.”
Vogler also is proud to report that Hoffmann-Vogler has reinvested in the technology needed to keep up with its industry and customer base. Also key to its success — its sales representatives´ responsibilities are divided by class of trade.
“This enables us to specialize and provide our manufacturers and customers with the first-class service they expect and deserve,” Vogler maintains.
Kahler-Senders Group, Portland, Ore.
Freed has racked up 26 years in the confectionery industry. Before Kahler-Senders, he had some other “sweet” roles, including: buyer/marketing manager for Brown & Haley; vice president for Rogers Candy Company, and partner at Carter-Kahler Inc., another confectionery broker. Freed is also a retired Lieutenant Colonel in the United States Marine Corps.
Kahler-Senders Group was created in 1996. The company is the result of a merger of two previously competitive confectionery brokerage companies: Lang-Senders Inc. and Carter-Kahler Inc.
The company represents manufacturers for all classes of trade in Oregon, Washington, Alaska and parts of Idaho.
Booth, Schwager & Associates Inc., Zion, Ill.
“Our brokerage company was founded in 1948 by my maternal grandfather, William Schwager and his partner, Leonard Bishop,” Booth states proudly. “I entered the business in 1984, after five years serving as the sales office/customer service supervisor for the Johnson Outboards division of Outboard Marine Corporation.
“Throughout the years, we have been actively involved in a wide variety of industry representation and service activities, including warehousing, distribution and importing. We have remained dedicated to our founder´s unique philosophy: We help our customers buy.”