How the 125-year-old Hershey Company continues to innovate
The candy company is launching stand-up packaging for 150 items and pushing the industry forward in digital commerce and marketing.
When Hershey was designing its new stand-up packaging, it was looking for more than just a beautiful bag for the store shelf — it also had to be beautiful on a cell phone screen.
“The packaging needs to be seen on a 5-inch screen, but it also needs to be easily identifiable in the same way from about 20 feet,” explains Doug Straton, chief digital commerce officer for The Hershey Company. “If you don’t merchandise the digital shelf correctly, people may choose not to shop with you in the digital or the physical store.”
It’s just one example of how the 125-old-company is constantly thinking about the latest technology and innovation.
Hershey, which had $7.7 billion in sales in 2018, has five of the Top 10 Confectionery brands, including: Reese’s, Hershey’s, Kit Kat, Ice Breakers, and Hershey’s Kisses. And it’s no secret that what the company does matters in the confectionery industry. If it pushes a new supply chain philosophy, a new store shelf design, or a new packaging concept, it trickles down into candy aisles all over the world.
And Hershey is pushing a lot of new concepts and innovations. The candy maker is launching new stand-up packaging for 150 items this year, reinventing the self-check queue, innovating for digital commerce, expanding manufacturing plants, renovating its corporate offices, and going viral on social media.
The biggest change is its new stand-up packaging. Hershey was looking to launch something that looked good on the store shelf, was appealing on a cellphone screen, could hold its own on a kitchen counter and was easy to open.
They’ve succeeded. They’re hitting the market now, after the company spent a year and a half getting the packaging just right and then upgrading all the related packaging lines to accommodate the news bags.
Tim Hinegardner, senior director manufacturing, North America at The Hershey Company, says in the West Hershey plant, the largest candy factory in North America, it meant changing multiple baggers into a different style and design so that they could pack the candy in a stand-up format, carton it and palletize it.
“Traditionally since the 1950s, we basically made laydown bags,” he says. “So, when you think about moving to this format across all of our items, it is a pretty dramatic change for the company.”
Susanna Zhu, v.p. U.S. supply chain operations for The Hershey Company, says the new packages have a lot of advantages.
“What we found is for consumers when you have a lay down bag, they don’t really see the product on the shelf,” she explains. “And for our customers, having a stand-up bag, it really helped them to bring consumers into the candy aisle. We also improved the quality of the film and the packaging material.”
The bags also feature a new branding design, including bright colors and recipes, which create a bold presence on the store shelf, like a vibrant orange section of Reese’s items and a stunning silver section of Hershey’s Kisses.
Straton also made sure they would look good for online shoppers, and he is the resident expert. He’s leading the way into the future at Hershey when it comes to the digital side of things, helping the candy company strategize on everything from brand websites to e-commerce — although he doesn’t really like that word.
“If you really want to be good at e-commerce, you just have to be good at commerce,” he says.
The confectionery industry as a whole has had the luxury of time when it comes to digital strategy because shoppers have been reluctant to purchase groceries online. But Straton is hoping to change that.
“The most important thing is to believe that a 125-year-old company can actually be at a forefront of the thinking around how people create, manufacture and distribute products using digital technologies,” Straton says.
And he’s up to the challenge.
“[With] e-commerce everybody thinks it’s just Amazon and it’s like ‘Well, no,’” Straton explains. “All the different segments — mass grocery, drug, convenience — everybody is playing in digital. And some of them are playing multiple models within digital so, it’s actually much more multifaceted, and if you can kind of go into it thinking that way then you can usually design a solution around it.”
Those solutions include things like encouraging retailers to ask shoppers if they want to add a candy bar to their online cart, and offering a push notification 30 minutes before another shopper is scheduled to pick up his groceries at a store pick-up location.
Hershey’s stand-up bags also tie into this — they’re designed to get people to buy candy in bulk, which is more typical of what online shoppers look for. And it’s all about getting on a consumer’s online list because once you do, the store can just ask shoppers if they’d like to purchase the same groceries as last time, and usually they’ll say yes, Straton explains.
And while some companies are shifting to plain packaging for products purchased online — by the time customers see the packaging in person they’ve already purchased it — Hershey is avoiding that.
“There’s some thinking around do you really need [appealing packaging], if it’s never going to really be on a shelf?” Straton says.
He says that consumers likely wouldn’t want to eat something as fun as candy out of a plain brown box in their pantry, though.
“I want to eat it out of something that’s fun and happy and maybe has a recipe on the back,” Straton says.
Plain packaging also interferes with the consumer experience.
“People really hate it, when they buy something online and it looks beautiful and it shows up [plain],” he explains. “There’s actually an element of disappointment when they’re like, ‘That’s not what I bought,’ or if it’s just been thrown into a bag and taped together, and they’re like, ‘That looks terrible. Do they really care about these products?’”
Touring the 2019 Global Customer Insights Center
It’s those kinds of digital insights that retailers can learn about at Hershey’s Global Customer Insights Center.
The GCIC allows Hershey to host retailers for an interactive experience, offering life-size checkout suggestions and shelf displays that also include competitor products so they can get a realistic idea of how to set up their stores. And the company recently refreshed the center for 2019, with a focus on digital.
The GCIC is an impressive building in downtown Hershey, Pa., where the street lights are covered with Hershey’s Kisses. There’s no doubt that hosting retailers at the GCIC in the iconic city helps to put them in the candy spirit.
Inside the building, historical facts and consumer data are mixed in among artistic renderings of Hershey Co. logos on the walls, and although visitors start their visit in a conference room, they spend most of their time in a theatrical staging area that features a variety of displays.
“We’ve gotten really smart about how we have our meetings. It’s very experiential,” says Larry Thomas, senior manager of the GCIC. “It’s very engaging, so all the people come in [the conference room] thinking, ‘Okay, now we’ll be PowerPointed.’ But it’s just a basic set-up of the meeting. It’s, here’s the agenda, here’s the introductions, here’s an opportunity for the customer to speak to us because they like to tell their story to us — as much as we do to them. Then, we’ll have someone from Hershey talk about the Hershey vision and where we’re going. Then, we’re up and moving the rest of the day. All of a sudden they’re off their guard because we’re out of this room.”
And all of the tours are individualized for the retailers.
“There’s so much to see,” Thomas explains. “We only address what’s appropriate for that particular retailer. So, if it’s pay point and its everyday and maybe seasonal, they would never come to some of the other areas.”
It opened in 2006, and was expanded once in 2011 and again 2016. In 2018, Hershey also launched a traveling tractor trailer version designed to accommodate convenience stores.
Hershey walked Candy Industry Magazine through the main GCIC in early April, just days after the 2019 refresh was finished. It includes various displays, such as one designed around self-check outs, another featuring seasonal products, and another highlighting snacking aisles that include confectionery items.
“What we did with this latest refresh is incorporate digital into every story,” says David Nolen, v.p. of category management. “It’s not separate; digital isn’t a separate conversation. It’s total commerce and understanding the path to purchase — 80 percent of the influence of buying in the physical is done through the digital.”
Retailers who visit get a chance to meet with category and subject matter experts as well as sales people.
“Our most effective meetings are when we pair our sales people with subject matter experts so that it’s more of an education-based conversation around what we know about shopper insights and how we satisfy the shoppers,” Thomas says.
The tours range from information about the basics like register organization, to more sophisticated information about cross merchandising and time-of-day sales, which includes featuring different items at different points in the day. For example, if a store has a dedicated end cap for doughnuts, but they stop selling after 10 a.m., how can they better use that space the rest of the day?
“One of the things that popped up for us is late at night, the gamers are buying an energy drink and a Reese’s King Size bar because they’re up late and they’re doing their gaming,” Nolen says. “We’re always looking at new occasions, and how do we incorporate the right bundles in the occasions to the merchandise?”
And that is based on data they gather from retailers and time-of-day analytics. Another time-of-day insight they highlight was that many consumers purchase a Kit Kat with their coffee, so they encourage retailers to pair the two together. Then they run local radio ads that are retailer specific and encourage morning commuters to stop into that specific convenience store.
The 2019 GCIC also includes an example for stores to follow for click and collect areas — where consumers pick up the items they purchased online. Nolen says almost 80 percent of those customers are still going into the stores to get their items, which means there’s one more opportunity to add on items like snacks and beverages.
The model includes a pick-up locker area that might exist in a physical store, surrounded by confectionery and beverage displays.
“This would represent a pick-up point in the store and making sure you have the opportunity to convert a snack or confection as you pick up your product,” Nolen explains.
The GCIC also includes a model for self-checkouts that includes a single queue line that filters into all the registers, and is filled with add-on items. Nolen says about 60 percent of transactions are moving to self-check lanes.
“What happens is this is typically an operations initiative to save labor. They don’t typically think about the merchandising that they should be adding,” Nolen says.
Then there’s the candy aisle, which of course, Hershey also has insights into. The GCIC features an ideal candy aisle that was created with virtual testing.
“We did around 20 different variations of different sets, and this is the gold standard to get what’s best for the retailer and for shopper,” Nolen says. “And it’s all about the usage, not necessarily brand blocking because you put all your brands together across all these different usages, it gets very confusing for the shopper.”
In short, products need to be easier to find, then categorized with the right groups of candy or snacks.
“The big frustration is shoppers can’t find what they’re looking for,” Nolen says of their research. “It’s all different colors, and we find that if you organize it by usage occasion they can find what they’re looking for quickly and that can drive category growth.”
Also, the end cap of the candy aisle should be stocked with candy, because it can signal to shoppers where to look in the store.
“If you had a beacon end cap that you can find in the aisle, then that draws them into the aisle by leading with these big brands and then drawing them all the way down the aisle to drive conversion,” Nolen says.
The 2019 GCIC also highlights digital shelf signs, which can be updated with different prices and messaging.
“If you see this, you’d engage it,” Thomas explains. “I can put any message on there, and as you get closer to it, there’s a motion sensor in the camera. When you get closer to it, it pops up and the prices come up. There’s also an inventory control aspect to this, too, so it tells me if I’ve got Reese’s party bags on sale and I’m out of stock, the message goes to the store manager, ‘Hey, you’ve got to get some product on the shelf.’”
The GCIC also has a seasonal insights area, and one of the suggestions is to put seasonal candy out even earlier than they do now. For example, while they don’t suggest a full Easter aisle after the first of the year, they do recommend that retailers put out Cadbury Eggs in January because not only does it let consumers know that Easter is coming, the eggs also will sell that early.
In addition, there are new products on display, like the Hershey’s Milk Chocolate Bar filled with Reese’s Pieces candy, which was launched after the success of the Reese’s Peanut Butter cups filled with Reese’s Pieces. There’s also Reese’s Thins, which have already seen lots of interest.
“We do a lot of consumer research,” Zhu says. “So, for example consumers want different textures, right? So, that’s why we launched a product like Cookie Layer Crunch. The consumer also wants different flavors, so that’s why we launched it in different flavors. And, consumer wants inclusions, so that’s why we have Reese’s Peanut Butter cups with Reese’s Pieces.”
Creating those new products requires more insight, and the production side of things has to be involved.
That’s where Zhu, with her supply chain expertise, and Hinegardner, with his plant operations expertise, come in.
“It gets back to how our equipment is designed and all that. We can pretty much put inclusions in about anything. The question is what inclusion does the consumer want?” Hinegardner says, specifically discussing the Reese’s Peanut Butter cups filled with Reese’s Pieces candy. “We have a lot of flexibility. That’s the type of complexity that we would say is maybe smart complexity or easy complexity, where it really doesn’t cost much investment or changeovers or pain in manufacturing, and we love innovation like that.”
The Reese’s Thins were so successful that retailers asked for them early. Sales was more than happy to say yes, but they needed supply chain to accommodate the request.
“Two customers just came to us and said, ‘We want them early,’” Zhu says. “So, having supply chain talking to customers in real time, we can tell them, ‘Yes, we can deliver this early,’ or, ‘No, we cannot.’ Or if we know there’s a strong pull, we can manage or adjust our manufacturing.”
Hershey has been steadfast in its commitment to U.S. manufacturing, with multiple expansions and upgrades to its U.S. plants in the last few years.
The biggest undertaking was the company’s 2012 300,000-sq.-ft. manufacturing addition to its West Hershey plant in Hershey, Pa.
It involved combining three different cultures and now, seven years later, Hinegardner says it was a success. There was the original West Hershey plant employees, the workers from the original Hershey plant, and the new employees.
“So a lot of the focus through that period was that you had to define and create and get everyone behind the same culture,” explains Hinegardner, who was plant manager at the time. “And it’s not that the original Hershey plant culture wasn’t great, and it’s not that the original West Hershey culture wasn’t great. But you had to build everyone around specific Hershey values.”
It was important for them to remember that changing culture starts at the foundation.
“When you look at a culture — that is defined by everyone, right? And culture isn’t generated from above,” Hinegardner says. “So, it took significant resources to get everyone’s input into what we wanted to plan to be for all that training and culture development. We came up with those. Now, the great thing is those tied directly into our Hershey values.”
But Hershey hasn’t rested in the time since the 2012 expansion. Most recently, they added a line in the West Hershey plant for Cookie’s ‘n’ Creme, which is one of the fastest growing segments in the market.
“It resonates with certain group of consumers, for example, the Hispanic consumers,” Zhu says. “So, as we saw the growth, we believed it was the right thing for us to bring that in house.”
The new line came with a lot of benefits.
“You bring it under the Hershey manufacturing processes and people, and so you’d like to think when you do something like that, you increase quality,” Hinegardner explains. “We actually brought in a brand-new production line. And it fit well because we make the white chocolate here on site. So, instead of having to send away chocolate to a co-manufacturer, now we have the efficiency of having that chocolate here already. So we put in a brand-new production line that includes from the time you mould the bar all the way through wrapping and cartoning and palletizing.”
They’ve also added a new Kit Kat line to the factory in Hazleton, Pa., which brought about 90 jobs to that area and started running in January. And they also are planning to upgrade another Kit Kat line at the Reese’s plant in Hershey, Pa.
“So with the growth of the Kit Kat brand, we recognized there’s a lot of need for innovation and new items,” Hinegardner says. “And so we’re going to be doing more line modifications, adding capabilities basically to do different types of Kit Kat.”
And of course, they had to make all the factory upgrades to accommodate the new stand-up packaging.
Hershey also has moved their corporate offices into the original Hershey’s chocolate factory in downtown Hershey, Pa. The beautiful office space is flooded with natural light and includes antique confectionery equipment as art installations.
All of Hershey’s upgrades aren’t just to the physical space, though.
They also have had to change how they approach training and institutional knowledge, especially since the West Hershey plant includes so much technology and automation. And the jobs are very different than they were even 10 years ago.
“So, in the past, you would get an employee, maybe spend two weeks training them about safety and quality and then you’d send them out with one of our older employees to go and learn your job,” Hinegardner says. “Now, it takes three months to a year for most of our employees to become qualified. The jobs have become very highly automated and require a lot of technical knowledge and understanding of the technology.”
The process includes training modules that help standardize what they teach employees and also formalizes some of the institutional knowledge that they used to depend on from staff that may be retiring soon.
“Employees learn differently now, much more technologically based, and the interaction with technology is considerably different than what has been,” Hinegardner says.
Zhu says they are able to keep labor costs down in the U.S. through automation.
“From our side, especially given the low unemployment rate, we need to look at automation to drive efficiency and consistency. So, we standardized things that are ‘repetitive work,’ so you see that a lot on the packaging side, the palletizers, the robotic arms,” she explains. “We also have a lot of automation in the ingredient processing as well as in the conching area. You really don’t see many operators until you get to the control room. So, we really look at where technology adds the most value to drive automation.”
The future of supply chain
Hershey also is focused on the future of supply chain, which helps make supply chain a competitive advantage for Hershey.
“I always tell people supply chain is about making the right product at the right quality at the right cost and delivering it to the right place at the right time,” Zhu explains.
Supply Chain 2.0 starts with a focus on advance planning.
“How can we make sure we anticipate customer and consumer requirements and plan our production and all supply accordingly?” Zhu says.
The second area is a managed complexity.
“Consumers want variety. We want to give them what they need, what they want. We want to generate innovation and drive the innovation to drive growth for our customers as well as for Hershey. With that comes complexity,” Zhu explains. “So, we need to make sure that we manage complexity the right way.
Then they look at integrated supply.
“How do we drive the broader supply to not just within the four walls of Hershey but within our supplier community?” Zhu asked.
And the next piece is agile fulfillment.
“How do we make sure that we fulfill the different requirements, whether it’s e-commerce, or whether it’s big box retailers,” Zhu says. “Each customer wants different pack types and we need to provide that.”
Then there’s manufacturing.
“How do we apply the latest technology, whether its ingredient processing, whether it’s quality control, whether it’s automation?” Zhu asks. “Having smart manufacturing using the latest technology to drive quality, efficiency and improved food safety.”
And all of it helps the entire company realize that what one person does is always connected to what others are doing at Hershey.
“We look at shifts in our consumer trends. We look hard at syndicated data, we look at customer specific data, we look at different channel data and all of those are flowed through the entire organization,” Zhu says. “So, I think we are a consumer-centric, innovation-driven company and that’s also the guiding principles as we look at how we design the supply chain organization as well.”
It would be impossible to talk about supply chain without mentioning sustainable cocoa.
Hershey’s main efforts here are called Cocoa For Good, which is a holistic, sustainable cocoa program. Specifically, the company says it is investing half a billion dollars by 2030 to, “nourish children, elevate youth, build prosperous communities and preserve natural ecosystems.”
Hershey says the program looks to:
- Increase access to nutritious foods. Families need access to nutritious foods to live healthy lives and avoid issues like anemia, which affects 1.6 billion people worldwide.
- Eliminate child labor. A symptom of poverty in cocoa communities, children are at the greatest risk.
- Economically empower women. West African women are 45 percent of cocoa farm labor, but have less access to training, financial services and land than men.
- Increase agroforestry and shade-grown cocoa. Cocoa grown in the shade is productive for up to 15 years longer than cocoa grown in full sun.
Hershey also works closely with its suppliers to make sure they are getting sustainable cocoa, although that doesn’t necessarily mean they are in contact with the farmers.
“Very few people can reach the farmers directly, especially large candy companies like the Hershey Company,” Zhu explains. “Now through our suppliers, we do go through various traceability programs so that we leverage resources for suppliers on the ground in origin countries to make sure that we provide training, certification, and various community empowerment programs — such as female empowerment and education for children. And to make sure that we not only have this ability, but also make an impact for the cocoa farmers who produce for us indirectly today.”
The majority of Hershey’s plants are zero-waste landfill, including the West Hershey plant.
“What that means is we have highly developed recycling programs,” Hinegardner explains. “So, when you look at any of these bars, things like the foil and the wrappers and the core, all that stuff, is pretty much going to some type of recycling.
They also put candy that’s not quite perfect through the rework line.
“If a Kit Kat comes off the line and it doesn’t look perfect, we send it through rework,” Zhu says.
In the end rework is a great way to describe Hershey in general. The company never stops reworking product lines, manufacturing plants and approaches to the confectionery industry as a whole.
And as long as the company keeps doing that, it’ll likely be making Kit Kats and all the other brands for at least another 125 years.