Michele Buck, Hershey chairman, president and CEO, recently addressed the reasoning behind the company’s acquisition of Lily’s Chocolate. Hershey completed the acquisition in late June 2021 for $425 million.
Lily’s mission is to offer consumers a range of great-tasting, low-sugar premium treats.
But as Alexia Howard of Bernstein & Co. pointed out on the Second Quarter Earnings Q&A call, Hershey recently sold Scharffen Berger and DAGOBA. Howard noted that Hershey has been, “trying to make premium work for quite some time.”
“What’s the difference about Lily’s that makes you confident that you can actually make this work this time, versus some of the problems that you’ve had in the past?" Howard asked.
Buck responded by saying that what Hershey really likes about Lily’s is that it is a scale business.
“So it is close to that $100 million in size, whereas Scharffen Berger and DAGOBA were much smaller, in the $30 million range,” she explained. “We’ve found over time, and I think we’ve shared this before that, for us, a good acquisition being around close to that $100 million mark has been built enough that we can really best apply our capabilities around distribution, manufacturing, synergies, additional marketing, kind of more broad-based marketing, etc., to really help to make the acquisition a success.”
Buck added that Lily’s was unique in its market focus.
“Lily’s is single-mindedly focused on better-for-you; so while it is premium, it has a very distinct understandable benefit that those consumers understand, which is about the lack of sugar. That also gives us a lot of confidence that it fits very neatly into our operating model,” she said. “As you know, we have already launched a broader portfolio of better-for-you on our core brands, and so that whole better-for-you area is a big point of focus for us. There’s some nice synergy in terms of our focus there.”
Based in Boulder, Colorado, Lily's traces its roots to co-founder Cynthia Tice's decision to raise awareness about better-for-you foods by opening Center Foods, a natural foods store, in Philadelphia in 1978. In 2012, Cynthia launched four Lily's chocolate-style bars nationally in Whole Foods Market. The expanded line of bars, baking chips and other confections can be found across the country at key retailers.