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No Quibbles with Nibbles
Savvy merchandising and diet trends can mean fat profits in snacks
By Cecelia Blalock
We are a nation of nibblers. Whether a quick pick-me-up or substitute for a missed meal, snacks are part of virtually everyone’s daily routine. Our snacks must match our lifestyles. As consumers, we want products that offer convenience, variety, something new and different, and that fit our diet du jour. Manufacturers have been quick to respond with a host of snack items that expand the definition of "snack" beyond the usual chips, pretzels, popcorn and cookies.
That’s great news for convenience stores, where snacks are the highest impulse category and account for a sizeable portion of overall sales. New products keep a category fresh and may offer higher margins, while diet fads can boost old favorites. But challenges abound. Deciding what to carry and where to place it has never been more critical.
Traditional salty snacks accounted for nearly $9.8 billion in sales in food, drug, convenience, and mass market outlets in the 52 weeks ending December 20, 2003, according to ACNielsen. Of that, convenience stores accounted for some $1.6 billion. Potato chips remain the category leader, with tortilla chips in second place. But sales growth for both items was nearly flat, according to both ACNielson and IRI data.
When it comes to chips, there is a continuation of trends with more sophisticated flavors being offered, says Ann Wilks, director of communications for the Snack Food Association. Any growth is good because it is a saturated item.
"Regional flavors are playing more of a role," she says. "In the south, for example, you have to carry several flavors of barbecue chips. In the mid-Atlantic area, Herr’s is offering crab chips seasoned with the popular Old Bay seasoning. Frito-Lay has its Taste of America line."
Manufacturers also are paying more attention to marketing snacks to children, Wilks says. They license popular characters or do something to the snack to boost its kid appeal, like Pepperidge Farm’s Goldfish crackers in colors.
An Edge to Warehouse Delivered
While overall sales of salty snacks may be flat (up a mere 1.6 percent for the 52 weeks ending December 28, 2003, according to IRI), they are doing just fine in many c-stores.
"Our salty snack sales were up 30 percent in 2003 over the previous year and are showing the greatest growth," reported Greg Kaminski, corporate category manager for candy and snacks for Core-Mark International. "I think it is partly due to the efforts of the Warehouse Delivered Snack Association to get the word out to retailers that warehouse snacks warrant more and better shelf space because of high product quality, consumer demand, and increased margins and profitability. Also, manufacturers are introducing innovative products."
In most c-stores, DSD snacks account for as much as 70 to 75 percent of shelf space. Wholesalers and manufacturers are encouraging retailers to strike a difference balance and give more and better space to warehouse delivered snacks which offer higher profit margins. Whatever the allocation, merchandising is key.
"In our region, salty snacks are still growing," says Jeffrey Leedy, vice president of marketing for Rutter’s, a York, PA, company that operates Rutter’s Farm Stores. "The category is dominated by regional players whose profits are on par with Frito-Lay.
"The greatest opportunity is in being a better merchandiser than the competition," Leedy says. "We do a lot of merchandising that involves multiple manufacturers. We own the display piece and the rights to put on it what we want."
The idea of combining the best selling and higher margin snack items on a multi-vendor end cap (MVE) is at the heart of the Warehouse Delivered Snack Project guided by AWMA. Wholesalers work with retailers to select which items to place on the MVE and then monitor the display to keep it up-to-date and well stocked. Retailers involved in the program reported an increase of 63 percent in overall snack sales in 2003. Sales of products on the MVE climbed 114 percent.
When Steve Jenkins, president and CEO of Marketplace Distribution Inc. of New Philadelphia, OH, saw sales of salted snacks leveling off, he encouraged his retail customers to do a better job of merchandising.
"Merchandising opportunities in c-stores are limited because of space," Jenkins says. "The key is to redirect the customer to traverse the store more efficiently while being exposed to more product. We spend time on the total store layout. We want customers to walk around center end caps and not just go directly to the checkout."
Traditional salty snacks remain the big sellers at Love’s, a chain of 158 stores in 24 states based in Oklahoma City, according to PR Director Jenny Love Meyer. They tweak around the edges of the old stand-bys, trying out new flavors in chips to see what sells well. Merchandising is just as important.
"Setting up displays and moving product around makes a difference," Love says. "Moving product around keeps people interested and when you move product to the front it sells."
Paging Dr. Atkins
Carb has become a four-letter word to the millions of Americans who have jumped on the low carb bandwagon, made famous most notably by the late Dr. Robert Atkins. Manufacturers are coming out with low carb varieties of practically everything but celery. Atkins has rolled out its own line of products.
That’s bad news for traditional pretzels, but great news for pork rinds and meat snacks, for which sales have skyrocketed. According to ACNielsen figures, pork rind sales were over $122 million in the 52 weeks ending December 27, 2003, up some 34 percent over the previous year. The c-store channel accounted for almost half those sales. IRI data showed sales of meat snacks climbed to $290 million, up nearly 15 percent. Snack nuts have risen in popularity with sales of over $1.2 billion in that period, a jump of 15 percent, according to IRI.
The low carb craze has prompted a slew of low carb bars, some by smaller niche players and others from such well known diet-related brands as Slim Fast.
There has been definite growth in the low carb diet bar, confirmed S. Will McBurney, sales and marketing manager for Snakking, a large snack food manufacturer based in City of Industry, CA. Pork rinds and pork cracklins are doing well and the company is seeking to expand the pork rind segment with additional flavors. In addition, it is looking at a low carb tortilla made with soy protein and flax seed.
Diets come and go, often after generating a slew of products, but low carb is showing signs of sticking around. The bigger manufacturers are becoming involved and the medical community has come around to some extent. Just as important, today’s low carb products taste better than their ancestors.
"It’s been very interesting," says Meyer. "A lot of our markets are in rural areas or small towns. Even there people are buying low carb products. It’s amazing."
The challenge for wholesalers in particular is to determine how much space in a c-store to dedicate to low carb products, says Kaminski. Or how much of the low carb product to handle.
Low carb products are just getting down to the c-store channel, says Dan Johnson, vice president of marketing for Amcon Distributing, of Omaha, NE.
"In the last three months we’ve had a lot of products offered to us," he reports. "But shipping is a problem. Companies are behind in manufacturing for c-stores." Atkins, for example, says it won’t ship until at least March or later in the spring.
Johnson says it’s hard to tell if the current interest in low carb is a fad or if it will last. But it’s easier to make a commitment to carry the items when bigger companies get into it because distributors already have arrangements with these companies.
Rutter’s has seen an explosion in the sale of meat snacks due to the heightened interest in low carb products, but Leedy thinks the phenomenon may be relatively short lived.
"In five years I expect the no or low carb fad will mitigate and will evolve into something else," he says.
He may be right, if the low fat craze is any example.
"There’s not a lot of increase in low fat," says McBurney. "We’re still selling full fat, full flavor items. Low fat has largely gone away. People are now looking for protein and low carb. There aren’t a lot of low fat snack offerings. You’re seeing more low carb."
A hot diet will have some influence for a while, agreed Wilks of the Snack Food Association. But it won’t influence the category for years to come. Convenience and new flavors will have a longer term effect.
To Your Health
One trend that is likely to last is the interest in eating a more healthful diet. When it comes to snacks, it’s all in the definition. Some people consider low fat or low carb items to be a healthy snack. Some products have a healthy image, which might or might not be accurate. Purists tend to define healthy snacks more narrowly and include only organic and natural snacks.
According to ACNielsen Scan Track:SPINS Natural Track, sales of natural and organic snacks increased 14 percent in the 52 weeks ending December 27, 2003, accounting for $927 million in mainstream food/drug/mass merchandise outlets.
Regional differences also come into play. According to Omaha-based Johnson, the primary c-store customer is an 18-35 year old male who is happy if the product simply says it’s healthy. For California-based Core-Mark, healthy snacks continue to drive sales, says Kaminski.
Bars have become a staple of the healthy snacks segment. The early cereal bars, while still prevalent, have evolved into a variety of health bars designed to meet the needs of specific groups, such as athletes, dieters, of those with specific health concerns. Sales of energy bars are up 9 percent at Core-Mark. Dairy-based products such as drinks and yogurt also have extended the healthy snack segment.
Rutter’s has seen an expansion of what customers perceive as healthier snacks, Leedy noted. It is stocking more bars of various types. More of these products are warehouse delivered rather than DSD. Stores are consolidating their candy racks and reconfiguring the space for meat snacks and healthy snack alternatives.
"A lot of the growth in healthy snacks has been in new product introduction," says Leedy. "The life cycle of these products is much shorter and there is a lot of change in the category. The extensions of product lines put a lot of pressure on retailers because we don’t have room. We look at this segment twice a year. We have to be very disciplined to cut off the bottom 20-30 percent of poor sellers and replace them with new items."
New and Profitable
When it comes to impulse buying, consumers often are attracted to what’s new. With snacks, that desire for something new can work to the benefit of a c-store operator. With so much of the snack category dominated by Frito-Lay, which controls retailers’ margins and fixed costs, new, higher margin items are the only way for retailers to fight back, says McBurney.
"C-stores are willing to carry more upscale items and customers are willing to pay for uniqueness," he says. But within limits.
Old Lyme Gourmet of Old Lyme, CT, manufactures a line of upscale popcorn, kettle corn, and pretzels available only in specialty stores. While preserving the integrity of its distribution channel for the Old Lyme brand, the company reformulated its gourmet recipes to create the Deep Run Snack line specifically for c-stores with appropriate price points.
"The c-store line is completely separate from the gourmet line and is a price-oriented product," explained company president Jim Goldberg. "But all our brands are tied to quality.
"In my experience, retailers are looking for something new with good margins and certain price targets. We can be very aggressive in pricing because we have flexibility. There is a level where people won’t buy a cheap brand but they will only pay so much. So you have to find a balance."
Partnering
Much can be gained from solid partnerships between manufacturers, wholesalers, and retailers, but issues need to be addressed.
Retailers always want the latest snacks to keep their customers interested, but new products carry inherent risks for wholesalers. Retailers often demand a guarantee before taking the products and, says Johnson, "it is getting harder and harder to get manufacturers to honor their products. They offer us a percentage of the sales to offer retailers guarantees, but that percentage often doesn’t cover the cost. Smaller manufacturers often aren’t there when their products don’t sell. It makes us more conservative about picking new items because of the high cost of getting new products in and out."
Partnerships are important, agreed Leedy, but buying decisions should be driven by knowledge of the category and a track record of success. "Our supplier partners have limited vision of the whole category," he says.
Snacking is a way of life for most people and shows no signs of slowing down. As a snack food manufacturer, McBurney looks ahead and sees a trend that highlights more unique products offering more variety. There must be innovation if the category is going to continue to grow, he says.
Cecelia Blalock is a food industry writer based in Jessup, MD.
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