Hershey puts faith in Bliss to recapture market share

CHICAGO —  After months of turmoil, chocolate maker Hershey Co. is pinning its hopes on Bliss.

Bliss, a new premium chocolate candy, will be more closely watched than most product launches, as investors look for signs that the largest U.S. chocolate maker can recapture market share lost to rivals such as Mars Inc.

“It’s key for their future in that much of the growth in the chocolate category now is in premium and Hershey really lacks a presence in that category,” said Morningstar Inc. analyst Mitchell Corwin. “It’s important that Hershey shows it can offer a premium product under the Hershey brand name.”

Hershey’s management has acknowledged that it lacks the products to take advantage of demand for premium and dark chocolates.

Missing out on growth in those segments was a key factor depressing Hershey sales and earnings last year, eventually leading to a sweeping overhaul of the board of directors orchestrated by the Hershey Trust, the company’s largest shareholder.

Hershey sales were nearly flat last year, while income, excluding restructuring charges, fell 15%. Adding to the turmoil, in October, Chairman and Chief Executive Richard Lenny unexpectedly left the Hershey, Pa.-based company amid reports of his differences with the trust.

Hershey is counting on Bliss and a new line of chocolates it is developing with Starbucks Corp. to help it gain ground in the premium segment.

“The Hershey’s Bliss launch absolutely is a major launch for us and as big as any launch we have done for years in the chocolate business,” said Jay Cooper, vice president of U.S. chocolate brands for Hershey.

Bliss, a piece of chocolate with a rounded top that fits in the roof of the mouth, will be priced at $3 to $3.99 for a 36-piece bag. The candy will come in dark chocolate, milk chocolate and milk chocolate with a melt-away center.

The dark chocolate and premium chocolate segments have been growing much faster than milk chocolate.

In the 52 weeks ended Jan. 26, total U.S. packaged chocolate sales rose 4.2%, according to Nielsen Co., but premium chocolate sales rose 28.5% and dark chocolate sales rose 28.9%.

“It would be a huge step in the right direction if they can get it off the ground,” said Matt Arnold, an analyst at investment firm Edward Jones.

One reason for the growth of the dark chocolate and premium segments is that antioxidant-rich dark chocolate could have a health benefit, according to recent studies. Another is that there are simply more products in those segments now.

But whether Hershey -- known for mainstream products such as milk chocolate bars and Reese’s peanut butter cups -- can succeed against such names as Lindt and Ghirardelli is another question, said Brian Morgan, a senior analyst at research firm Euromonitor International.

“There’s so much competition. I don’t quite understand the strategy of attaching the Hershey name on those premium lines and throwing them out there on the shelves,” Morgan said.

But Cooper said consumers had been asking Hershey for a product in the premium or “indulgent” chocolate segment.

“Consumers were saying: ‘We expect you to play a role. We have so much of an emotional connection that we expect you to be there, and why haven’t you been there before?’ ” Cooper said.

U.S. consumers will actually be inundated with bliss in the next few weeks.

Hershey’s Bliss is launching in March, while Kellogg Co.’s own Bliss, a Special K bar made of cereal and fruit pieces with a “chocolaty” bottom, is already on the shelves.

Hershey and Kellogg have faced similar challenges, including soaring commodity costs and a weakening U.S. economy, but Kellogg shares are up 1% over the last year, while Hershey’s are down 32%.

Kellogg’s Bliss is an addition to a successful platform that is part of the company’s attempt to promote Special K as a weight-control product throughout the day.