Sweet innovation: How private label candy wins with consumers

From Aldi to Amazon, private label products seem to be the recipe for success in today’s grocery market. However, there is one notable sector where this formula for success has yet to grab the imagination of the consumer and topple the dominance of name brands: candy.

When candy comes to mind, manufacturers including Mars, Hershey and Spangler pop to the top of the list. With their iconic brands like Butterfinger, Reese’s, Hershey’s bars and Smarties, it is difficult to imagine a candy aisle without them. However, along the same rows are plenty of other options from retailers including CVS, Trader Joe’s, Safeway, World Market, Costco and even Starbucks. These house brands are just beginning to seize a significant portion of the market, especially among multicultural customers.

Private label or branded, Americans love candy. Most people in the U.S. enjoy chocolate and candy about two to three times per week, according to data from the federal National Health and Nutrition Examination Survey. Even with sugar on the dietary naughty list, those who make and sell candy don’t seem averse to flaunting the fact that they deal in large part with indulgent ingredients. After all, people aren’t eating candy for health reasons.

“With the broad, protracted conversation about food ingredients like sugar happening in the U.S. and around the world, chocolate and candy are — put simply — treats,” Christopher Gindlesperger, senior vice president of public affairs and communications from the National Confectioners Association told Food Dive via email.

Even amid a cultural shift toward clean labels and health-focused products, the candy industry is still in a sweet spot. According to Nielsen, annual candy sales have grown 2% to 4% since 2010, and the industry is expected to grow an additional 3.5% between 2018-2023.

Chocolate, in particular, remains in a strong position. Data from Statista shows U.S. chocolate consumption continues to steadily rise, with sales expected to reach $22.4 billion in 2017 — an increase of $2.3 billion from just four years ago. A significant portion of this growth in chocolate consumption is coming from premium chocolate, which Gindlesperger explained has particularly driven the overall gains in private label.

To further fuel this growth, Retailers like Wegman’s, Hy-Vee and Kroger offer private label chocolates and candy that features unique flavor profiles that are promoted with in-store merchandising — often alongside an enticing pairing like wine or celebratory decorations.

Diana Glover-Pirelli, vice president of sales atSweet Shop USA, a confectioner that does private label work, agreed that in-store merchandising is “one huge direction” in which retailers are looking to promote private label. By promoting these treats in-person, she said, retailers are able to allow their customers to taste treats whose labels they might not recognize. After all, those labels are one big advantage that brand-name candies have over private label when it comes to impulse buys. Private label treats, however, have the advantage of being tailored to the customer.

“They know their customers and the packaging (as well as) the merchandising. Where they merchandise it at and the time of year that they merchandise it at is all key to the success of their program,” said Glover-Pirelli. She noted that for many of Sweet Shop’s private label clients, success is found more and more through enticing consumers to purchase on impulse.

Knowing the market

Private label is a win-win for both the customer and the retailer because it offers an ideal method for retailers to adjust offerings in accordance with demographics demands. So it’s no wonder that private brand performance across retail dramatically increased last year, posting sales of $138 billion in the U.S., according to a new report from the Food Marketing Institute and IRI.

Even though private label sales are growing, according to the Private Label Manufacturers Association, shoppers save $30 billion annually by shopping for private labels. At the same time, stores earn higher margins and lock in customer loyalty when they promote their own brands. Plus, in-store brands give retailers more control over what goes into the products, which presents a key avenue of differentiation in an increasingly competitive market.

“Private label offers a really good value for the consumer and an ability for the company to help shape the sort of products they want to have represented on their shelves,” Marty Palmer, president and CEO of private label manufacturerPalmer’s Candies, told Food Dive.

What customers want on shelves, however, is varied. According to Gindlesperger, private label chocolates tend to be more premium items with a higher cocoa content that is paired with unique flavor experiences “ranging from fruits to nuts to spice infusions.” Often “retailers are creating their own brands with premium chocolates to capitalize on millennial ‘food explorers’ who seek unique flavors and experiences even when treating themselves, their families or sharing with friends,” he said.

However, from the specialty perspective of Sweet Shop USA, which provides private label to both high-end retailers like Neiman Marcus and convenience stores like Buc-ee’s, it is simple, classic grab-and-go treats that are driving sales.

“We used to be known for doing our really pretty boxed chocolates. We’ve seen a decline in our boxed chocolates …and they’re going to the simple grab and gos,” said Glover-Pirreli.

The search for simple classics seems to only be one part of the equation. Plenty of retailers are driven to purchase through the private label route because of the ability it gives them to control the product from end to end to help follow industry trends.

Who’s more innovative?

“One of the reasons store chains come to us…[is] we’re sourcing the more interesting candies available out there,” Palmer explained. “We’re going to be the first to show new gummy items. We’re going to be first to have new flavor combinations and whatnot because for the food stores, it’s a dog-eat-dog world and they want to make sure that they have the most innovative things with their brand name on them.”

Similarly, Glover-Perreli noted that working with a private label is a bit like finding creative culinary freedom. Instead of being pigeonholed into a merchandising lineup that includes the same brand-name sweets that a consumer can find anywhere, retailers who pursue the private label route often do so in search of a delicious way to differentiate themselves from the competition. Sweet Shop USA has found success through catering to the kosher and organic niches through their FIT bars, which feature no sugar added options, as well as a multitude of trendy flavors like spicy peanut and a dark goji berry. 

However, customers may not yet be sold on the idea of private label candy. A report from Trace One showed that 69% of consumers say national brands are more innovative, and from a cursory inspection, the statistic seems persuasive. With their deep pockets, these large companies can invest in research and development and work to be the first to create (or acquire) the next big product.

Nevertheless, grocery stores who create their own product label have the advantage of being able to innovate on a smaller scale and tailor their products to correspond to local trends and preferences, allowing them to offer more personalization with their private labels while limiting distribution to encourage consumers to shop at their local supermarkets.

“In a private label environment, the customer we work with, they know what their customers want,” noted Glover-Pirreli.

And what customers want, it seems, is a treat.

An impulse for indulgence

Candy and chocolate are unique in that many purchases are made on impulse, tapping into the customers’ desire for a little self-indulgence with shelves of eye-catching treats at checkout lanes. In fact, recent studies show that placing items in checkout lines makes it easier for consumers to find and buy them.

Buying candy may be an impulse decision, but according to the National Confectioners Association, it is a conscious one. Indulgent snacks and treats are back in style and sweets are exactly the right fit for those moments when consumers step off the health train in favor of a little nostalgic delight.

“And what’s so great about that is that there’s full transparency around what chocolate and candy are — no one has ever picked up a piece of candy and asked, ‘Is there sugar in this?’ ” wrote Gindlesperger. 

At the same time that consumers are turning to candy for a moment of indulgent comfort, they are also discovering that it can be a way to reconnect to the past and the fond memories associated with simpler times — a throwback trend that is gaining popularity in many grocery product sectors. The only problem is that many of those formerly popular candies have disappeared off shelves. For stores whose clientele craves the tastes of days gone by, private label provides a preferred route for stores to replicate old brands.

“If you were looking for Bit O’ Honey, there might not be enough sold that that store has just Bit O’ Honey or Slow Pokes or Milk Duds,” explained Palmer. “But the store chain can offer [private label versions] to their consumer very easily.”

Beyond indulgence and innovation, private label is simply a bargain, both for the consumer and the retailer. 

“Because it offers a great value to a consumer and it’s a fairly easy decision on the part of the store buyer, we can give him the margins he’s looking for, we can give him the quality that he wants to dial in,” explained Palmer.

In fact, this combination of price, indulgence and innovation is the trifecta for private label manufacturers, and the sales prove it.

“Frankly, we have found over the past 10 years that it is growing all the time,” said Palmer. Although he was unable to disclose exact figures, he said that growth at Palmer’s Candies is “certainly plus 10%.”

Industry experts have also seen growth. The National Confectioners Association reported seeing “modest gains in private label sales” during the last several years, and Gindlesperger said he expects that trend to continue.

Big brands will still continue to find their place on the shelf, though.

“I don’t ever feel that we’re in the same category as the larger producers,” explained Glover-Pirreli.

That is not, however, a disadvantage. According to Palmer, since the customer ultimately drives trends and sales, private label sweets are in a prime position to adapt and excel, even more so than the manufacturing behemoths with deep pockets. Private label, he emphasized, is the easiest way to connect with consumers, keep tabs on changing taste preferences, and circumvent the laborious R&D processes to give them what they want faster.

“Everybody loves candy and they understand that it’s probably not going to be their most nutritious bite of their day, but they want to have something that’s fun and exciting and tasty. … Let’s make sure it represents something that fits in their diet, and we’re in a better position to do that than an individual store chain buyer,” he said.