• by Nina Lentini  @Nina_Lentini, January 25, 2007

Hershey will rely on ramped-up consumer marketing spending to bring it out of a slump this year. The nation's largest candy maker yesterday reported a dismal fourth quarter due largely to aggressive trade promotion to clear out unsold merchandise, and CEO Richard H. Lenny said the company will take "fewer, but bigger, initiatives" this year.

Hershey will introduce an organic chocolate bar, expand into China, and increase U.S. advertising for Reese's Peanut Butter Cups and chocolate Kisses. The 2007 growth plan, Lenny said, will be "driven by a step-up in core brand investment and support of new product platforms."

Hershey's U.S. market share declined to 42.5% in the 13 weeks ended Dec. 24 from 43.5% at the end of the fourth quarter in 2005, according to Information Resources Inc. Mars's market share, meanwhile, climbed to 25.9% from 24.2% a year earlier. The IRI data excludes sales to Wal-Mart.

For its Kisses, the company plans to mark the brand's centennial in 2007 with new advertising, customized flavors and consumer events such as the recent issuing of the "Love and Kisses" U.S. postage stamp. Lenny said Hershey will double consumer support by increasing media usage, particularly network and in-store TV. He said the company enjoyed a greater return on its investment over the holidays by running ads on Wal-Mart TVs in 3,000 stores. Also on tap are single-serve Kisses Truffles based on Hershey's positive experience with Truffle Nuggets.

For Reese's, which is the largest and most profitable of its brands, Hershey will introduce new products based on Crispy Crunchy's "Good Start" and dedicated advertising to build brand awareness for that product will begin this month, Lenny said. There will also be a new advertising campaign for the core Reese's Peanut Butter Cup later in the quarter with an investment that will "more than double" in 2007.

In-store events such as those planned to coincide with the launch this year of the limited-edition Elvis Presley-related item will increase, and a partnership is underway between Coca-Cola and Reese's at convenience stores. Hershey will also introduce a dark chocolate Reese's as that dark chocolate continues its spectacular rise.

Lenny said sales of Hershey's dark chocolate doubled in the past two years. Cacao Reserve by Hershey, introduced late last year, will run tie-ins with such upscale magazines as Wine Spectator and Cigar Aficionado. ("Life is good" store displays for the dark chocolate brand revel in how red wine, and now dark chocolate, have been determined to be good for you.)

Lenny said the company plans innovative packaging--including stand-up pouches--for its Special Dark and Extra Dark varieties. Consumer marketing spending for those items will double in 2007. The company is introducing Hershey Whole Bean Chocolate, with less sugar and more fiber; antioxidant milk chocolate; and organic chocolate bars, all of which will be available by mid-year.

The company's portion-control snack items will continue, having provided $200 million in retail sales last year.

On the refreshment side, the company is "on trend" with Icebreakers, Lenny said, and will introduce new wellness mints and gums with such ingredients as ginseng, green tea and vitamins. New ads will support those launches.

David J. West--the company's chief financial officer, who was named chief operating officer on Wednesday--said the company was "encouraged" by the performance of dark and premium chocolate and drinks, which were up during the quarter. However, results were hurt by higher markdown expenses during Halloween and the holiday season due to lower-than-expected sales.

A product recall in Canada also hurt results, Hershey said. In November, Hershey closed a plant in Canada for six weeks and recalled products such as Hershey bars, Reese's Peanut Butter Cups and Oh Henry! bars after salmonella bacteria turned up, resulting in a profit loss of about 1 cent per share.

Hershey also said it has entered into an agreement with an Asian company to make candy in China.