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.
Wal-Mart yesterday announced a reorganization of its U.S. marketing and merchandising operations and made formal some personnel shifts rumored with increasing frequency in the weeks following the ouster of Julie Roehm as senior vice president of marketing. In a move that has been expected, the Bentonville, Ark.-retailer is shifting John Fleming, who had been chief marketing officer, to chief merchandising officer. Fleming will oversee Wal-Mart's grocery, entertainment, home and apparel divisions. Prior to joining Wal-Mart, Fleming built a stellar reputation at Target, where he ran fashion merchandising. Wal-Mart has admitted recently that its attempts to offer women more tempting apparel--long a Wal-Mart weak spot--have misfired. The company said Claire Watts, executive vice president of merchandising, will now lead the apparel merchandising area and report to Fleming. Stephen Quinn, who had been senior vice president of marketing, was promoted to chief marketing officer. Before joining Wal-Mart in 2005, Quinn had been CMO of PepsiCo's Frito-Lay division, and has also worked at Procter & Gamble, Johnson & Johnson, and Quaker Oats. Quinn reports to Eduardo Castro-Wright, president and CEO of Wal-Mart Stores U.S. The realignment appears to be an attempt to get back to the retailer's ambitious three-year plan to become more relevant to the company's diverse customer segments, creating various "neighborhood" models for different demographics. "As we enter year two, our focus will extend to merchandise assortment and marketing execution on the findings we identified in our customer research," said Castro-Wright in a statement. "I have a lot of confidence in the talent now charged with moving the company to the next level."
Allergan, which has turned Botox into a household name, is poised to launch new advertising to market its other injectable wrinkle reducer, Juvederm. The print portion of the new campaign breaks next month and is coming from Grey Worldwide, which handles Botox advertising. Allergan did not comment on the timing of the broadcast portion of the campaign, except to say that 30-second TV spots will start later this year and run on network and cable TV. A Web site for consumers and physicians launched last week for Juvederm Ultra and Ultra Plus. The site helps consumers find dermatologists who are approved in their area to administer the product, and features plenty of before-and-after photos. At the moment, consumers are being made aware of the Web site through a giant billboard in Times Square, which went up on Dec. 1 and will appear until Jan. 31. Professional communications--including patient information brochures--are part of the mix, along with what Allergan describes as "robust" public relations programs. Known predominantly as an eye care company, Allergan has become a giant in prescription dermatology products/cosmetics during the past few years, and last year took over competitor Inamed, which manufactures Juvederm. Unlike Botox, which works to reduce the look of lines by easing tension in facial muscles, Juvederm is in a class of products known as wrinkle fillers. Juvederm essentially smoothes wrinkles by plumping the skin. Its biggest competitor in the category is Restylane, made by Medics Pharmaceuticals. One potential area of confusion for consumers might be in discerning the differences between Botox and Juvederm--a topic which could presumably be addressed in ads. Conceivably, spots could also promote the use of both products simultaneously--laymen's terms for tightening the muscle/line with Botox, then softening or filling the area in with Juvederm. In fact, that combination therapy is something that many dermatologists have long been doing with Botox and Juvederm competitor Restylane. Grey and Allergan executives declined to describe forthcoming Juvederm creative other than to say ads would be "descriptive and informative of its uses and benefits," and clearly set up the indicated usage for the product "in the lower face," with other communications clearly differentiating the two products. Although doctors often inject Botox in other areas, it is only approved by the Food and Drug Administration for use in the vertical frown lines between the eyebrows. Juvederm, on the other hand, is recommended to "restore skin volume" and smooth facial wrinkles and folds, in areas including the smile lines and the lines that go from the nose to the mouth. In place of plastic surgery procedures such as facelifts and eye lifts, consumers have been moving toward less invasive injections in the name of youth and beauty. In 2005, the global market for dermal fillers was $442 million (up 200% since 2000), with the U.S. dermal filler market projected to grow 25% a year through 2011, according to research supplied by Allergan. Last year, 3.2 million Botox injections were administered--up 99% since Botox was approved for cosmetic application in 2002, the company says. The company also says growth of non-surgical aesthetic procedures is outpacing surgical procedures by three to one--dermal fillers being third, behind Botox and electronic hair removal.
Cingular Wireless, now the wireless arm of AT&T, yesterday reported that the holiday quarter was its best ever for net subscriber additions. Chairman and CEO Stan Sigman expressed optimism for this year as the brand converts to AT&T and gains new cachet from its connection with release of the iPhone, for which it is the exclusive wireless carrier. Cingular added 2.4 million customers during the key holiday retail season, compared with 1.8 million customer additions in the year-ago quarter and 1.4 million in the third quarter of 2006, the company reported. Cingular ended the quarter with 61 million subscribers--a year-over-year increase of 6.8 million customers. The company saw no change in subscriber churn for either post-paid or monthly customers from the third quarter of 2006, but did see a reduction in both categories from the year-ago quarter, which Chief Financial Officer Pete Ritcher said was a sign of customer satisfaction with increased customer service and product offerings. This is the last quarter that Cingular will report earnings independently. It will report earnings as a part of parent company AT&T in future quarters. Commenting on the transition from Cingular to AT&T which is currently underway, Sigman said, "We are excited to get behind the well-known and respected AT&T brand. While no brand transition is easy, we have done it many times before, we know how to do it and we know how to do it well." Average revenue per user increased to $49.29, a 0.8% increase from the year-ago quarter, but a drop from $49.76 in the third quarter of 2007. However, data revenue per user grew by 53% year-over-year to $7.19. The company had 32 million active data customers and delivered more than 12 billion text messages. The company was very enthusiastic about the data numbers, especially with its plan to continue a focus on music and data-driven products in 2007. "Since introducing the [Motorola] RAZR just after the close of the AT&T wireless merger, we have been known as the leader of delivering compelling wireless products and services to the marketplace," Sigman said. That reputation has been bolstered by the partnership with Apple to distribute the iPhone, Sigman said, expressing his enthusiasm for the product and predicting it will sell very well. Sigman also highlighted the success of Cingular's aggressive focus on music in 2006, which he believes will be further complemented by product offerings like the iPhone in 2007. "Our music strategy has been well received," Sigman said. "Customers enjoy their music their way, whether customers want to get their music from CDs, iTunes, Napster. We support it all."
Three leading auto economists predict that a slowdown in U.S. economic growth will have a ripple effect on auto sales this year, forecasting U.S. sales of light vehicles will remain steady or drop slightly -- to around 16.4 million units. But they expect gasoline prices will continue to decline, which could help segments such as sport-utility vehicles. Economists from General Motors Corp., Ford Motor Co. and DaimlerChrysler AG laid out their predictions earlier this month at the Society of Automotive Analysts meeting in Detroit. Van E. Jolissaint, Chrysler's chief economist and director of economic and market intelligence with DaimlerChrysler AG, said he expects U.S. gross domestic product will slow from around 3.5% to 2.5%. He predicts that by the middle of this year "housing construction will cease to be a drag on the U.S. economy." Jolissaint also predicts that as gas prices stabilize, sales of trucks and SUVs will rebound. "We expect small and mid-size and even large cars to lose share somewhat in 2007, and we expect pick-ups and sport utilities and minivans to regain some share in 2007," he said. Both GM's chief economist G. Mustafa Mohatarem and Ford's Ellen Hughes-Cromwick, director and chief economist, agreed that oil prices should stabilize. But they were less bullish about the U.S. auto industry's prospects for growth in 2007. Instead, they predict that virtually all the growth that will happen in the global car industry will come from outside the U.S. in the foreseeable future -- particularly from China and India. The growth in those markets is likely to have an impact on the kinds of cars U.S. auto buyers choose, said other analysts speaking at the meeting. The small car market --think brands like Toyota's Yaris or the Nissan Versa -- is a tiny portion of the U.S. market. Analysts such as Wim Van Acker, managing partner with the North American operations of Roland Berger Strategy Consultants, expects that to change in the next six years as more production from China becomes available in the U.S. "The entry-level car is something which is beginning in the U.S.," he said, projecting sales will almost double, from 400,000 in 2006 to about 700,000 in 2012. Van Acker said that while price and fuel economy are key deciding factors for small-car consumers, brands are also important to the decision-making process. "People always think that the product is the only thing. Well it's not. You have to handle the combination of car, care and core: The car being the product, care being the service around it, and core being the brand, which is supporting it."
Lexus is extending a sponsorship arrangement with DVR company TiVo that dates back to 2000. Last May, Lexus advertising on TiVo let subscribers use TiVo broadband to configure Lexus vehicles, a function universally offered on automaker Web sites, but rarely beyond the confines of computer screens. Andrea Lim, Lexus media manager, said the new arrangement is open-ended, and that the company has not determined which vehicles will be promoted on TiVo, or what the nature of the program will be. "I think Lexus marketing as a whole approaches things with an extended outlook," she said. "And we evaluate things regularly until we see that a program has exhausted its benefits." TiVo's appeal, she said, is that it allows consumers to control the marketing message and engage in it, not merely block advertisements. "We saw it as an emerging technology. I believe that consumers are comfortable with marketing messages. But they challenge advertisers to come up with unique, innovative ways to reach them. We are moving from being just an advertiser to more of a strategic partner." Bill Burris, Lexus relationship marketing manager, added that Lexus will use TiVo to engage consumers. "It's about relevancy and engagement: I may not be in the market, but I can choose my Lexus interior with the configurator, and from that TiVo will engage Lexus to send me a brochure that represents exactly what I'm looking for." Burris suggested that the TiVo platform will be used both for specific product launches as well as for brand efforts, and that Lexus had a good response with last year's effort, which focused on the ES 350 sedan. "The traffic was fantastic," he said. "We had over 20,000 hand-raisers for two months, which is a huge number of folks. They are just much more interested when they come through the TiVo channel, and that's not something we have seen before." TiVo, which has around 4.4 million subscribers, has relied on satellite TV company DirecTV to fish for new subscribers--but that relationship will end next month, when DirecTV stops marketing TiVo to its customers and comes out with its own DVR device. DirecTV reportedly accounts for about two-thirds of TiVo's subscriber base. Separately, reports are that Lexus is also readying the launch of a broadband video lifestyle channel.