Hershey Posts Meltdown, Announces Starbucks Deal

Even as it announced dismal second-quarter sales and earnings results, Hershey on Thursday announced, with Starbucks, an alliance to launch a premium chocolate platform.

The products, which will be Starbucks-branded, will be available in the fall in retail outlets nationwide--but not initially in Starbucks stores. They are expected to contain coffee flavorings.

The alliance, the companies said, will draw on the expertise of Artisan Confections Company, a wholly owned subsidiary of The Hershey Company. Artisan Confections' portfolio consists of some of the world's finest chocolate, including Scharffen Berger and the exquisite truffles of Joseph Schmidt.

Meanwhile, back in Hershey, Penn., the company announced that net sales for the quarter were $1 billion, nearly identical to the same quarter a year ago.

Richard H. Lenny, chairman, president and CEO of Hershey, blamed higher dairy prices as well as the economy for the financial results.

"Focused investment behind Reese's, Hershey's, and Kisses delivered a 4 percent gain in retail takeaway on these brands," he said. "In addition, retail sales of dark and premium chocolate, behind stronger programming, achieved sequentially higher growth. However, this performance was more than offset by lower velocities of some previously introduced new items and heightened competitive activity within the refreshment segment."



Lenny called for new product innovation to become more sustainable and said Hershey would address this "through accelerated close-in core brand innovation and new product platforms, primarily within dark and premium chocolate."

Hershey plans to increase consumer marketing to support seasonal goods and new products like Reese's Whipps. Advertising spending in the second half will rise at a double-digit pace after increasing more than 25% in the first half, Hershey management said on an analyst call.

Hershey also will increase coupons and other promotions at stores to boost sales.

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