Chocolate icon Hershey fails at online retailing

Lacking both Internet skill and vision, The Hershey Company closes its Hershey Gifts website.

By Brad Reese on Thu, 07/23/09 - 7:47am.

For over 92 years members of my family have had a unique relationship with The Hershey Company, so sadly on July 31, The Hershey Company will be closing Hershey Gifts, its catalog and web business. A not too surprising demise given the alarming volume declines of Hershey candy shipments over the past several years (Page 21), and definitely in my opinion the unfortunate result of Hershey's total lack of Internet skill and vision.

Why do I believe Hershey lacks Internet skill?

Well, it was just a little over 2 years ago that Hershey outsourced its entire online retail operation to e-commerce vendor, GSI Commerce, resulting in the lay off of Hershey's skilled online retail workforce.

And why do I believe Hershey lacks Internet vision too?

With an iconic consumer brand like Hershey, it's inconceivable to me for Hershey NOT to be building and expanding its online retail operation.

According to Don Davis - Editor-in-Chief of the online retail industry trade magazine Internet Retailer, Hershey is bucking the online retail trend:

"Hershey’s decision runs counter to that of many other manufacturers that have invested more heavily in selling directly to consumers via the web. That includes companies in a wide range of verticals, from Philips in consumer electronics, to Under Armour in athletic apparel, to Oneida in housewares.

"While it’s possible that candy is not as easy to sell online as, say, books or laptops, there are many items that are being sold online today in high volume, such as shoes and apparel, that not that many years ago people said consumers would never buy on the Internet.

"The real question for manufacturers is how to get the benefits of selling online, including the higher margins that come with selling directly to the consumer, without being seen as a competitor by retailers that account for the majority of your sales.

"In the case of Oneida, for instance, they consciously maintained a low-key presence online for fear of offending retailers. But then the retailers told them they should have a bigger web presence because seeing Oneida more prominently on the web, the retailers concluded, would drive more consumers into stores to buy Oneida products. That example shows how a manufacturer can both create a bigger presence online and still maintain good relations with store-based retailers."

Davis provided the following estimates of Hershey Gifts' annual sales taken from his Internet Retailer Top 500 Guide:

2008 - $22 million
2007 - $22 million
2006 - $23 million
2005 - $21 million
2004 - $15 million

Furthermore, a source familiar with Hershey Gifts said Hershey had been hoping to achieve $50 million in annual online retail sales, however, the operation was never taken seriously or even fundamentally understood by Hershey's management. Tellingly, the source also indicated that the fate of Hershey Gifts became doomed upon the announcement that its operation was being outsourced to GSI Commerce.

Note: Neither The Hershey Company nor GSI Commerce responded to requests for comment.

Meanwhile, Hershey's main competitor Mars Inc., appears very successful with its online retail operation, My M&M's - Personalized Chocolate Candy Messages website.

Interestingly, a source familiar with Hershey had this to say about the closing of Hershey Gifts:

"I can fully appreciate Kirk Saville's public statement that this niche business does not fit the company's business model. Historically, the company's success has come from focusing its energies on the overwhelming core sector where consumers purchase their confectionery needs, which is out at retail (bricks and mortar). The company's strength has come from developing and fostering strong retail partnerships where frequent, joint marketing efforts/events are established in creating credible reasons for consumers to purchase their confection needs throughout the year at store level. While there is some incremental business to be had through the internet, I believe and know from past experience, it does not have enough critical mass to chase those sales for the size of the company that Hershey is. Candy is a unique and high impulse food category where the overwhelming pounds purchased by consumers occurs out at retail rather than over the internet and the company is merely going to or focusing their energies where the fish are."

What's your take, will Hershey miss the future of online retailing?

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