SUGARRUSH

SARAH MULHOLLAND

As we head into the holiday season, industry observers anticipate steady sales in the candy category, despite some disheartening economic indicators. Still, retailers are exercising due caution, particularly in the realm of high-end boxed chocolates.

"The confectionary industry does well during tough times," according to Jim Corcoran, vice president of trade relations, National Confectioner's Association, McClean, Va. "Everyday sales generally maintain typical levels of growth."

Yet, during the 2001 winter holiday season, when the economy was similarly beset by international tensions and a creeping recession, the candy category saw somewhat sluggish growth rates, Corcoran said, showing a 0.7% increase in sales across channels. Total sales of Christmas candy for the season were $5.6 million. Christmas candy during this period is defined by NCA as boxed chocolates, any candy bearing a Christmas label, and certain stockkeeping units that sell the most during the holidays, such as chocolate-covered cherries.

However, the entire retail industry saw a slow start last year, he noted, and candy sales were on par with the rest of the consumer goods industry.

''Early December was not a healthy retail environment," he said. "Most sales came in the last two weeks before Christmas. The post-holiday season was strong as well."

At Draeger's Markets in San Mateo, Calif., holiday sales chainwide were somewhat weak last holiday season, Alexandria Christakos, a candy buyer at Draeger's, told SN.

"The candy segment held its own, considering," Christakos said. Christakos began ordering for the upcoming season in July, and is taking a more conservative approach than she has in previous years.

As an upscale retailer serving a large tourist population, the focus at Draeger's is on unique gourmet items. For example, the San Mateo store does a brisk business on one-pound boxes of Godiva that sell for between $33 and $37. Indeed, Christakos has had a hard time keeping up with demand in the past.

While still anticipating solid sales of the Godiva, she expects some customers may be more interested in some of the more moderately priced items, selling for roughly $16 per pound. Christakos does not see the candy segment as being hugely impacted, however the economy has become a greater consideration.

"People are watching their dollars more closely," she said. "Past years were slightly more extravagant. Right now, I'm not going to pick up an item that retails for $100."

David Bennett, owner of Mollie Stone's, Mill Valley, Calif., told SN he is preparing to roll out a premium boxed-chocolate project in time for Thanksgiving. The chain does not currently stock a line for the holidays, he said. The price range for the new line has not yet been confirmed.

NCA's Corcoran expects to see an increase in sales of boxed chocolates in the $5 to $10 range, including the likes of Russell Stover and Hershey's Pot of Gold. He doesn't expect to see significant growth in the super-premium segment, which was putting up impressive numbers during the boom years of the mid and late 1990s.

At Foodtown, Middletown, N.J., the emphasis has always been on the moderately priced, $5 to $10 boxed items, according to Philip Lopriesti, a store manager at a unit in Ocean Township. At his store, bagged candies are the big sellers during the holiday season. Lopriesti did not witness a significant dent in sales last year, and does not anticipate seeing one this year either.

While the winter holidays are always a key merchandising opportunity for the candy section, Halloween is the main event in Lopriesti's opinion. Falling during the height of the anthrax scare last year, growth during the 2001 season was minimal, according to NCA's Corcoran. Halloween candy sales were up by 0.2% across channels in 2001, Corcoran said, totaling about $2 billion in sales.

Retailers are approaching Halloween this year with mixed enthusiasm, leery of how consumers may react to any lingering fears. Barring any further public health crisis, Corcoran looks forward to a strong Halloween season, with projected growth in the 3% to 7% range.

Lopriesti is expecting to see better Halloween candy sales at his store this year as well.

"There will always be those that remain apprehensive, but I think most people will expect the USDA to impose the same types of precautionary measures at the factories that we see at airports today," Lopriesti said.

Corcoran is also optimistic about Easter sales in 2003, given the long, nine-week merchandising period. In 2002, Easter fell in March, and candy sales were weak.

"The total candy category was down roughly 2% during Easter this year. Easter is a moving target, and whenever it falls in March, we lose sales due to a shortened promotional period," he explained.

In 2003, Easter will fall in late April, adding more than three weeks of display time from the end of the Valentine's Day holiday, Corcoran said. The NCA is looking for growth rates as high as 15% during this Easter season, he added.

While external factors affecting the entire industry played a role in last season's somewhat lackluster sales, the food channel faces the additional challenge of increased sales at the drug and mass outlets.

"In general, supermarket retailers are not promoting seasonal sales as much as their competitors at drug and mass are," Corcoran said. Supermarkets have had a hard time making candy a destination category during the holidays, he said.

"Mass retailers have done a great job creating the destination for Halloween. They have a huge selection, and they're putting products out there at loss-leader pricing," Corcoran said.

Christmas is traditionally a fairly strong candy season for supermarkets, he said. Still, as mass continues to make inroads into the gift department -- selling televisions, computers, and the like -- it has become more difficult for supermarket operators to keep customers shopping their candy aisles.

Meanwhile, the drug channel does a disproportionate amount of the candy business during Valentine's Day and Easter, he added. Corcoran recommends retailers make an effort to maximize selling time.

"The successful supermarkets will have candy displays out for the entire nine-week Easter season next year. Still, some will only put the candy out two weeks in advance. This approach is never going to maximize holiday sales," he said.

"Certainly, candy isn't what it was 10 years ago," said Mollie Stone's Bennett. "Any candy sales we get during the holidays will be incremental."

Bennett said he plans to take advantage of the nine-week Easter season this year, however he is not striving to turn his store into a destination for holiday candy. In his opinion, the loss of these low-margin items to other channels is not something to be overly concerned about.

"Drug and mass are using these items to get people into the store. If I try to compete with that, I'm only going to end up selling more for less," he said. "We are going to stay with what our company does best."

Instead, Bennett chooses to home in on those holiday categories where supermarkets stand to turn better profits.

"During the holidays we focus on party trays and fresh foods from the deli," he said. "Holiday candy has become an issue of convenience for our shoppers."