THE TIE-INS THAT BIND 1994

LISA SAXTON

ROUND LAKE, Minn. -- The candy market is growing. For the most part, however, the supermarket industry's role in the growth has lately been that of a bit player.

So say the top executives at Sathers Inc. here, the country's third-largest general line candy company.

But in the near future, supermarkets are likely to retrieve the limelight if they apply emerging category management disciplines to break through some outmoded merchandising practices, said the Sathers executives in an interview with SN.

"Frankly, you can look at the numbers and see that the growth in the category has not been in the supermarket class of trade. It's occurred in the mass merchandiser class of trade. It's still growing -- to a lesser degree -- in the drug. And it's occurring in the convenience class of trade," said Mike Halverson, director of marketing for Sathers.

"We find, in some respects, that the candy category is a stepchild to the rest of the categories in the grocery store. However, when properly merchandised, there's been numerous studies showing gross profit dollars from the candy department are at the top of all the grocery aisle departments.

"So it's a very important category [with which] to do a good job of merchandising," he said.

Halverson named "definite opportunities" for supermarkets to recapture growth in candy sales. He should know. Sathers has grown from a volume of $125 million in 1991 to more than $150 million last year.

The most obvious way to grow is to bring the candy to the customer with creative cross-merchandising, according to Bill Bradfield, Sathers president.

"The pharmacy is an excellent place and an opportunity to merchandise sugar-free candy," said Bradfield. "It's a medically oriented product for diabetics, or for people on restricted diets.

"And we like to position our sugar-free products as a health product, in a sense that it's for people who simply feel they do not want to ingest a great deal of sugar."

The importance of such cross-merchandising is the incremental sales it generates. For instance, supermarkets can take advantage of "the store within the store," or the video department, said Bradfield.

"We've found that consumers walk in and rent a movie for 99 cents, and they're more than happy to spend an extra 50 cents or a dollar for a snack while they're watching the movie," said Halverson. "And most parents will find that for two bucks, that's pretty cheap entertainment."

With the evolution of supermarket management systems, this kind of cross-merchandising could become more prevalent because the mechanics will be simpler, according to Halverson.

"The thing that needs to be taken into account is that the organizational structures [of supermarkets] haven't always allowed for merchandising a category well," he explained. "For example, if you want to put product in the produce department, you'll work through a different person. And, in some respects, they don't get the credit for the sales.

"Organizationally, the industry is beginning to evolve into a category management philosophy, and that should do well for both candy retailers and manufacturers.

"Really," he continued, "being consumer-driven is the key element here. As a consumer walks into your store, they're on your real estate. And you have an opportunity to merchandise and sell products to them throughout their whole experience in the store.

"And if, organizationally, you're not maximizing those opportunities, then maybe things need to be reconsidered." Especially when you consider how well the mass merchandisers handle candy.

"There are some retailers that are certainly doing an outstanding job merchandising candy. And I think one of the reasons the mass merchandisers and the drug class of trade do as well as they do is they're used to merchandising candy. They merchandise candy regularly," said Halverson.

Thus, companies such as Sathers have to hit the streets and form a better working relationship with retailers to get more effective programs under way, he said. "Everybody has a lot to do, but the opportunities are there."

Bradfield said Sathers, founded in 1936, has evolved from a repackager into a product manufacturer and a marketer of programs. One of the company's most successful, and largest, programs is its two-for-a-dollar, prepriced value program, he added.

Halverson, however, acknowledged that "many supermarket chains don't like to work with a lot of prepriced products," and that is where the job of selling Sathers' merchandising programs comes into play.

"What we do is really market programs," Halverson explained. "A lot of our product is merchandised in a hanging bag format and we primarily participate in the candies, nuts and cookies categories."

Because consumers are looking for value prices, it's tough for supermarkets to compete with mass merchandisers. "Mass merchandisers work off of a different cost structure than the supermarkets do," he said.

"However, with a program such as Sathers offers, we've achieved excellent results with all classes of trade with an everyday-low-price program -- everyone is on the same playing field with our pre-priced program."

Value comes into play with the packaging,too. The benefit of a header label program, such as Sathers', said Halverson, is that customers can see exactly what they're getting.

"We've done some studies specifically on this and looked at whether our packaging format was appropriate for our positioning.

"Although it's a little more expensive to apply a header label to a clear bag of candy -- it's actually cheaper to use a printed film -- the consumer's perception is that there's more value there.

"They don't believe they're paying for extra packaging, which is value positioning. We've found that is one of the reasons it sells as well as it does," he said.

As a pioneer in peggable candy products, Sathers also sees peggable fiberboard merchandising as a way to increase candy sales.

"There's hardly a candy manufacturer today that doesn't have a peggable program, and more and more retailers are pegging their product," he said. "It's not only in the candy category. I think if you walk through a Toys 'R' Us or Wal-Mart, a great deal of products are merchandised on pegs.

"And the reason is people can see easily what they're getting as they walk down the aisle. It merchandises well; it's straightforward."

Bradfield also pointed to using merchandising tools such as wing and floor shippers and clip strips out of the department for incremental sales.

"The key," agreed Halverson, "is getting the product to where the consumer is shopping. It's a fact that most people don't walk every aisle in the store. If you just put the product in the set, you're going to lose sales.

"A lot of people don't have any intention of buying candy. Well, if you put it someplace else, they're going to bump right into it."

And this concept of "putting it where they are" is especially important during the seasonal periods.

"One of the things we're trying to communicate on the seasonal [merchandising] is that it needs to get up out of the department," said Halverson. "If you have Halloween candy hanging in the produce section, for instance, it will give the opportunity for the consumer to buy that product as they walk through the department. And it will also flag in that customer's mind that this retailer has seasonal candy.

"Though they may not be there to buy seasonal candy that day, they'll make a subconscious or conscious note in their minds and come back when it is the appropriate time.

"So we believe that the clip strips are an important element in the strategic mix of products that should be available to the consumer during the seasonal time frames."