SIC 2064
CANDY AND OTHER CONFECTIONERY PRODUCTS



This category includes establishments primarily engaged in manufacturing candy, including chocolate candy, other confections, and related products, including chocolate-covered candy bars; breakfast bars; candy, except solid chocolate; chocolate bars made from purchased chocolate; chocolate candy, except solid chocolate; confectionery cake ornaments; fudge; granola bars; marshmallows; candy-covered nuts; candied, glazed, or crystallized fruits; and popcorn balls and candy-covered popcorn products. Establishments engaged primarily in manufacturing solid chocolate bars from cacao beans are classified under SIC 2066: Chocolate and Cocoa Products. Establishments manufacturing chewing gum are included under SIC 2067: Chewing Gum, while those primarily engaged in roasting and salting nuts are classified in SIC 2068: Salted and Roasted Nuts and Seeds. Establishments primarily engaged in manufacturing confectionery for direct sale on the premises to household consumers are classified in SIC 5441: Candy, Nut, and Confectionery Stores.

NAICS Code(s)

311330 (Confectionery Manufacturing from Purchased Chocolate)

311340 (Non-Chocolate Confectionery Manufacturing)

Industry Snapshot

Americans—and for that matter just about everybody else—have an insatiable appetite for candy. the U.S. population as a whole consumes more than 7 billion pounds of the stuff each year. Only about half of that is chocolate, with gummy bears and all sorts of other non-chocolate confections accounting for roughly 3.5 billion pounds. The U.S. candy industry was valued at $24 billion in the early 2000s by Euromonitor International.

Market growth was exceptional through the late 1990s. In keeping with the growth of health conscious consumers, low-fat/low-calorie candies gained prominence in the industry. However, the level of new product introductions in the industry was low during the mid-1990s. With sales of more than $22 billion, candy and other confections made the third biggest consumer-food category in late 1999, trailing only soft drinks and milk.

As the new millennium started, the U.S. candy and confectionery industry continued slow but steady growth, although a weakened U.S. economy was expected to depress results somewhat. Analysts foresaw a number of challenges to be faced by the industry's equipment and ingredient suppliers. These challenges include the shift in technical knowledge from the manufacturer to the supplier, increased new product development, new distribution channels, continued plant and company consolidation, and the introduction of so-called nutraceuticals into confectionery products.

Many members of the U.S. candy industry continue to be family-owned, especially the gourmet candy and confectionery manufacturers. Even leading candy maker Mars, Inc. is privately held by the Mars family.

Background and Development

Many of the most popular candy bars sold today were developed between the 1890s and 1920 by various candy makers around the country. Rights to many of these candies have been bought and sold many times since they were developed and now are owned by large corporations such as Mars, Hershey Foods, Warner-Lambert, and RJR Nabisco.

Milton S. Hershey manufactured the first chocolate bar in the United States in 1894. Hershey Kisses were introduced in 1907. The Bunte Brothers are credited with manufacturing the first chocolate-covered candy bars in 1911. During World War I, Hershey and other candy makers shipped large blocks of chocolate to army training camps, where the blocks were cut into smaller chunks for distribution. This task became too time-consuming for military personnel, and the manufacturers started wrapping individual chocolate bars before shipping them. After the war, the candy makers continued to sell candy commercially in this form, and this method of selling candy became popular and convenient.

Many lines of candy bars were first sold for a dime, but sales did not catch on since consumers could buy a pound of loose candy for that same dime. Immediately after World War I, however, sugar and chocolate prices dropped and the price of most candy bars was dropped to a nickel. The price remained fairly constant until the late 1960s, when the price went back to a dime because of rising costs. Since then, prices have steadily climbed.

The forerunners of Canada Mints and NECCO wafers were first produced in 1847 by Chase and Company, with Canada Mints themselves introduced in Canada in the late 1880s and brought to the United States in 1908. NECCO wafers were introduced in 1912 by New England Confectionery Company, a company formed by Chase and two other candy companies; the NECCO brand name is derived from the company's initials.

LifeSavers first rolled into production in 1912 in a small factory in Cleveland, Ohio, when Cornelius Crane, a chocolate maker, developed mint tablets as a summertime product to compensate for the drop-off in sales of chocolate during the hot summer months. Crane went to a pill manufacturer to produce the mints and a malfunctioning machine produced mints with a hole in the center, thus creating the first LifeSavers product.

The first part of the twentieth century marked an explosive period of growth for the industry. Dozens of new candy products were introduced during this period, and many have endured. Ferrara Pan, a candy company formed in 1919 in Illinois, produced Jaw Breakers, Atomic Fireballs, and Boston Baked Beans. In 1919 the Oh Henry! bar was first manufactured by the Williamson Candy Company of Chicago. Charleston Chews were first sold in 1922 by the Fox-Cross Candy Company near San Francisco. Goobers were first made by the Blumenthal Chocolate Company in 1925. Holloway Milk Duds were introduced in 1926 by the Holloway Company. During the 1920s and 1930s, the James O. Welch Company introduced several favorites that are still around today, including Sugar Daddy, Sugar Babies, Pom Poms, and Junior Mints. Heath Bars, manufactured by the L.S. Heath Company, went on the market in 1932. Chunky was developed in the mid-1930s by Philip Silverstein, a New York candy maker.

In 1930 the most popular candy bar in America was created—Snickers. Snickers is one of the few candy bars still produced by its Originator—Mars, Inc., which today is one of the largest private companies in the United States. Mars introduced the Milky Way bar in 1923, 3 Musketeers and the Mars Bar in the 1930s, and M&M's in 1941.

Peter Paul Candies was formed in 1919 and introduced its first candy bar, the Konabar. Three years later, the company introduced the dark chocolate-covered coconut bar that served as the cornerstone of the company's product line—Mounds. The first Mounds was a single bar for a nickel, but during the Depression, Peter Paul doubled the size of the package by adding a second bar without increasing the price. This two-for-one tactic increased sales, despite the hard times. Peter Paul replaced hand wrapping with machine wrapping by converting a machine designed to wrap soap bars. The company also became one of the first to venture into broadcast advertising. In 1948 the company combined almonds with coconut to launch Almond Joy. Peter Paul acquired York Peppermint Patty in 1972. Several years later, Cadbury Schweppes PLC acquired the company for $58 million.

The candy industry has gone through a period of consolidation during the past 20 to 30 years. In the 1960s Hershey acquired Reese's, maker of Reese's Peanut Butter Cups since 1923; in 1977 Hershey acquired Y&S Candies, which had marketed licorice Twizzlers and Nibs since the 1920s. Hershey's acquisition of Cadbury Schweppes' U.S. division in 1988 propelled Hershey past Mars to become the leading U.S. candy maker. The purchase gave Hershey the rights to Peter Paul Almond Joy and Mounds, as well as Cadbury and Caramello products, to buttress its already impressive product line.

Despite the presence of such corporate giants as Mars, Inc. and Hershey Foods Corporation, several independent companies have maintained a significant presence in the industry. Tootsie Roll Industries has remained an independent company since its founding in 1896. It markets a line of Tootsie Roll products, as well as several products including Mason Dots and Bonomo Turkish Taffy, it acquired through the purchase of smaller companies.

Another company that remained independent since its beginnings is PEZ Candy Inc., with its flavored rectangular sugar tablets and vast array of plastic, flip-top dispensers. PEZ was founded in 1952 and is based in Orange, Connecticut. The first PEZ tablets were invented in 1927 as a peppermint tablet and cigarette substitute. PEZ was an abbreviation for pfefferminz, the German word for peppermint.

Sales for candy rose in 1992, after steep declines in 1990 and 1991. Manufacturers launched aggressive new product campaigns in 1992 and maintained the recent trend towards products with reduced fat and sugar content.

Candy exports were strong, especially with Mexico and Canada, and were expected to improve further with the passage of the North American Free Trade Agreement (NAFTA). Candy makers, though, are also concerned about the ramifications of new environmental regulations that might require them to provide recyclable packaging.

The industry has grown steadily in the 1990s. By 1992, shipments were valued at $8.9 billion. Adjusted for inflation, the value of candy and confectionery shipments rose an estimated 3.2 percent in that year. Between 1987 and 1991, the inflation-adjusted value of industry shipments rose 2.2 percent annually.

Although sales of regular candy have been substantial, the candy makers have increasingly taken notice of the relatively recent nutritional health emphasis and used it as a source of growth. In 1992 sugar-free and other "healthier" candies accounted for only one percent of the confectionery market, but industry members anticipate the market will grow, especially as new low-fat or low-calorie ingredients improve the taste of the so-called "healthier" chocolate candies.

Caprenin, developed by The Procter & Gamble Company, combined the taste and consistency of ordinary fat, but contained half the calories. Mars used it in its reducedfat, reduced-calorie Milky Way II, which contained half the calories of the original Milky Way and eight grams of fat. Smaller companies were also trying to capitalize on the health market. In 1992, 92 percent of supermarkets and other stores sold some kind of sugar-free candy. Although most retail outlets said that sugar-free candy sales represented a very small market share, 87 percent of the store buyers surveyed expected demand for sugar-free items to continue to increase well into the 1990s. At the beginning of 1993, all ten candy bars on the top-selling candy list in the United States were manufactured by Mars, Hershey, or Nestle. Snickers remained the number one candy bar with sales of more than $61 million annually; Hershey products were second and third on the list, with Reese's Peanut Butter Cups (sales of $41 million) and Kit Kat ($36 million). The rest of the list included M&M's Plain (Mars, almost $32 million); Butterfinger (Nestle, almost $32 million); M&M's Peanut (Mars, almost $30 million); Crunch (Nestle, $26 million); Hershey Milk Chocolate ($24 million); Hershey Almond (24 million); and 3 Musketeers (Mars, $20 million).

In the mid-1990s candy makers began to cash in on the holiday markets. The seasonal candy market posted overall respective dollar and unit volume gainsof 10.4 percent and 9.7 percent in 1995, according to the Candy Industry overview of this industry. Mars, Hershey, and Nestle had traditionally stayed away from the holiday candy market, but when candy consumption and sales remained flat, the candy giants saw great opportunity to capture a major share of the holiday sales. The three companies repackaged many of their most famous goodies in pastel colors for Easter. Their entry into the holiday market shoved aside many of the usual holiday candy manufacturers.

Current Conditions

The late 1990s and early 2000s saw slow but steady growth in U.S. candy shipments. The value of total chocolate confectionary shipments in 2000 was $8.9 billion, up from $8.4 billion in 1999. The value of non-chocolate candy shipments reached $5.6 billion in 2000, compared to $5.3 billion in 1999. Euromonitor International predicts that the candy market in the United States will grow by 3 percent to 4 percent in 2003, due to growing demand for new products.

To boost growth, many confectioners began looking to the kids' market in the late 1990s. Industry experts and retailers note that more than 50 percent of children in the United States between the ages of four and twelve possess an average of $4 a week to spend. As a result, many candy makers began to pitch their products directly to this market segment.

The adult health conscious market was also seen as a major growth marketfor this industry in the late 1990s. By then, Nabisco's Snackwell's brand of products pioneered a new era in this industry. The resounding success of Snackwell's motivated many manufacturers to join this era of new comparable products designed to placate consumers worried about the fat and calorie content in existing products. Hershey and Mars offered their new alternatives with the launch of Sweet Escapes and Milky Way Lite respectively. Other smaller companies were quick to join the growing fray as well. The market for sugar-free candies was valued at more than $50 million in the mid-1990s.

The children's market and Americans' increasing preoccupation with healthier eating were not the only marketing opportunities being exploited by candy manufacturers. The coming of the new millennium provided many candy manufacturers with a new vehicle. At the industry's annual All Candy Expo, held in Chicago in June 1999, a number of candy makers introduced confections boxed and branded with the words "Year 2000." Others offered more elaborate Y2K gimmicks, including the Countdown Millennium Watch offered by Gallerie Au Chocolat. A digital clock, it is shaped like a stopwatch and emits a buzzing sound and dispenses candy when one of its side buttons is pushed.

Industry Leaders

Hershey Foods Corp. and Mars Inc. rank number one and number two, respectively, in the U.S. candy market. Privately held, Mars Inc. is secretive about its financial performance, but analysts estimated its 1998 revenues at about $15 billion. Although this dwarfed Hershey's 1998 sales of $4.4 billion, much of the Mars revenue is generated by its non-candy operations, including Uncle Ben's rice products and a full product line of pet foods. In candy sales alone, Hershey is the leader.

Hershey Foods Corp., based in the Pennsylvania town that bears its name, produces a full line of candy products bearing the Hershey brand name as well as such other leading candy brands as Reese's, Twizzler, Almond Joy, Jolly Rancher, and Kit Kat. Hershey's workforce numbers more than 16,000 employees. The company's net income in 1998 hit nearly $341 million, an increase of 1.4 percent from the previous year.

Mars Inc., headquartered in McLean, Virginia, was founded in 1911 by candy salesman Frank C. Mars, and it was still in the hands of the Mars family in the early 2000s. The company's co-presidents are John F. Mars and ForestE. Mars Jr., who also serves as the company's chief executive officer. Although it is a major candy manufacturer, the company has diversified into a number of non-candy product lines, including Uncle Ben's rice products and pet foods sold under the brand names of Kal Kan, Pedigree, Sheba, and Whiskas. Among its leading candy products are M&Ms, Snickers, Milky Way, and 3 Musketeers. The company employs 30,000 people worldwide.

Nabisco Holdings Corp. of New York, a highly diversified company, also has a significant presence in the confectionery industry, primarily through its Nabisco subsidiary. Nabisco Holdings' 1998 sales toped $8 billion; its workforce totaled more than 50,000 employees. Among the factors in Nabisco's success are the continuing popularity of its Oreo and Chips Ahoy! Cookie brands, as well as the more recent success of its low-fat Snackwell's brand cookies and snacks.

Other leading U.S. candy makers include Leaf Inc., Lance Inc., Russell Stover Candies Inc., E.J. Brach Corp., Sathers Inc., Archibald Candy Corp., Farley Foods U.S.A., and Tootsie Roll Industries Inc.

America and the World

The international confectionery market, valued at nearly $80 billion, is growing at a compound annual rate of 0.7 percent, according to Candy Industry, a monthly trade journal. The U.S. market for candy and other confectionery products is estimated at $23.8 billion, while the market for all of North America is valued at about $36.0 billion. The North American market was growing at a compound annual rate of 2.7, as of mid-1999. Leading growth markets, in terms of per capita consumption, are the countries of Vietnam, Brazil, Ireland, China, and the Czech Republic. All are experiencing consumption increases ranging from 11 to 25 percent.

Although Europeans consume a great amount of candy, Europe continues to be a relatively poor market for U.S. candy. High duties have kept U.S. candy out of the European Union (EU), although some American companies have invested in European candy companies and avoided the duties. U.S. companies face stiff competition from European confectioners, particularly Swiss chocolate producers, which are typically considered to market finer quality confections than American companies. Hershey purchased its first European company in 1991 with the $31 million acquisition of Gubor Schoko-laden, a chocolate company that manufactures pralines and chocolates. Warner-Lambert, a large pharmaceutical and consumer products manufacturer that also produces cough drops and other confectionery products, entered into a joint venture with Alivar S.p.A to sell cough drops and candies in Italy, a large confectionery market.

Further Reading

"Annual Update Unveils Industry's Fortune." Candy Industry, January 1995.

"Champions a Gold Medal Year." Candy Industry, July 1996.

Dornblaser, Lynn. "Candy Is More than Dandy." Prepared Foods, 15 April 1996.

"The Expanding Market for Bulk Candy." Candy Industry, July 1996.

Fishman, Ted C. "We're Killing Ourselves with Sweetness." USA Today, 23 August 1999.

Henry, Jim. "Keeping it in the Family: and Industry Discussion." Candy Industry, January 1996.

"Media Kit." Candy Industry, 2003. Available from http://www.candyindustry.com/mediakit.asp .

United States Census Bureau. "Statistics for Industries and Industry Groups: 2000." Annual Survey of Manufacturers. February 2002. Available from http://www.census.gov .

"U.S. Candy Industry Looking to Cash In on Y2K." Reuters, 23 June 1999.



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