Halloween meets GLP-1s: Hershey’s candy Super Bowl, with CEO Kirk Tanner

0:00Kirk Tanner:AI is full of possibilities. Enterprises run on realities. That's why Pega combines the world's most powerful AI with the governance, transparency, and control enterprises demand. So you can move faster, adapt faster, and scale AI with confidence. All the power of AI, none of the uncertainty. Learn more at pega.com slash AI.

0:28The second you're not culturally relevant with your brands like Hershey, then you should be worried. We've become much more efficient with AI tools, our sales force, choosing and deciding. All that's done for them so that it says, hey, Kirk, you've got to head to Target 7575. That's your biggest opportunity today. Your next stop, Walmart. Your next stop, Sam's Club. And then it gives me those activities when I walk in the store of how I build the business. It's much more dynamic and opportunity-based.

1:08That's Kirk Tanner, CEO of The Hershey Company. As we roll toward Halloween, I wanted to talk to Kirk about how a business can optimize a big moment in today's crowded marketplace, including whether a new Hershey movie will provide Barbie-like attention. We also talk about the impact of GLP-1s on the candy business, how AI is impacting retail, and the lessons he's applying from his leadership years at PepsiCo. So let's get to it. I'm Bob Safian, and this is Rapid Response.

1:45Hi, Bob Safian here with something special. at the top of today's episode, Eli Wallen, founder and CEO of Engine. Rapid Response is brought to you with support from Engine. Eli, excited to learn more about you and Engine. Thanks so much for having me, Bob. So what is the value of business travel? For every dollar spent on travel in the S &B space, there's$12 revenue associated with it. There's so much ROI, especially in a world that our internal employees aren't coming together every single day. the amount of value that you start to leak, whether it's focus, prioritization, relationships, motivation, building culture.

2:24So I'd say for a remote first or remote centric organization, travel and getting your teams together is insanely important. Finance folks will often look at travel as something to cut when budgets tighten, right? So what do you say to a skeptical CFO when they're raising that kind of idea? If you're talking about internal travel, bring your teams together, look at the survey data. Look at the data of the people that are getting together more often. Look at the productivity and the results. It's significant. It's there. You can get so much done on a challenging problem with a team together than you can trying to accomplish that over Zoom.

3:01For the corporate side, 64 % of C-suites say they would lose customers if they did not travel and see them regularly. And so there's data on both sides of internal and external travel that is just simply irreplaceable. You close more deals, you have better relationships when you get to see people face to face. That's right. People buy from people that they trust, that they've shaken their hand and understand a face to a name. When people aren't coming together in the office every day, that was travel. They were traveling five days a week to see each other, and now they're not. And it's very important to bring some of that back.

3:38Well, Eli, this has been great. Thank you so much for taking the time. Thanks, Bob. It was a pleasure. And now, on to the show.

3:49I'm Bob Safian. I'm here with Kirk Tanner, CEO of the Hershey Company. Kirk, welcome to the show. Hey, thanks a lot, Bob. Appreciate you having me on. I'm going to try to refrain from making too many bad sweet jokes. I know you must get them all the time. But I do love chocolate. This year's been uncommon in the number of news stories I've seen about the price of chocolate. Why is that? Yeah, so there's been a lot of inflationary pressure on cocoa for the last couple years. And the price of cocoa kind of reached some unprecedented levels. And so that's the main driver. Now, we've seen stability in the cocoa markets come down a little bit.

4:31it's still well above the historic norm. But that's the primary inflationary pressure that the industry has seen over the last couple of years. I mean, some folks talk about chocolate as an affordable luxury, which I guess inflation makes a little bit more difficult. But is that how you look at the candy business? I mean, it's not health food, unfortunately. No, look, if you think about affordability, 75 % of our portfolio is still under$4. This is a treat category. Just these small moments, moments of celebration, moments of reward. It is not a meal. It's not a meal replacement. They're just small treats.

5:15We are approaching what many people in your industry call the candy Super Bowl or the run up to Halloween. Yeah, Halloween is such an important event for us. It is our go-to season. It is our Super Bowl. We have market share leadership, but we are always hungry for more. We go to school on what happened last year, what's happening in this year, what consumers are looking for. We have already started to ship Halloween. You already can see it in the stores. Now that takes you through, of course, the 31st of October. And we don't let our foot off the gas. We want to be there with our sales force, making sure every moment is captured.

5:59And those learnings from last year, like is some of that about sort of that the season starts even earlier every year? I mean, we see that with some other holidays. Is that part of the learnings? What did you take away from last year? No, it comes down to the mix of what consumers are looking for. It's much more than just the one day. Trick-or-treater packs the week of. If you're a last-minute shopper and you're scrambling because the kids are coming over, you make it happen on the 30th or 31st, that's a certain pack. But leading up through the seasons, there's different packs that we deliver to our retail partners to bring the whole season to life.

6:42So as we're getting closer to Halloween as a consumer, I might start thinking about your products as a kind of snack choice in a different way than maybe I was in April. Yeah, absolutely. I talked with the CEO of The Gap not long ago, and he talked about a dashboard that he has of sort of sales data and what he calls brand love. and he says he looks at it like multiple times a day. Are there metrics or information sources that you pay particular attention to? Are you like checking things, you know, minute by minute? Definitely day by day. You think about all those things that connect to our customers and the consumer and how people are feeling about what we're doing.

7:34You know, in retail, you get to see your performance on a daily basis. You see how the transactions went. And then separately, we measure how people are feeling, sentiment, and that's really important, especially in this category. And I find you have to continue to have the consumers fall in love with you over and over and over again. Are there things that you're seeing that someone who's listening to this who may not be in the same category as you, but could learn from about the way consumers are approaching their habits right now? Well, we're in about 25 % of all snacking occasions in the U.S.

8:17with our brands across our salty portfolio and our sweet portfolio. And consumers continue to look for exciting things. They have go-to brands. I'm sure, Bob, you have a go-to brand that always brings you joy. You can count on it. But you're also looking for things that are exciting, that delight you. That's why innovation is so important in this category, because you're looking for experiences. And I call them affordable experiences, little adventures you can take. And that's a driver of the growth in the category. And the speed of that, I would say, it's moving faster. The important thing for us is we've got to match the speed of the company with the speed of consumers and the speed of the world.

8:57And I guess that requires a different approach than, I mean, the company's been around, what, 132 years. So the speed and the pace of the business has to evolve over that time. And there's a lot of tools that help us speed the business up. You know, from the consumer insights that we talked about to the investments we make in R &D to continue to strengthen the pipeline of innovation, not just for this year, but next year and the following year. And so these are new products within existing brands, largely, that you're talking about when you're talking about innovation. Let me share one with you.

9:34One, we did this last year. I don't know if you tried Reese's Oreo. I don't want this to be a commercial, but this is an example of taking something really cool like Reese's and Oreo and bring them together. The insight was consumers were already doing some of these behaviors. So we brought this to life. That's something that you hear about and you go, oh, yeah, that'll work. That'll work. That's exciting. But then there's other innovations. I'll give you one more. This is Hershey Creme Bar. We have a couple of varieties. This is Affogato. And this is kind of stepping up in that accessible premium space that's growing, that younger people are looking for.

10:18But there's also other opportunities to build new brands, et cetera. And, you know, we look at that as well. You spent a lot of your career at PepsiCo. And I've always thought about whether it's, you know, Hershey's or whether it's PepsiCo. Like a lot of it is you're selling the same product year after year. I mean, there is a core product that in some ways you don't want to change because that's what people are after it. And so you have to think about selling it or engaging in a different way, even if the product is remaining the same. Yeah, you have to be culturally relevant. I think that's really important.

10:54The second you're not culturally relevant with your brands like Hershey, then you should be worried. When you are watching the Olympics this year, the Winter Games, we had these moments of celebration and recognition from parents with their child athlete. It was just this connection with what's happening today, and cultural relevance is happening all around it. So you have to keep the pace with where culture is moving and keep your big brands in that space. There is a movie coming this fall about the inventor of Hershey's, Milton Hershey. How much is this your Barbie moment, like this chance to extend Hershey beyond a food brand to something with sort of broader cultural meaning?

11:37Do you think about it that way? Oh, for sure. I'm not sure everyone understands the history behind the Hershey Company and Milton Hershey. And it's way beyond just the chocolate that we sell and the company that we have. He started a school, Milton Hershey School, in 1909. And it still thrives today. There's very few companies like that today that have that level of purpose. So that gives us a little oomph. The movie is going to tell that story to the world. It's going to tell the story of an inventor, someone that never settled. Milton started with caramels, and he thought, well, that won't be enough.

12:14I've got to get into the chocolate world. I've got to make chocolate accessible, because most chocolate then was imported from Europe, and it was kind of out of touch for most consumers. And so you get to kind of see that entrepreneurial spirit come to life in the movie. I mentioned Hershey's 132-year-old company, and that sort of iconic status gives you history and nostalgia. But Hershey hit some criticism this year over recipe changes in some Reese's products. Brad Reese, grandson of H.B. Reese, went public with some complaints. Did that surprise you? Are there any lessons from that experience?

12:53There's always critics, Bob. I think that the most important thing to do is to listen to consumers and stay engaged with what they have to say. The Reese's brand is an exceptional kind of brand that is playing now worldwide. We're taking it to places like the UK. We're taking it to Mexico, Brazil, all these places to give consumers an experience. And look, we've done a lot of research around our brands and how people feel about them, how we can make them better always. Reese's delivers something unique and different, and that's what I'm excited about. I'm curious how your plans at Hershey are informed by your time at PepsiCo.

13:44Some of that time you worked under Indra Nui, who parsed the portfolio into what she called good-for-you products and fun-for-you products. Hershey acquired lesser evil organic snacks last year. You already own Skinny Pop. Is that part of the framework that you use? So Skinny Pop, Dots Pretzels, Lesser Evil, those are permissible snacks that consumers are looking for. And that's where the growth is in Salty. So we're building a business of permissible snacking. I would say that the 32 years that I spent at PepsiCo really just taught me how to listen to the consumer. Some of my hobbies is just going into the store.

14:25When I leave on the weekend, I do the shopping. And sometimes I come back in two hours, three hours. You know, I'll just spend time in the stores listening to customers, asking customers why they buy certain things. Are there any things that people have told you on your visits to the supermarket that have impacted or reinforced or, you know, the way you think about the company and where it should go? Yeah, absolutely. Now, I'm asking consumers that are on GLP-1, what do they prefer? How do you think about the category? I'm always asking customers, what is missing? Because I'm always thinking about, you know, is there something that we can be working on for the future?

15:05How much are GLP-1s changing the marketplace right now, whether a threat or otherwise? How much are snacking habits shifting? Yeah, a couple of things that I've found, you know, directly from some consumers and a lot of the research that we've done is the category has been very resilient with GLP-1s. P1 users, they're not wanting to compromise the things that they love and they know they have control. It's almost a bit of freedom, which means they're not looking to move away from the favorite things that they enjoy. Now, they'll enjoy less of them, but the important thing is we offer a lot of choice and I'd say portion control.

15:53I mean, over 30 % of our portfolio is in portion control so that they can really have what they want and the size and quantities that they need. I mean, I've seen these predictions, which don't seem to be showing up necessarily in the numbers, but that like, yes, if I'm a GLP One user, I might still enjoy my snacks. I might be having less of them, and maybe I'm going to be still spending as much, but sort of moving up the food chain, so to speak, spending more on a smaller amount of treat. Is that anything you're seeing? Is that something you feel like shifts your portfolio? Premium is still pretty small in the category, but it's growing three times faster than the category.

16:39So consumers are looking for experiences like that. We are innovating in that premium space to capture that opportunity and to capture that growth. The Hershey Creme Bars, Cadbury as well, our Brookside business. Again, premium is relatively small in the scale of things, but it's important for the growth. Your team, I understand, goes into the homes of GLP-1 users, part of what you call empathy visits. Yeah. What is that about? What happens in those visits? Yeah, you have a real down-to-earth, heart-to-heart conversation about choices consumers make, and they have the opportunity to show what they have in their pantry, what they have in their refrigerator, their daily habits, their behaviors.

17:26Now, they don't know you're the Hershey company. Obviously, confidentiality, privacy is critically important, but your understanding and learning about real-time behaviors, not just survey results, getting to connect with the human that's making the choices in an authentic way. And so these are not just GLP-1 users? No, it's multiple demographics. But you don't necessarily see a dramatic difference between what you hear from the GLP-1 users versus the rest of the population. Well, I think the thing that I was surprised about, not surprised, but educated on is just this level of confidence that GOP-1 gives consumers with the choices they make in their diet.

18:16You know, when you talk to somebody or talk to multiple people about it, it really hits differently than when you read it or you've seen a research report or you're listening to the news. When you hear it directly over and over again from a consumer, it impacts you differently. Maybe this is old fashioned, but I like that face to face info has a deeper impact at Hershey than just data and numbers. So how is it that AI is creeping into the candy business? And is that made easier or harder by Hershey's unusual ownership structure? We'll talk about that and more after the break. Stay with us.

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19:32Kirk Tanner:Humans will never be more intelligent than AI. There's going to be two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future that is human-centered? I'm Rana Elkawiyubi, and on my podcast, Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future, and we take you behind the scenes of the AI that's transforming our lives. Find Pioneers of AI wherever you tune in.

20:38It takes about 10 seconds to find. Just search Rapid Response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. Before the break, Hershey CEO Kirk Tanner talked about the Super Bowl of the candy business, a.k.a. Halloween, and how GLP-1s are shifting consumer habits. Now we talk about Hershey's unusual shareholder structure and how AI is helping sell more sweets. Let's jump back in.

21:14Hershey has this sort of unique company structure. Voting control is held by a trust which supports charitable pools, including the Milton Hershey School. Author Eric Ries, who was on this show this spring, praised her. She is sort of an exemplar of good corporate practice because of that. But I can imagine for a CEO, there can be some complications between straddling public market investors and the priorities of a century old trust. How does it compare to other corporate structures you've been in? I think about it like this. One, you've got a large shareholder in the trust, our largest shareholder, our most important shareholder in the trust.

21:57And the relationship's critically important. And I have been positively surprised of how engaged, how supportive and interested the trust is in the Hershey company. I mean, all of our investors are critically important. I'm not saying that. But instead of having an activist come into your business and those kind of things, that is, I think not a great thing for CEOs. Having a partnership as a CEO with the trust and the Hershey board is a powerful tool for me to build the business, have the freedom. And then you have someone that's in it for the long haul, right? They're not in it for the moment.

22:40They are a committed shareholder that has all the intention of long-term value creation. Well, and that must allow you to make choices that are maybe more farsighted. You maybe don't have to worry about what your numbers are going to be every quarter in the same way. I mean, I'm sure you still worry about what they are. Come on, Bob. I still worry about that. But is the pressure any less because that relationship? Not necessarily. No, I think there's a couple things you think about. One, you want to perform to support the school as well. You want to perform because we're a performance company.

23:23We're in a daily competition for consumers. Like you talked about with the Gap experience, there's a scorecard. And anytime there's a scorecard and you get a group of competitive people together, you want to do well. And what we're trying to win is we're trying to win over consumers with their choices. I found that people in this industry and this space, the really good ones, care about performance every day and they measure it every day. In the year you've been there operationally, you've integrated pieces of the business into what you call One Hershey. Is this like a reset that sort of over time the company's parts have become kind of too siloed and you've drawn them back together?

24:10Or is there something systematic that you're responding to? When you think about a supplier-customer relationship, so our relationship with Walmart, Target, Costco, Sam, 7-Eleven, we want to be a growth driver and easy to do business with. And so when we're showing up with leaders over Salty and leaders over our confection business or leaders over our functional business separately versus showing up as one Hershey, we can bring the portfolio together and then it's in our control. I think it's really important to control what you can control. Execution is one of those things. I mean, I can imagine it was structured the other way previously because the risk maybe of it being sort of too complicated or incentives not being as clear when you put things together, right?

25:05These are sort of the cycles that businesses go through sometimes, put them together, take them apart. Well, a couple things had already been underway. So the supply chain operations was already one Hershey. How we interface with a customer was not one Hershey. So the foundation and the groundwork for One Hershey had already been done. I took it to the next level and said, look, let's integrate at the customer. I went and talked to our customers about how we show up, how we could be better suppliers, how we could be better growth partners. And a One Hershey approach is the feedback that I got and that we got that we could bring our best.

25:43So as we build our Salty portfolio, it needed more attention. It needs more attention. Our skilled sales force, highly skilled in executing our confection business, now has the opportunity to execute our Salty business right alongside of it. Having it be one Hershey allows you to integrate all the data, which I guess is so important across those different customers and those different brands. That ability to gather that data, collect it in one place, have that at the fingertips of all of our people is another one of the reasons that we were ready to go for one Hershey right now. We've become much more efficient with AI tools, our Salesforce.

26:28There's a list of the biggest opportunities that are in front of them versus them choosing and deciding and spending a lot of time collecting data. All that's done for them so that it says, hey, Kirk, you've got to head to Target 7575. That's your biggest opportunity today. Your next stop, Walmart. Your next stop, Sam's Club. And then it gives me those activities when I walk in the store of how I build the business. It's much more dynamic and opportunity-based. You're the ninth CEO in Hershey's history, a year into the role. What have been your biggest takeaways as you look back at the year? There are lessons about what's at stake right now for a company if it's going to last another 132 years.

27:14Yeah, the future is so important. And focusing our energy, I talk about the speed of the business, matching the speed of the world outside the business, matching those things up so that we stay relevant, relevant in innovation, relevant in how we culturally talk about our brands, relevant in how we coach and train and develop our colleagues, relevant in how we talk to our customers and bring them growth solutions. I always go back to two things. The health of your core brands. You cannot have a leaky bucket with your core brands. And then you think about innovation and expanding into the categories that have the highest return of growth.