Hershey Boosts Marketing to Make up For Missteps

(MoneyWatch)  In 2006, Hershey Co. made a mistake. Trying to trim costs, it cut way back on its marketing budget. Sales plummeted. Rival Mars took up most of the slack.

And now, with Mars growing to gargantuan proportions after its merger with Wm. J. Wrigley Co., things can only get worse unless Hershey does something about it. So on Tuesday, the company said it is planning a surge -- boosting its marketing budget by 20 percent this year and next. Expect to see more commercials for Reese's Peanut Butter Cups, Kit-Kat bars and Almond Joys.

Core brands like those make up about 60 percent of Hershey's sales. And the company believes that's where the greatest potential for growth lies. Hershey has tried to make up for higher input costs through price increases, but that hasn't worked at all. Earnings in the quarter that ended in March fell by 32 percent, following a 65 percent plummet in the previous quarter, the Wall Street Journal reported Tuesday.

An interesting fact from today's announcement: according to CEO David West, the company's research shows that a quarter of the people who browse candy aisles decide to buy nothing. Those are the people Hershey is after.

The company didn't say much about possible acquisitions or deals with companies such as Cadbury PLC, which would give it a leg up, particularly in gum. West gave the stock answer: the company will make the right deal if it comes along. And he talked up the idea of expanding into foreign markets, particularly Russia.

Earlier, Hershey confidently passed on a deal with Cadbury. That, too, may have been a mistake. "Now, the company is scrambling to address those issues on its own," the Journal said. "So far, results haven't been that impressive, and investors aren't betting strongly on a turnaround."