The name Hershey (NYSE:HSY) doesn't conjure up thoughts of diet fare, but if the staid confectioner has its way, that may all change.
Hershey recently reaffirmed solid revenue and profit forecasts for 2004, and signaled that at least some of its new growth may come from areas outside the traditional candy domain. Now, instead of exclusively targeting consumers looking for a quick fix from sugar, the firm also will go after buyers seeking a quick fix for weight loss.
Given the current epidemic of obesity in the U.S. and the rising interest in low-carb cuisine, Hershey's plan seems to make a lot of sense. These days it's hard to find a restaurant chain or food maker that doesn't offer a low-carb option. Even McDonald's (NYSE:MCD), which has come under intense fire for its high-fat content menu, has jumped into the game by offering to hold the bun on burger entrees.
For Hershey, the transition to a low-carb option will not be as easy, but may ultimately be more effective. The candy maker already introduced the 1 g Sugar Carb bar and plans to take its foray a step further. Hershey will develop a bar in a collaboration with the makers of the popular Zone Diet. By teaming up with a well-known diet brand, Hershey instantly positions itself among the leading players in the field, a move that will likely dispel any doubts that its diet products are mere candies in disguise.
The beauty of Hershey's strategy is that it can use existing bar-manufacturing capacity and ingredient-mixing technology to make the Zone and the 1 g Sugar Carb snacks. It may seem somewhat perverse that Hershey will sell chocolates alongside health foods, and some worry that the new offerings will cannibalize candy sales.
Still, the diet products may be the firm's only hope of retaining customers who have had one Hershey bar too many. Not to mention, the company can capitalize on a market with a compound annual growth rate of 33% over the past five years. Further, based on the prices for other nutrition bars on the market, I'm guessing profit margins are likely higher than those for chocolates.
Some naysayers have already branded the low-carb trend a fad, but evidence continues to pile up that these diets are an effective path to weight loss. Bombarded with news about rising obesity, Americans with scant time for a decent meal may find a quick nutrition bar a better option than the selections at the candy vending machine. And let's face it -- anything's better than eating less and exercising more.
Are you an ardent follower of a low-carb diet? Want to share your exploits and tips with fellow carb-fighting Fools. Check on the Low Carb Way of Life discussion board. Only on Fool.com.
Motley Fool contributor Brian Gorman doesn't own shares of any of the companies mentioned here.
