June 28, 2008

Sweet Spot in Sour Economy ‘Feel Good’ Factor Keeps Americans Feeding Sweet Tooth Even As They Cut Other Spending

By MARTHA IRVINE, AP national writer

CHICAGO - Like a lot of people, Nate Towne is cutting back on spending. He's carpooling to work and only shops at grocery stores that take coupons or offer discount "rewards" cards.

But even in this economy, he remains a self-described "candy snob."

"I'm serious when I say I'll pay a premium for my top favorites because in the grand scheme of things, it's only a few bucks," says Towne, a 37-year-old public relations consultant in Madison, Wis.

He's not the only one who's stuck on candy. Americans buy billions of dollars worth of the stuff each year - with more than $29 billion in retail sales in 2007, according to the National Confectioners Association. That's about a 3 percent increase from the previous year.

That sizable sweet tooth is a big reason many analysts say the candy business is likely to fare better than other nonessentials in these economically trying times, even as prices for commodities such as sugar, milk and cocoa have risen.

The bottom line is: As vices go, candy is still relatively cheap for most consumers.

Analysts at The Nielsen Co., which tracks consumer habits, go as far as calling the candy business "recession-proof," compared with other discretionary items, such as tobacco and carbonated beverages (though beer also tends to do well when the economy is hurting).

They note that consumers are cutting back on longer-distance shopping trips to save gas. As a result, they are spending more at drug and convenience stores with big, easy-access candy sections.

Then there's the "feel good" factor.

"A dollar candy bar treat in the face of filling up the gas tank for nearly $100 can be a powerful psychological motivator," says James Russo, vice president of marketing for Nielsen's food sector.

Candy's reputation for getting people through tough times is long- standing.

"Candy bars, during the Depression, were really America's fast food," says Steve Almond, author of "Candyfreak," a book that examines the economic history and allure of chocolate. But even if consumers are willing to spend, this isn't an easy time for the candy industry, says Jon H. Prince, president of both companies.

"Are we going to say that business is easier now that gas is $4 a gallon? Probably not," he says, noting such factors as the cost of transporting candy.

"Unless you have a very powerful niche, the worst place you want to be is in the middle (in size)," says Pat Conroy, a consumer products expert at accounting and consulting firm Deloitte & Touche USA LLP. "That's the danger zone."

Still, he and others say the largest companies with dominant brands should do well, as will smaller specialty shops.

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