Hershey Is Getting the Most for Their Media

SPEAKER: Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
[MUSIC PLAYING]

ROBERT MOSKOW: Hi, my name is Rob Moskow. I'm the senior analyst covering Consumer Staples companies here at TD Cowen. I actually used to work in marketing at a Consumer Staples company, and I'm still fascinated by how they build brands and how those brands create value for shareholders. And that's why I'm hosting this new podcast called On-Brand.
For the next several minutes, I'll be talking with Vinny Rinaldi, who's the VP of Media and Marketing Technology of the Hershey Company. So Vinny, thank you so much for joining us here today. Why don't we start with just a very general question. Tell us a little bit about your background and what your role is at the Hershey Company.
VINNY RINALDI: Sure. Thanks for having me, Rob, I appreciate it.
So where to start? In my career, I've played-- worn really many different hats across the spectrum of advertising. I've been on the buy side, the sell side and the brand side, and the brand side is also a combo on the buy side. And when I look at all the experiences, early in my career, I started out from a technology perspective.
I was at one of the original Data Management Platforms, or DMPs, called Audience Science, which was one of the first forays into audience targeting for P&G as one of our biggest clients. That then triggered me into this world of demand-side platforms and advertising technology and everything that you read about and hear about and really sort through as our industry. And it propelled me into this industry of different areas from a sell-side perspective. So really looking at the technology and letting brands use it to buy and sell media within a technology ecosystem.
So as I was going through this journey, a lot of my early career was technology first, really building out and learning what the advertising ecosystem will be. And it triggered me to learn the other side, which was the buy side. So all my clients were always the buyers. I was working with agencies, I was working with brands.
And from there, I got an opportunity to go run an acquisition that Dentsu Aegis made on Merkel. And as they acquired Merkel, they had a very robust data and technology ecosystem, primarily centered around audience capability called M1.
So I spent about two years there working on the actual integration of technology, building it into the Dentsu story, and really bringing this new world of where data and technology meets advertising agencies. And then I got a call from Hershey or started going through the process with Hershey.
And for me, it was probably something I never thought I would do. Funny, funny enough is my wife is actually from here. One day when we first were dating, we came out to visit her family and we were driving through, and it's like all cornfields. And I literally said to her, hell would have to freeze over before I would ever move here.
ROBERT MOSKOW: And yet the groundwork was laid-- yet it was laid a little bit, wasn't it?
VINNY RINALDI: That's exactly right. And lo and behold, here we are. Quite a few years later, her family is still here. We're here and having a really, really insightful, challenging, and rewarding job all at the same time.
ROBERT MOSKOW: So Vinny, how long-- tell me again, have you been at Hershey?
VINNY RINALDI: It's about 5 and 1/2 years I've been at Hershey in the media team.
ROBERT MOSKOW: OK. So that's not that long. And there's been major advancements in technology since then. What investors who will listen to all this are-- want to hear, like a bottom line of I hear about all these technological advancements. At the end of the day, they want to know, has this improved your return on investment in marketing? How do I see it show up in the numbers?
And so if you had to take a step back, I'm sure you would argue that there's much higher ROIs. There's also complicating factors in that. So when you look at your overall media spending, which Hershey's on a dollar basis, it's up-- it's up a little bit in the past four years or so, I think.
VINNY RINALDI: Nothing drastic.
ROBERT MOSKOW: Do you feel like for those dollars-- correct me if I'm wrong-- for those dollars, can you point to our impressions are better, our conversion into dollar sales is better, and are you able to pull it all together?
VINNY RINALDI: We are. And I think that's where we've probably done a very good and very advanced job at understanding our media mix model. There's never been in the last three, four-ish years more correlation to exactly what the model is spitting out to where the business is at.
Like, when we face headwinds, you look at the media mix and I'm like, yeah, there's a slight decline in effectiveness, which is revenue. And when you see things popping, you're like, yeah, look, the model actually told us it was doing that. So we've done a lot of work to really fine tune and get that into a good place.
Now, the media mix model takes into account base velocity trade DCOMs. It takes into account media spending and marketing revenue. So all these things do come together for the model to actually run itself.
The model only is as good as the data you feed it and the constant iterations you feed it. So we spend a lot of time on reassessing our data architecture, having a universal taxonomy that speaks the same language across everything that we do, so that you can pull this data together and actually have an output.
What I will say is, as we've evolved, as we think about a media mix model, it can go two ways. You've got ROI, but ROI is made up of both cost and revenue. Effectiveness defines revenue due to the dollar you spent. And cost is really the cost per thousand impressions that you're getting.
Now, there's two levers you can pull. One, you can go by tonnage for a little bit less. And you'll probably, in theory, the way that we've seen, as long as our creative stays consistent, which it has, deliver a positive return on the marketing investment.
If I take a zoom fully out, our marketing ROI or revenue makes up about 20% of the total revenue to the business, which is actually pretty strong. But there's all these other factors, again, base velocity, trade, and merchandising. Everything that goes into the business is part of the journey.
So when we look at marketing, we really focus on how are we driving top line revenue. If we're spending a bit, what is our return on that? What we've seen over the years is we've transitioned into a really good mix. Premium content performs twofold of what scale performs.
So the sharper you get with bigger-- so we've been testing with Netflix. Netflix has been an incredible return on our investment, as well as top line revenue driver. Now, most would be like, yeah, that makes sense. It was a new ad opportunity. No one was ever buying those people. They're there for a reason. They're very pointed.
And we've seen the power of that. But then you've got the other side, where you can't lose sight of really getting people who are just scrolling on, whether it's TikTok or Facebook or Reels and some of it's mindless scrolling. But how do you stand out in those moments as they're scrolling by?
And we've been finding a good balance of those two things, and I think technology is only getting us to a further spot of how we measure the impact of all of our dollars.
ROBERT MOSKOW: And maybe just to put a button on that. When you advertise with Netflix, how do you then determine that that's translated into a sale?
VINNY RINALDI: Well, that's where, again, it turns into a model. Every single thing that we buy gets measured within the model, how much we spent there, what the cost of buying there was. And then it models out the total revenue by day, by market and where those ads were seen.
And again, it's never-- for us, what's challenging is the amount we spend. There's never that single impression is the reason that person bought a product. Our brand is-- doesn't operate that way. It's the ad loads of all of these touch points that really deliver that top of mind mental availability to the business and put them in that point of purchase that they remember us more than ever before.
Because we are-- and you know this probably better than any of us. We are an incredibly impulsive buy. We are something that's-- typically, depending on pack types-- not always planned. So that mental availability is probably one of the most important things that we do from a marketing perspective, is making sure we show up everywhere so that you constantly remember us when you're at that closest point of purchase.
ROBERT MOSKOW: Maybe another button on it, then just intellectually, when I think of like Kroger precision marketing, it seems very simple to me. They have a loyalty program. These are consumers who have opted into the Kroger ecosystem. They will put your advertising in front of them through different mediums that they have. And theoretically they track that consumer, that single person, in the store and know what that person behaves.
That to me sounds more direct than what you might find if you're advertising on Netflix. Am I right or is it squishier?
VINNY RINALDI: You're definitely spot on. That's a more direct to consumer purchase, which, again, you can put a promotion in front of them. You could guide them right into that sale.
I think as we move off the Kroger environment or off the Walmart environment or Target or whomever, when that data goes into the open marketplace, which is where you would buy a Netflix, a Disney, a Paramount, et cetera, you've got to do a number of different matching exercises to make sure you're actually still finding that person, because you can't bring PII into the way that you deliver any ad experience, unless the integration was Kroger directly to Netflix, which isn't what's happening because there's the intermediary of the Trade Desk who doesn't own PII.
They do all the stitching possible to IP addresses of homes, to cell phones, to cookies, and they try and stitch this identity together to a household ID, which they do a really good job with, to then target the Kroger audience on Netflix.
So there's a little bit of a step in there. But the more that gets integrated to the Trade Desk, the more data fidelity we have on those audiences. They then have the power of measurement in the platform, which would say that impression drove a sale. So we're getting there.
ROBERT MOSKOW: I'm going to pivot us for the next few questions and ask you about there's heightened competition in the chocolate category from smaller brands. Your CEO, Michele Buck, has even mentioned it. To what extent do advancements in social media and digital marketing make it easier for small brands to gain a foothold? And to what extent does your scale protect you from that?
VINNY RINALDI: It's a mix of a lot of different variables, but it is clear as day that this is an area where you certainly see the competition flowing. It's not just a Mr. Beast. There's others that are out there.
We also acquired Sour Strips, which was born and out of this ecosystem of social. What we are noticing is we're focused more on the channel, and I think we need to-- what we've talked a lot about is who is the consumer they're winning over and why are they winning them over?
You've got a Mr. Beast, who's got probably the biggest YouTube audience or subscriber base there ever was. He's clearly going to make things sound really good to 300 million people across the globe because they are following. They love him. It's interesting to watch.
Being big doesn't necessarily mean you're not-- it doesn't mean that you shouldn't watch out for something like that. But I think we believe strongly in our product. Our founder's ethos is literally give them the best product. It's the best marketing in the world. And I think that's really true. And we believe strongly in our products.
Our brands are incredible and have sustained 130 years of all of these insurgents coming in and out. And I think it's an interesting area to keep watching. There's certainly-- I always think about the behemoth in the room that I assume Gatorade faced when all of a sudden Prime took off.
And I take a step back and think about my own life. And I've got a 7 and 1/2 year old who plays baseball and other sports. And if you go to a baseball field nowadays, when I was growing up, it was all Gatorade. There isn't a Gatorade bottle anymore. It's all Prime.
So it's something interesting to keep an eye on. We don't really know where this next generation is going to go, but it certainly is interesting to watch how they consume content, how they think about what they're watching. It's rare to get people to sit down and watch a sports game anymore. They go right to YouTube to watch highlights. It's rare to see them watch any show in its entirety from start to finish. God forbid, they had to wait a week to watch the next episode.
So it's certainly changing the behaviors of communication strategies, in my opinion. And I think it's just right now for us, it's something to be cautious of to keep an eye on and figure out what is the muscle we're developing as we integrate with partnerships in a way where we borrow each other's equity, both our brand and their brand, and win with their consumer base and their communities.
ROBERT MOSKOW: Similar to that, Hershey probably is 65%, 70% chocolate and maybe 15% to 20%, I call it hard candy, but you guys call it sweets. And there's been a lot of growth in sweets. And my perception is that Hershey was a little bit late to capitalize on it. They're correcting that now through acquisitions and through soon innovation with Shaq-A-Licious.
What role do you play in accelerating that growth? And one of the concerns I have is that some of these things sound a little faddish. Shaq's been around for a long time. But young consumers who buy it may not have a ton of loyalty for that brand. So is that a concern or a thought internally?
VINNY RINALDI: Yeah, it's something we talk about often. I think you're right about the acceleration of sweets has come fast. No one can predict a brand that can go from 0 to almost $800 million in less than two years, like Nerds Gummy Clusters has.
ROBERT MOSKOW: Nerds Gummy Clusters.
VINNY RINALDI: Wild. There's probably not many stories out there that have seen a trajectory of that capacity. So you can't always think that everything you make is going to become that.
They don't think that either on their side. Let's think about how long it took Nerds to also get going again. So that took a really long time.
So there's always a concern there that you have to think about how we show up. Jolly Rancher has been around for a very long time. We've got really consistent wins there. Like, they've been around forever. And it wasn't because of their product, but chocolate was growing.
So you're seeing people shift from eating potentially some chocolate-eating occasions into a sweets occasion. And over the last year or so, I'd say we're doing a really good job in that area as we see that growth trajectory on all of our sweets business across Jolly Rancher, Shaq-A-Licious, and others. And I think it's just something to continue to keep an eye on.
These things swing back and forth almost consistently every few years between eating habits, and it all is very much following some of that chain. Well, we're starting to run and think through and really listen to is like when we hear and do more social listening, what are they-- what are consumers talking about from a food basis, from a candy and gum basis? How do we think about those insights to deliver maybe future innovation and really try and tie all this together so that whatever the next Nerds Gummy Clusters is we're, obviously, hopefully playing a pretty big role in that?
But when you're always number one in many different things, there's always going to be somebody chasing you. And how we evolve and how we stay consistent and keep delivering the best product in the marketplace, I think will continue to prevail. But yeah, I think the sweets-- the whole category is fascinating to me, how it's taken off so much. And I think it's the texture of the material and the different products that keep coming out. And there's some that are really bad.
And I'm not just saying that because I work at Hershey, but there's some that are really not good, but they still win. And I think some of that's communication, some of that's because of these smaller players and their communities that matter.
But to really continue and sustain that growth and repeat purchase behavior and all of those things isn't easy. And there's not a lot of brands that continue to do it.
ROBERT MOSKOW: Are they targeting younger consumers than chocolate?
VINNY RINALDI: It seems that way. We are broad enough where we're getting all consumers, and they're probably a bit more hyper focused on a different smaller niche community and consumer base, something we certainly are always keeping an eye on. And I would say, we still continually win with all consumers of whichever age range you want to go after.
ROBERT MOSKOW: Well, I was hoping we could have story time as a segment of this, because I wanted to ask you if you could tell us about a specific marketing challenge you faced at Hershey in recent years and how you overcame it or how the organization overcame it.
VINNY RINALDI: So when I-- it'll go a few years back, not necessarily the last few, but when I first came to Hershey again, we were very much-- I think we were about 81% linear TV buying. That was in 2018. So not that long ago in this small window, we've completely flipped that on its head.
And when we first came here, it was like my job was really to focus on bringing this digital world to life using really streaming television in 2018, which is crazy to me that people are like, still now getting into streaming when we did it almost 6-plus years ago. And the writing was on the wall.
And I think what challenged me so much is everyone here was like, why would I do that? It doesn't even make sense. And when you think about that, you're like, OK, well, let me take a step back. I've been in the space, so I probably see it at a bit of a more firsthand than everybody else does. And I saw why streaming video was going to be very important.
But what I needed to work through within this organization was understanding the incrementality of it and why it was important. And when you think about reach, and that's why it was-- let me go back to the principles of like what we all live by.
Media plans, marketing plans are grounded in reach and frequency. To really grow market share, to grow household penetration, you need to reach new consumers and/or ones that are not shifting or in the places that you once were. So how do you do that?
And for me, one of the biggest challenges here was like nobody wanted to lean in. And it took 16-ish months to go through about four different case studies of why it was important and chipping away and chipping away. And then finally, when you all of a sudden saw this onslaught of consistent work, like every single time we did this was even better than the last. You saw every brand was like, yes, I want in, I want in, I want in.
Now, again, this is right at the-- right about 12-ish months before the pandemic. So we caught an onslaught of being in this streaming environment before streaming really blew up, which I think is really something that at the time was one of the biggest challenges, not only I face, but also brand marketers faced is like, this whole world is about to change before it changed.
And I think we did a really good job of overcoming what that world was and how we got there sooner. I kind of correlate it to what I think the Trade Desk has done really well as a technology capability. From 2015 to '20, they saw streaming video becoming what streaming video now is, and they built their entire technology around that.
Towards the mid to late 2019s, they saw what retail media was about to become and they built everything early on to answer that question of retail. Because if they think about it, if they caught all of the TV dollars, most of those are CPGs. If they caught that plus retail, now they're combining the power of both. And I think they've done a good job.
I think we've also, as a brand, have stayed ahead of that curve as well, where there's things we're doing now that I would challenge not many marketers are even considering or thinking about with custom algorithms and how we're using a lot different data sets to feed our buy. It doesn't have to always be an audience.
Addressability can be any data point that you want to buy an impression off of. And if you start to feed internal data, that doesn't mean people. That means out of stock what we sold into every store by zip code, how are we moving off shelf? And you constantly feed an algorithm with that kind of data.
You're now inherently tying your business directly to how you're buying impressions in every single household in the United States, and I think that's going to evolve even further in the future. So all marketers go through this, and it's like, how do you overcome those challenges of getting through the legacy model and really bringing this future state into what you believe is hopefully ahead of the curve, but keeping up with the curve?
ROBERT MOSKOW: Vinny, in 20 words or less, what do you like most about working for Hershey?
VINNY RINALDI: It's the most iconic brand you could ever put your name behind, in my opinion. The legacy and the history of Milton Hershey is nothing to shy away from. What we've done is amazing.
ROBERT MOSKOW: Vinny, I want thank you so much for joining me here on On-Brand at TD Cowen.
VINNY RINALDI: Thanks for having me, Rob, I appreciate it.
SPEAKER: Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.
[MUSIC PLAYING]

This podcast should not be copied, distributed, published or reproduced, in whole or in part. The information contained in this recording was obtained from publicly available sources, has not been independently verified by TD Securities, may not be current, and TD Securities has no obligation to provide any updates or changes. All price references and market forecasts are as of the date of recording. The views and opinions expressed in this podcast are not necessarily those of TD Securities and may differ from the views and opinions of other departments or divisions of TD Securities and its affiliates. TD Securities is not providing any financial, economic, legal, accounting, or tax advice or recommendations in this podcast. The information contained in this podcast does not constitute investment advice or an offer to buy or sell securities or any other product and should not be relied upon to evaluate any potential transaction. Neither TD Securities nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed.