Hershey hopes Bliss will put an end to turmoil

CHICAGO (Reuters) - After months of turmoil, chocolate maker Hershey Co (HSY.N) is pinning its hopes on Bliss.

Bliss, a new premium chocolate candy, will be more closely watched than most product launches, as investors look for signs the largest U.S. chocolate maker can recapture market share lost to rivals such as Mars Inc.

"It's key for their future in that much of the growth in the chocolate category now is in premium and Hershey really lacks a presence in that category," said Morningstar analyst Mitchell Corwin. "It's important that Hershey shows it can offer a premium product under the Hershey brand name."

Hershey's management has admitted it lacks the products to take advantage of demand for premium and dark chocolates.

Missing out on growth in those segments was a key factor depressing Hershey sales and earnings last year, eventually leading to a sweeping overhaul of the board of directors orchestrated by the Hershey Trust, the company's largest shareholder.

Hershey sales were nearly flat last year, while income, excluding restructuring charges, fell 15 percent. Adding to the turmoil, last October, Chairman and Chief Executive Richard Lenny unexpectedly left the company amid reports of his differences with the Trust.

Hershey is counting on Bliss and a new line of chocolates it is developing with Starbucks Corp (SBUX.O) to help it gain ground in the premium segment.

"The Hershey's Bliss launch absolutely is a major launch for us and as big as any launch we have done for years in the chocolate business," Jay Cooper, vice president of U.S. chocolate brands for Hershey, said in an interview.

Bliss, a piece of chocolate with a rounded top that fits in the roof of the mouth, will be priced at $3 to $3.99 for a 36-piece bag. The candy will come in milk chocolate, dark chocolate and milk chocolate with a melt-away center.

SO MUCH COMPETITION

The dark chocolate and premium chocolate segments have been growing much faster than milk chocolate.

In the 52 weeks ended January 26, total U.S. packaged chocolate sales rose 4.2 percent, according to The Nielsen Co, but premium chocolate sales rose 28.5 percent and dark chocolate sales rose 28.9 percent.

"It would be a huge step in the right direction if they can get it off the ground," Edward Jones analyst Matt Arnold said of Hershey's Bliss.

One reason for the growth of the dark chocolate and premium segments is that antioxidant-rich dark chocolate could have a health benefit, according to recent studies. Another is that there are simply more products in those segments now.

But whether Hershey -- known for mainstream products such as milk chocolate bars and Reese's peanut butter cups -- can succeed against such names as Lindt (LISP.S) and Ghirardelli is another question, said Brian Morgan, a senior research analyst at Euromonitor International.

"There's so much competition. I don't quite understand the strategy of attaching the Hershey name on those premium lines and throwing them out there on the shelves," Morgan said.

But Cooper said consumers have been asking Hershey for a product in the premium or "indulgent" chocolate segment.

"Consumers were saying: 'We expect you to play a role. We have so much of an emotional connection that we expect you to be there, and why haven't you been there before?'" Cooper said.

U.S. consumers will actually be inundated with bliss in the next few weeks.

Hershey's Bliss is being launched in March, while Kellogg Co's (K.N) own Bliss, a Special K bar made of cereal and fruit pieces with a "chocolatey" bottom, is already hitting the shelves.

But while Hershey and Kellogg have faced similar challenges, including soaring commodity costs and a weakening U.S. economy, Kellogg shares are up 1 percent over the last year, while Hershey's are down 32 percent.

Kellogg's Bliss is an addition to a successful platform that is part of Kellogg's attempt to promote Special K as a weight control product throughout the day.

Hershey would probably like to see its Bliss enjoy some of the same success and it might be able to do just that.

Mark Baynes, Kellogg's chief marketing officer says the body-conscious women who eat Special K products do not necessarily want to sacrifice. So while the two Blisses are different products, they could go after the same market.

"We should actually be targeting the same people," Baynes added.

(Reporting by Brad Dorfman; editing by Andre Grenon)