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Working the PEZ Plan

Upgrades in manufacturing and warehousing support PEZ Candy’s incredible growth in the confectionery novelty segment.

Pez — PEZ’s management team (from l. to r.): Mark Morrissey, coo; Bryan Fry, cfo; Joe Vittoria, president and ceo; Keith Whitaker, v.p. – marketing and sales administration.

It’s been an ongoing argument. Is PEZ Candy, Inc. a candy company or a toy company? The fruit-flavored sugar tablets certainly qualify as candy, while the reliable dispensers featuring nearly 300 different characters and icons have made it an interactive novelty in the United States since 1953.

But given the company’s success in rotating between 10 and 12 assortments on a yearly basis - not counting seasonal as well as “favorites” rotations - the company certainly could be classified as a logistics wizard.

“We’re masters of the schedule,” Joe Vittoria, president and ceo of Orange, Conn.-based company asserts. “No one has the scheduling we have.” And, perhaps more importantly, no one executes it like PEZ does.

A look at PEZ’s 2010 offerings backs up Vittoria’s statements. Starting in January, the company launched Thomas and Friends 65th anniversary dispensers (which include Thomas the Tank Engine, James & Percy), followed by new NASCAR tracks and drivers and Disney Princesses line extensions.

In February, it added Major League Baseball teams as well as new Marvel superheroes associated with the release of the “Ironman 2” movie. This April it will start shipping new “Toy Story III” tie-ins, including three new characters - Hamm, Jesse and Slinky Dog. Come June, retailers will see plush Hello Kitty dispensers as well as new NCAA football/basketball teams, followed by Disney Fairies in August. By September, the Snow White and the Seven Dwarfs collector set will debut as will the Thomas & Friends Gift Tin. In total, retailers will see 12 different promotions by Sept. 10.

These promotions are in addition to the eight seasonal items that encompass Valentine’s Day, Easter, Halloween and Christmas. These rotations complement the company’s “favorites” policy, which involves shipping a variety of popular single-set dispensers to retailers on a proscribed basis, thus freshening up everyday sales automatically.

Such new product manipulation has helped propel sales. Recent IRI (Information Resources, Inc.) data for novelty non-chocolate and seasonal sales for the 52 weeks ending Dec. 27, 2009, detail a 9% growth spurt, nearly triple the category’s 3.6% climb during the same period.

Christmas sales for the same period highlight PEZ’s successful seasonal strategy, with sales growing 14% for the last 12 weeks ending Dec. 27 from a year ago. PEZ’s 2009 Easter sales posted a 7% jump compared to a meek 1.2% for seasonal non-chocolate Easter candy.

And as Vittoria points out, these figures don’t include the entire sales universe, such as Walmart, convenience stores and various Mom-and-Pop outlets.

“Annual growth at Walmart topped 30% last year,” he adds. “Target posted a 20% gain, Rite-Aid 29%. And Walgreens, which came off a 40% surge in 2008, delivered another 5% gain in 2009.”

Heady numbers, indeed. But does PEZ’s supply chain mastery solely account for such growth?

Well, it certainly doesn’t hurt. Nevertheless, the company’s success stems from a series of factors, starting with its brand strength; an ability to license readily identifiable and popular American entertainment icon; manufacturing and warehousing efficiency; and a rabid collector community.

“Our seasonal sales used to account for 70% of our total revenues,” Vittoria explains. “Today, licensing represents 60% of our revenues.” The shift was done with purpose, he adds, resulting in growth of everyday sales.

So was the decision to limit production of collector series, which typically run between 300,000 and 400,000 units.Although collector sets don’t represent a major part of the company’s total revenues, they are appreciated by PEZ fans and deliver a strong retail price point at $20 per set.

This year, the company will unveil the Snow White and the Seven Dwarfs Collector Set, which will feature all seven dwarfs on shorter PEZ bases with their names printed on the dispenser pad. The collector set also will include a small book that describes the classic tale. Although the Snow White dispenser will be available individually as part of the Disney Princesses series, the dwarfs will only be sold within the collector set.

A Thomas and Friends Gift Tin also will be rolled out in the fourth quarter, and will feature Thomas as well as two new exclusive Friends dispensers. The gift tin actually does double duty as a lunch box, a strategic move that underscores the company’s strategy of reaching out to a broad consumer base.

”We launched our Lunch Box Tin line three years ago with the Hello Kitty license, which proved to be very popular,” Vittoria says. “Moreover, it’s typically the 3-to-8-year-old set that carries lunch boxes to school, so the Lunch Box Tin line expands our demographic reach.”

Given the diverse promotional, seasonal and favorites lineup in 2010, it’s not surprising that Vittoria projects another strong year for the company. He’s even more excited about 2011, which will include a host of tie-ins with Winnie the Pooh, Thomas & Friends, Superman, Captain America, Rapunzel, Phineas and Ferb, and a special Lord of the Rings collector’s set.

Initial enthusiasm for the Lord of the Rings collector set has prompted Vittoria to push production to at least 450,000, perhaps 500,000, which would match the Elvis Presley collector set debuted two years ago.

“Everyone wants more,” he says.But as anyone who’s worked with licensing confectionery products can attest, it helps to latch onto a rising star, be it a blockbuster movie or pop culture icon. As Keith Whitaker, vice president of marketing and sales administration, points out, “Licensing isn’t a perfect science. Often we’re further out with our promotional plan than movie producers are with finishing their movies.”

Years of experience have helped the company’s marketing group develop a sixth sense for what will be popular. Close working relationships with Disney, Warner Bros., NASCAR and others have certainly helped fine tune the selection process.

After that, “It’s really about planning the work and then working the plan,” Whitaker says.

When it comes to executing the “plan,” PEZ also stands out, bolstered by a dedicated sales staff, manufacturing group and warehousing crew, Vittoria asserts.

In 2008, the company completed a 55,000-sq.-ft. warehouse addition that expanded capacity by 6,500 pallets. The 40-ft. tall facility features guided fork lifts that can quickly soar to four-story heights and pick specific loads in quick measure.

The $2-million investment dovetailed with another million dollars spent on equipment purchases, ventilation upgrades, expanded inline coding and a new heating system. The final phase of the improvements continues today with the completion of a quality control laboratory.

The first critical link in the supply chain begins with production. After delivery, powdered sugar is compacted into granular sugar before being pumped into a Glatt mixer. During the 50-minute mix cycle, corn syrup, water, flavor, vegetable oil and color are added to the 600-lb. batch.

The batch then is transferred via a moveable bowl to a tote-filling unit. The filled totes are then used to feed four Fette 5000 tableting machines that are capable of producing 450,000 tablets an hour.

The Fettes pump out the pressed tablets into tubs, which then are transferred into the packaging area. One of the improvements made during the last few years has been isolating the wrapping of PEZ packs from the secondary wrapping and packaging, which includes placing candies and dispensers into blister packs and regular bags.

The improvements in ventilation, coupled with segregating the area from secondary packaging, has greatly reduced the sugar dust buildup, Vittoria points out.

Five SIG Sapal flow wrappers turn out 360 12-piece rolls of PEZ candies per minute, an amazing display of high-tech automation, incredibly close product tolerances and blinding speed. As part of its ongoing effort to improve traceability, the company began imprinting lot codes on every PEZ pack.

The move, which was taken with an eye on meeting Consumer Product Safety Improvement Act requirements well before the regulatory guidelines kick in, provides retailers and consumers with critical information about each roll of candy.

In addition to detailing the batch lot as well as raw material sourcing through the lot number on the pack, another code is imprinted on the blister pack, film bag or overwrap package to track wrapping materials and dispensers. Eleven Hitachi printers are connected to the five SIG Sapal wrappers as well as the blister-pack and bagging lines to ensure every bit and parcel is coded.

Once the PEZ candies are wrapped, they are moved from the isolation room to the blister pack and bag line packaging area. Here, too, improvements have been made, with the perimeter of the larger area cleared for easy movement of product.

Two Koch blister packaging units handle a variety of blister pack combinations, from six to 16 rolls of candy and a dispenser with three rolls of candy. Changeovers on the unit take about an hour to complete.

In addition to blister packs, the dispensers and candies are individually bagged and/or placed into standup tubes. Here again, the company’s close relationship with its customers prompted PEZ to introduce seasonal dispensers into tubes.

PEZ's management team (from l. to r.): Mark Morrissey, coo; Bryan Fry, cfo; Joe Vittoria, president and ceo; Keith Whitaker, v.p. - marketing and sales administration.

“It’s worked great for us,” Vittoria says.

Just this past year, the company also revamped the packaging on its candy bags, introducing bolder, more dynamic graphics and colors. Sales of candies have grown during the past few years, and the redesign was launched to take advantage of the heightened interest by consumers seeking values.

The company also is in the process of updating its Web site and online store sales.

Although Whitaker says Internet sales don’t account for a large percentage of total revenues, it’s a way to stay connected to consumers.

“It provides an easy way for collectors to round out their selection,” he says. “Also, those parents planning a party for their children who are looking for a specific theme dispenser can order those easily on the Web site instead of searching for 20 to 50 identical dispensers in stores.”

As Whitaker points out, PEZ remains an iconic brand with very passionate and loyal consumers.

“I get calls everyday from someone calling with an idea about a dispenser,” he says. “And we’re always being featured by some media outlet.”

Such affection hasn’t gone unnoticed, Vittoria says. This year, the company looks to open up a Visitor’s Center, one that will feature a historical display, an adjacent viewing area next to the factory production area and possibly a theatre.

“When it opens, we’re hoping to attract between 75,000 and 100,000 visitors annually,” Vittoria says.

The Visitor’s Center, however, isn’t the only surprise Vittoria looks to launch in the coming years. Development of a pressed gum offering is closer than ever to being launched. And the idea of dispensing candies other than sugar tablets is also on the drawing board. Finally, there’s another element to the company’s five-year strategy.

“We’re looking to make a key acquisition,” he says. “We focused on organic growth, but we’re also an interested buyer, looking for the right strategic fit.”

Vittoria points out that the confectionery industry is on the cusp of a new surge in consolidation. He foresees several other mergers and acquisitions amongst larger players following Kraft’s takeover of Cadbury.

However, midsized and family-owned confectionery companies have a key role to play in the industry, responding to consumer demand in regional and niche segments, Vittoria adds.

For PEZ, the right acquisition would solidify the company’s growth strategy.

It’s simply a matter of planning the work and working the plan.

At a Glance

PEZ Candy, Inc.

Headquarters: Orange, Conn.

Sales (U.S.): $50 - $100 million (Candy Industry estimate)

Plant: 100,000 sq. ft.

Employees: 180-250 (high end includes seasonal additions)

Products: Flavored sugar tablets housed in a novelty dispenser

Brands: PEZ

Output: 1 million PEZ rolls daily

Management: Joe Vittoria, president and ceo; Mark Morrissey, coo; Bryan Fry, cfo; Keith Whitaker, v.p. - marketing and sales administration; Dan Silliman, v.p. - sales.

KEYWORDS: PEZ