Despite sour economy, candy doing sweet business

Consumers see treats as a cheap splurge

Sarah Levy, owner of Sarah's Pastries and Candies in Chicago, prepared chocolate-covered marshmallows yesterday. (MARTHA IRVINE/ASSOCIATED PRESS)

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, 37, a 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 2006.

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.

"People may not be able to flip for Starbucks or even to go to McDonald's. But they have the ability to pay a dollar for a treat," says Jim Tillotson, professor of food policy and international business at Tufts University.

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 longstanding.

During the Great Depression, a nickel chocolate bar was sustenance. Some had names such as "Chicken Dinner."

"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. "They were expressly marketed in a way that would suggest to people that this was a cheap meal."

Such strategies helped some candy makers and sellers weather a weak economy.

One of them was the McKeesport Candy Co., a wholesaler in Pennsylvania that was established in 1927. Now the company does business on the Internet as Candyfavorites.com.

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.

It's also a time when you're likely to see the biggest candy makers consolidating, much like the airline industry, says Pat Conroy, a consumer products specialist at accounting and consulting firm Deloitte & Touche USA LLP. The rising price of ingredients is part of the issue.

Earlier this year, the Hershey Co., one of the nation's biggest candy makers, raised its prices and, last year, announced job cuts and a plan to close several US manufacturing plants, causing merger speculation.