Line Extensions: Cannibalization or New Sales?

In a product-intensive category such as candy, one of the biggest challenges vendors have traditionally faced is how to assess whether a new product brings a new customer to the vending machine, or simply cannibalizes an existing product's sales. This question has been particularly difficult to answer when manufacturers introduce new versions of existing products. On one hand, the new version, known as a "line extension," has the benefit of established name recognition. On the other hand, if it is not differentiated significantly from the established product, it will not be as likely to bring new sales to the machine. In an effort to better understand the impact of line extensions on vending sales, Automatic Merchandiser commissioned Management Science Associates Inc. to compile a report of the top selling candy products, paying special attention to line extensions. The report is based on sales from 25,000 candy/snack machines nationwide. What a line extension is. The list on this page highlights in italics those products that are considered line extensions of existing products. A line extension is defined as a product that has evolved from a previously-introduced product. The line extension can include a new flavor, texture, or package configuration. Nine of the top 45 ranked candy products, based on unit share of total sales, have been identified as line extensions, 20 percent of the total. This percentage indicates that line extensions account for a small but not insignificant portion of candy sales. Product manufacturers introduce line extensions to gain incremental sales. The line extension provides them a way to capitalize on consumer awareness of an existing product. The question for vendors and other retailers is whether these products provide them any benefit. Suzy Silliman, group director of information management at MSA Inc., said line extensions provide increased sales if they bring a new audience to the machine. "Then there's a definite benefit," she said. Some line extensions have accomplished this, she said, while others have not. Where a line extension does not bring a new sale to the machine, it can cannibalize sales of an existing product, which is bad for the vendor. When cannibalization occurs, a vendor will allocate two spirals to generate the same sales previously provided from one spiral, Silliman said. How big a gamble? How can an operator know whether a line extension will generate incremental sales?

Top 45 Confection Products In Vending (Rankings based on unit share of total US sales for 12 weeks ending May 14, 2000)   Rank    Manufacturer & Product Unit Share Dollar Share Distribution   1 M&M/Mars 2-oz. Snicker's Original 12.01% 12.10% 89.38% 2 M&M/Mars 1.74-oz. M&M's Peanut 10.67 10.79 87.83 3 M&M/Mars 2-oz. Twix bar 7.69 7.97 66.62 4 Hershey 1.6-oz. Reese's Peanut Butter Cups 5.51 5.45 71.89 5 M&M/Mars 2.3-oz. Three Musketeers Original 4.28 4.27 56.89 6 M&M/Mars 1.69-oz. M&M's Plain 4.21 4.31 65.20 7 M&M/Mars 2.07-oz. Starburst Original 3.93 4.19 38.54 8 M&M/Mars 1.42-oz. Skittles 3.93 4.15 43.34 9 Nestlé 2.1-oz. Butterfinger 3.22 3.24 51.72 10 Hershey 1.45-oz. Almond Bar 3.05 3.01 38.55 11 Hershey 1.85-oz. Payday 2.93 2.91 47.17 12 Nestlé 2.1-oz. Baby Ruth 2.42 2.38 45.71 13 M&M/Mars 2.05-oz. Milky Way 1.77 1.80 38.66 14 Hershey 1.76-oz. Almond Joy 1.74 1.74 26.53 15 Hershey 1.5-oz. Kit Kat 1.54 1.59 26.62 16 Wrigley 0.74-oz. Doublemint Gum 1.52 1.06 24.13 17 M&M/Mars 1.5-oz. M&M Crispy 1.49 1.55 36.53 18 Hershey 1.52-oz. Reeses Pieces 1.31 1.34 19.88 19 Hershey 1.5-oz. Reeses Reesestick 0.97 1.04 21.01 20 Adams 1.0-oz Cinnaburst Gum 0.96 0.73 16.49 21 Nestlé 1.8-oz. Shock Tarts 0.93 0.97 10.26 22 Nestlé 1.75-oz. Tart 'N Tinys 0.93 0.98 7.70 23 Jaret 5-oz. Sour Patch Fruits 0.80 0.88 6.92 24 M&M/Mars 2.07-oz. Starburst Tropical 0.80 0.80 6.60 25 Just Born 1.12-oz. Hot Tamales 0.77 0.79 14.29 26 Nabisco 2.25-oz. Now&Later Classic 0.74 0.78 4.47 27 Wrigley 0.74-oz. Spearmint Gum 0.73 0.51 13.09 28 Nestlé 1.55-oz. Nestlé Crunch 0.73 0.77 12.60 29 Wrigley 0.74-oz. Juicy Fruit Gum 0.73 0.55 16.76 30 Adams 3.2-oz. Mintaburst Gum 0.69 0.54 8.66 31 Hershey 1.85-oz. Zero 0.66 0.66 17.18 32 Hershey 1.7-oz. Watchamacallit Bar 0.64 0.63 11.18 33 Nestlé 1.77-oz. Gobbstopppers 0.63 0.69 7.05 34 Hershey 2.5-oz. Twizzler 0.58 0.65 10.01 35 Hershey 2.5-oz. Twizzler Strawberry 0.53 0.54 7.53 36 Nabisco 1-oz. Icebreakers Gum Cool Mint 0.51 0.39 6.34 37 Hershey 1.75-oz. Mr. Goodbar 0.51 0.51 7.09 38 M&M/Mars 1.42-oz. Skittles Wild Berry 0.49 0.52 4.74 39 Wrigley 0.74-oz. Big Red Gum 0.48 0.34 7.47 40 Hershey 6-oz. Twizzler Nibs Cherry 0.48 0.49 5.30 41 M&M/Mars 2.17-oz. Skittles Tropical 0.47 0.48 5.26 42 Adams 0.72-oz. Certs Peppermint 0.42 0.34 3.41 43 Just Born 2-oz. Mike & Ike Zours 0.41 0.43 3.41 44 Lance 1.08-oz. Chews Fruit 0.39 0.42 1.84 45 M&M/Mars 1.76-oz. Mars Bar 0.35 0.35 6.03

The obvious way is through trial and error. However, Silliman said manufacturers often conduct market research to answer this question prior to introducing the product. Vendors can ask manufacturers to provide them with market research.

Silliman noted the recently-introduced Sour Skittles from M&M/Mars, for example, is geared to a different audience than the regular Skittles, which has a sweeter flavor.

In some situations, manufacturers offer vendors a financial incentive to purchase a line extension. Manufacturers sometimes include line extensions in their rebate programs, or offer other financial incentives. Silliman said financial incentives can make line extensions worthwhile, but eventually, the product must find favor with the consumer to provide additional sales to the operator. "Whatever your decision, it has to be in line with what the consumer wants," she noted.

The market share information in this report indicates that line extensions can generate significant sales for vendors.

M&M Peanut, the second ranked candy product, was originally a line extension of M&M Regular. As the report indicates, M&M Peanut now outsells M&M Regular. M&M/Mars stopped considering it a line extension after the product established itself as a core item.

© Automatic Merchandiser; Management Science Associates, Inc. August 2000 All Rights Reserved.