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Hershey's Krave: Is beef jerky the next Greek yogurt?

Jon Feeney says Hershey's $200M+ for Krave is a bet on fast growth vs Jack Link's

Why did chocolate maker Hershey Co. agree in January to pay a reported premium-high price of $200 million-$300 million for Krave, a small ($36 million in sales last year) jerked-beef snackmaker started by California wine heir Jon Sebastiani just five years ago?

With U.S. consumption of meat snacks (jerky and sticks) jumping to $2.5 billion last year from $1.5 billion in 2009 (according to IRI Worldwide data), and new brands like Krave marketing to young, sports-oriented or nature-food enthusiasts, "jerky could be next on the short list of categories -- coffee, Greek yogurt, nut bars -- that have experienced breakthrough-led expansion in the last five years," writes Berwyn-based food-companies analyst Jonathan P. Feeney today in a report to clients of Athlos Research. That explains "the expansion into meat snacks for (Hershey), a heretofore pure play confectionary company," he writes.

Hershey acquisitions are rare and strategic (see its $584 million 2013 deal for Shanghai's Golden Monkey Food Co.), and Krave marks a departure for Hershey into a whole new U.S. category. Some analysts compared the deal to Hershey's $130 million acquisition of Mauna Loa Macadamia, the Hawaiian nut company, in 2004 (Hershey sold Mauna Loa to Hawaiian Host for an undisclosed sum as soon as the Krave deal was done).

But Mauna Loa was a mature brand that had already been heavily advertised and growing rapidly; Krave has more potential, Feeney argues: With little advertising, Krave has only recently expanded beyond discount, drug and department stores into conveneince stores, where most jerky is bought, and where Hershey's commands a lot of shelf space. Hershey's has also lately boosted its advertising spend, and is in position to pump Krave's name to many new fans. Feeney also estimates stores and food makers keep 42 cents of every dollar consumers pay for the snacks, a lot more profitable than cigarettes, milk or salty snacks, but not quite as lucrative as candy.

According to Feeney, Hershey sees Krave as an opportunity to win market share from the jerky industry leader, Wisconsin-based Jack Link's, which has boosted sales from $400 million in 2006 to $1.2 billion last year.