Sour Patch Kids Defied Skeptics, Successfully Opening a Physical Shop in a Pandemic

You know them from their commercials. Tiny, naughty-but-nice anthropomorphic candies cause problems for people, such as dropping a dumbbell on a poor guy's foot in the gym or blasting air horns when a young girl returns home past curfew. But then they offer some sort of endearing solution that approaches redemption. Whether they are friend or foe, they're consistently not doing what's expected of them. To a large extent, the public greeted the news that Sour Patch Kids was opening a permanent store in New York this August with a similar amount of confusion and bewilderment. Why do that now? Why do that at all? But while opening its first physical storefront during a pandemic might seem like a strange decision, it’s not so much an isolated move as it is part of a larger strategy to enter both more sales channels and product categories. Walk into the store in lower Manhattan and here’s what you’ll see: mugs, pillows, purses, socks, umbrellas, bottles, sunglasses, T-shirts and lip balm. The 3,300-square-foot space contains more than 100 different types of products. Apart from a section of Swedish Fish merchandise located near the back, every item unmistakably belongs to the Sour Patch Kids brand. There’s plenty of candy, too. Bins filled with different flavors of Sour Patch Kids occupy the middle of the room. The store was supposed to debut in April, but opening day got pushed back due to Covid-19. And some complications still linger. For instance, a food bar that sells cookies, milkshakes and ice cream cones—all made with tiny bits of chopped up Sour Patch Kids—is open, but an adjacent area with tables and chairs for customers to sit and eat at has been roped off and will remain that way until people can dine inside again. Inside Sour Patch Kids' first brick-and-mortar store, located in New York. The brand, which is owned by Mondelēz International, has released a video game, nail polish, energy drinks, cereal, scripted YouTube series and sneakers in partnership with Stephen Curry and Under Armour in recent years. Just under a year ago, Sour Patch Kids also launched its first direct-to-consumer (DTC) website. To Bryan Gildenberg, svp of commerce at Omnicom Retail Group, the step into both physical retail and DTC is a natural one for confectionery brands. Rivals Hershey's and M&M's have their own New York stores. The main reasons why this expansion makes sense, Gildenberg explained, is that candy companies are often aimed at young people and have a solid following on social media. Plus, the category is fun. “At some level, it's just easier to bring Sour Patch Kids to life online than it is to bring Drano to life,” said Gildenberg. And because this makes sense, the marketers behind Sour Patch Kids consider it a lifestyle brand as opposed to merely a candy brand. They've set their sights on making the sour-then-sweet product, currently celebrating its 35th anniversary, a part of today's culture. The candy brand partnered with Stephen Curry and Under Armour to make sneakers. “We dedicated a pillar of our growth strategy to figure out how to fuel the fandom and come up with what we refer to as unique experiences and unique ways to have that candy-eating occasion,” said Mili Laddha, associate director of marketing for Sour Patch Kids. By the main metric that matters—revenue—Sour Patch Kids’ approach to being everywhere and doing everything appears to be working. In the past 52-week period, year-over-year sales of Sour Patch Kids have climbed 3.7% to $352 million, outpacing the non-chocolate candy category’s annual growth of 2.8%, according to market research firm IRI. Aside from sales, however, a benefit of multiple licensing deals and going into retail is the potential to let each business initiative help market the next, making the brand more famous through its omnipresence. In August when Sour Patch Kids debuted its store, U.S. traffic to its DTC site jumped 167% compared to July, according to market intelligence company SimilarWeb. Although data from analytics firm Sprout Social doesn’t show the same month-over-month bump on Twitter activity, the volume of Sour Patch Kids-related mentions on the platform in August 2020 was 94% higher than August 2019. Sour Patch Kids, but for your fingernails, thanks to a partnership with Sally Hansen. Sour Patch Kids cereal was made in partnership with Post Consumer Brands, which has also joined forces with Mondelēz on Oreo and Chips Ahoy! collaborations. The novel item began rolling out at Walmart in late 2018, accompanied by an official statement reassuring the public that the product was "not a sour prank." Mixing a sour candy with a bowl of milk certainly got people’s attention, as sites from BuzzFeed to the Washington Post published videos of people taste-testing it. “The new cereal generated a lot of conversation and buzz around the surprising combination, and media coverage exceeded expectations,” said Leah Broeders, head of licensing and partnerships at Post Consumer Brands. Broeders declined to provide specifics on how well Sour Patch Kids cereal performed, instead stating that it “met expectations for a unique cereal of this nature.” But regardless of how well it sold, part of the impetus behind the product is its ability to promote Sour Patch Kids. It’s a cereal box that doubles as a mini billboard on a grocery store shelf. “By having these items, we're building our brand presence and our equity,” said Laddha. “With cereal, for instance, it gets us to a different shopper—a cereal shopper. It gets us to a shopper that might not be thinking 'candy' in that moment to think about our brand.” A report from Wells Fargo said that Mondelēz International, which reported $25.9 billion in net revenue last year, has become much more active in the licensing space, especially with its Oreo brand. “Licensed products,” the authors write, “increase brand awareness, provide free advertising, and may create a positive halo effect that benefits the base product.” Sour Patch Kids also released branded supplements and energy drinks. Indeed, Sour Patch Kids’ recent sales increase has occurred despite a decline in traditional advertising. Numbers from Kantar show the brand spent an estimated $4.25 million on ads, excluding social, during the first half of 2020, a 42% drop compared to the first half of 2019. John Baumgartner, senior analyst at Wells Fargo and co-author of the aforementioned report, speculated that Sour Patch Kids might be looking into Oreo’s playbook on licensing to repeat the same level of success. “If [they] can be everywhere with Sour Patch Kids and extend this brand out there, can [they] convert that into another type of Oreo in a different category?” Baumgartner asked. “I think that's probably what they're shooting for.” Laddha agreed that licensing, which allows brands to branch out into “new spaces,” is an important piece of both Sour Patch Kids’ and Oreo’s strategy, but stopped short of revealing how closely the entities work together. One reason Sour Patch Kids can do so many different things at once is that it’s backed by Mondelēz International, which, in addition to Oreo cookies, also manages Ritz crackers, Trident gum and Toblerone chocolate. The Illinois-based company, valued at north of $80 billion, is not in danger of collapsing if the Sour Patch Kids store ends up closing in a year or two. “The ability to test things and not have them all work is a luxury big companies have that they don't exploit often enough,” said Gildenberg. He added that even if a brand like Sour Patch Kids loses $5 million per year on its store and website, the ability to learn more about its customers and buy digital media 1% more efficiently in a post-cookie world will more than return the investment. In other words, having a lot of money is a distinct advantage, in that it provides brands an opportunity to experiment with everything from umbrellas to cereal to brick-and-mortar retail. Or, as Gildenberg put it: “Betting on one thing is gambling; betting on 50 is strategy.”