Halloween is upon us, and while it’s a season for ghosts and goblins, it’s also a crucial time for candy manufacturers like Hershey. The chocolate giant, known for its iconic brands like Reese’s, Kit Kat (in the US), and Twizzlers, is facing a unique challenge this year as consumers seem to be taking their time with their Halloween shopping. In this article, we delve into the high stakes Hershey faces this Halloween weekend and the factors that are influencing its performance.
Last year, customers rushed to get their Halloween candies well in advance due to supply chain and availability concerns brought on by the pandemic. However, this year, there has been a noticeable shift in consumer behavior. According to Hershey CEO Michele Buck, “Consumers have returned to purchasing their trick-or-treat candy closer to Halloween after supply chain and availability concerns spurred earlier purchases last year.” With Halloween just around the corner, Hershey is relying on last-minute shoppers to meet its sales targets.
A Rocky Start to the Season
While it’s too early to make concrete predictions, the 2022 Halloween season has had a “rocky start,” according to Dan Sadler, a principal of client insights at consumer research firm Circana. Sales, both in the chocolate and non-chocolate categories, have lagged behind last year’s performance. However, there’s still time to bridge the gap, especially as more consumers tend to make holiday purchases later in the season.
One significant advantage for Hershey this year is that supply issues seem to be a thing of the past. Last summer, Hershey struggled to meet the demand for Halloween, but this season, as CEO Michele Buck confirmed, “shelves are full.”
Balancing Act: How Much Candy to Produce?
Producing the right amount of candy for the holiday season is a delicate balance for food manufacturers. Too little product can leave shoppers disappointed and turning to competitors, while excess inventory can lead to discounted sales. Moreover, retailers constantly evaluate which items receive the most shelf space, and a disappointing season can impact a brand’s shelf presence.
For Hershey, holidays, including Halloween, account for about 25% to 30% of its annual business. The pressure to perform during this season is immense, especially as Hershey’s regular chocolate sales have been slowing down.
Sluggish Chocolate Sales
Within North America Confectionery, Hershey’s everyday chocolate sales growth slowed in the third quarter. While the net sales of the North America Confectionery segment, which includes candy, mint, and gum, grew 9.9% year-over-year, this growth was primarily driven by an 11.1% spike in prices. Volumes declined during this period, indicating that people are spending more on chocolate but buying fewer products. Despite these challenges, Hershey managed to beat Wall Street’s expectations for the quarter, albeit with a slight drop in its stock price.
Hershey acknowledges that the current economic climate is different, with consumers prioritizing value and affordability as budgets tighten. Factors such as higher interest rates, the return of student loan repayments, and reduced government financial assistance have influenced consumer spending habits. To cater to cost-conscious consumers, Hershey is increasing its presence in dollar stores and discount outlets while exploring options like selling smaller sizes at lower prices.
The Bittersweet Reality of Candy Sales
Overall, the candy industry in the US is still growing. Retail sales data from NIQ shows that dollar sales increased by 10.7% in the year through September 30. However, unit sales saw a decline of about 2.8%. In the chocolate category, sales were up, but units sold were down by 5.1%.
The Challenge of Soaring Cocoa Prices
While consumers are becoming more sensitive to pricing, Hershey faces the challenge of rising cocoa prices. Over the past year, cocoa’s wholesale prices have steadily increased due to strong demand and a supply crunch resulting from poor yields.
The International Cocoa Organization’s monthly report for September revealed that cocoa prices remained significantly high compared to the same period a year ago. The report estimated a deficit of around 100,000 tonnes for the recently concluded 2022/23 season. While Hershey has long-term contracts for commodities like cocoa, which allow it to secure prices even in a volatile market, this year, the company has “less visibility” into the market, as stated by CFO Steve Voskuil. The higher costs could potentially lead to more price increases for Hershey products.
Hershey faces a challenging Halloween season with shifting consumer behavior, sluggish chocolate sales, and the looming threat of rising cocoa prices. The company’s ability to adapt to changing consumer preferences and market dynamics will play a crucial role in determining its success during this crucial holiday season.