Customers started their Halloween shopping early last year. However, they’re moving slowly this year.Thus, in order to reach its targets this weekend, Hershey, the company that produces Kit Kat (in the US), Twizzlers, and Reese’s, is depending on consumers to stock up on candies. The stakes are high, particularly given the decline in normal chocolate sales and the recent spike in cocoa prices.
In prepared remarks on Thursday, Hershey CEO Michele Buck discussed the company’s third quarter performance. “Consumers have returned to purchasing their trick-or-treat candy closer to Halloween after supply chain and availability concerns spurred earlier purchases last year,” Buck said.
“We still have a few key selling days left before Halloween on Tuesday.”
A crucial weekend
It’s too early to predict with certainty how this year will turn out. However, earlier this month, according to Dan Sadler, a principal of client insights at consumer research firm Circana who specializes in confections, things were “off to a little bit of a rocky start.”
He claimed that 2021 was a fantastic year for Halloween candy sales since everyone was excited to celebrate the closure of Covid. It was worse last year. Additionally, he stated that sales so far this season “have lagged even last year’s off performance.” “We are seeing a slight decline in performance for both chocolate and non-chocolate.”
There’s still time to close the difference, particularly because more individuals are buying their holiday gifts later in the season. Additionally, there won’t be any supply problems this year—at least not for Hershey.
Hershey sent a warning last summer that it wouldn’t be able to supply demand for Halloween. But for this year, “shelves are full,” added Buck. According to her, trends are currently in Hershey’s advantage. “We are outperforming the category and our Hershey Halloween retail sales to date are slightly up versus prior year,” she stated.
Determining the appropriate amount of candy to produce for the holidays is a difficult task. Food producers aim to produce the ideal quantity because producing too little can deter customers and cause them to switch to a rival brand. An overabundance of inventory necessitates a discount for its sale. Furthermore, merchants may decide to reduce a company’s allocation after a failed season because they are continuously assessing which products receive the most shelf space.For confectionery brands, the holidays are very significant. For Hershey, Halloween accounts for between 25% and 30% of the company’s annual revenue.
Additionally, Hershey’s normal chocolate sales are struggling, which puts additional pressure on Halloween merchandise.
Chocolate sales slow
The growth in everyday chocolate sales within North America Confectionery slowed down in the third quarter, according to Buck.The North American Confectionery business of the company, which sells candies, mints, and gum, saw a 9.9% year-over-year increase in net sales in the third quarter. However, an 11.1% price increase was the main cause of the increases. Volumes decreased over that time, indicating that consumers are spending more money but purchasing fewer goods. Nevertheless, Hershey outperformed Wall Street forecasts for the quarter and is the owner of snack brands including Dot’s Pretzels and Pirate’s Booty. But on Friday, its shares dropped by almost 3%.
Customers didn’t appear to mind paying more for chocolate for a while. However, a few things are forcing them to tighten their belts.During a Thursday analyst call, Buck stated, “It is a different time today.” “We know that despite tight budgets, consumers continue to prioritize value and affordability.” People are cutting back on their spending because of rising interest rates, the return of student loan installments, and a reduction in government financial assistance, according to her.According to Buck, Hershey has been concentrating more on selling in dollar stores, discount outlets, and club locations in order to reach these customers. The company is also looking into other solutions, such as offering smaller sizes at lower prices.Candy sales in the US are still rising overall. Retail dollar sales increased 10.7% in the year ending September 30, according to NIQ retail sales data. However, unit sales decreased by 2.8%. Sales in the chocolate category increased, although unit sales decreased by 5.1%.
Cocoa prices soar
It would make sense for businesses like Hershey to maintain constant prices in light of consumers’ increased sensitivity to price.Hershey’s executives stated that the company has not announced any further price increases and that pricing is stabilizing. However, given the skyrocketing price of cocoa, maintaining pricing could be costly.Because of weak yields and a shortage in supply, wholesale prices of cocoa have been rising rapidly over the past year.
According to the International Cocoa Organization’s monthly report for September, “overall, cocoa prices remained significantly high for the last month of the 2022/23 season compared to the same period a year ago.” According to the research, “a deficit of approximately 100,000 tonnes is currently estimated for the 2022–2023 season, which just ended.”Hershey is able to guarantee prices even in a tumultuous market because it has long-term contracts for commodities like cocoa. However, according to CFO Steve Voskuil, the company has “less visibility” into the market this year. Further price hikes may result from the increased costs.