HERSHEY, Pennsylvania -- Stress eating is about to get more expensive: Hershey is raising prices this year.
"Pricing will be an important lever for us this year and is expected to drive most of our growth," Hershey CEO Michele Buck said in prepared remarks discussing the company's financial results Thursday.
In its 2022 financial forecast, the chocolate company behind Reese's and Kit Kats said it is planning "list price increases across all segments" as a way to drive sales growth.
The price hikes should help offset higher ingredient and labor costs, said Steven Voskuil, the company's chief financial officer, during an analyst call Thursday. Hershey is hiring to help relieve the pressure on overworked employees. Voskuil also noted sugar, dairy, packaging materials and specialty ingredients prices are all surging.
Still, Hershey finds itself in a relatively good spot two years into the pandemic.
In 2020, demand for candy and snacks grew as consumers bought comfort foods and hunkered down at home. Retail sales of Reese's grew close to 25% over the past two years, according to Buck.
And Hershey's sales growth didn't stop in 2020. Last year, retail sales of the company's top candy brands grew more than 12% on average, Buck said. And Hershey's snack brands also performed well last year. Skinny Pop's retail sales grew 22%, and Pirate's Booty sales jumped more than 26%.
Altogether, net sales grew 10.1% for the year.
Some of that success can be attributed to Covid restrictions as consumers are still spending more on grocery items as they continue to work from home. But some of those changes could be permanent, noted Buck, especially as workplaces continue offering remote options.
Still the company faces challenges. Demand is still outstripping supply, and Hershey is ramping up capacity to meet it.
Strategic price hikes
The candy maker has already raised prices, and consumers have accepted them. Higher prices contributed to sales growth in the fourth quarter, according to the company.
"Historically, our category has successfully been able to execute price increases and we expect that to be the case this year as well," said Buck.
Hershey thinks customers will continue to accept the higher prices because of loyalty to its products. "They don't want to switch to another brand," Buck said during the analyst call Thursday.
But Hershey is planning to tread lightly, she added. "We want to carefully keep our eye on the potential impact of a broad inflation on the consumer."
The US consumer price index, a key inflation gauge, rose 7% last year, before seasonal adjustments, the Bureau of Labor Statistics reported. That was the biggest spike since June 1982, and it was higher than economists predicted. Grocery prices rose about 6.5% last year.
So far, other companies have been able to raise prices without scaring off consumers.
Starbucks said on Wednesday that it would increase prices this year, after hikes in October and January. "With those pricing actions, we still saw incredibly strong demand through the holiday season," CEO Kevin Johnson noted.
And McDonald's increased menu prices by about 6% last year to help offset higher food, packaging and labor costs. Still, sales at US McDonald's stores open at least 13 months jumped 13.8%, last year, the largest annual increase since McDonald's started reporting comparable sales in 1993.
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I'm an industry expert with a deep understanding of the dynamics shaping the confectionery market, particularly the chocolate sector. My extensive knowledge is grounded in market trends, financial strategies, and the operational challenges faced by major players in the industry. Now, let's delve into the concepts mentioned in the article.
Hershey's Pricing Strategy: Hershey CEO Michele Buck emphasizes the significance of pricing as a key growth driver for the company in the current year. The company plans to implement "list price increases across all segments" to counteract rising ingredient and labor costs. This move reflects Hershey's strategic response to economic challenges and its commitment to maintaining financial stability.
Financial Results and Forecast: Hershey's 2022 financial forecast outlines the company's expectations for the year, highlighting the importance of pricing to drive sales growth. The decision to increase prices is a proactive measure to mitigate the impact of surging costs, including those related to sugar, dairy, packaging materials, and specialty ingredients.
Sales Performance and Demand: Despite facing challenges related to supply and demand imbalances, Hershey reports positive sales growth. Retail sales of key candy brands, such as Reese's, experienced substantial growth over the past two years. The demand for comfort foods, including candy and snacks, surged in 2020 as consumers adapted to pandemic-related changes, such as remote work.
Impact of the Pandemic: The article notes that Hershey found itself in a relatively advantageous position two years into the pandemic. The demand for candy and snacks increased as consumers turned to comfort foods while spending more time at home. The company's net sales grew by 10.1% in the previous year, indicating its resilience and adaptability in a changing market landscape.
Challenges and Capacity Expansion: Hershey acknowledges challenges related to demand outstripping supply. In response, the company is actively increasing production capacity to meet consumer needs. This highlights the importance of agility and strategic planning in addressing operational challenges within the confectionery industry.
Consumer Price Index and Inflation Concerns: The article discusses broader economic trends, such as the increase in the US Consumer Price Index (CPI) by 7% last year. Hershey is cautiously navigating potential impacts of inflation on consumer behavior. The company anticipates that its customers will accept higher prices due to loyalty to its products, emphasizing the delicate balance between maintaining profitability and customer satisfaction.
Industry Comparison: The article draws parallels with other industry players, such as Starbucks and McDonald's, who have also implemented price increases to offset higher costs. The success of these price hikes indicates the industry's historical ability to execute such strategies without significantly deterring consumer demand.
In summary, Hershey's proactive pricing strategy, coupled with its resilience in adapting to changing consumer behaviors and economic challenges, positions the company to navigate the complexities of the confectionery market effectively.
