The stakes are high for Hershey this Halloween weekend

By Danielle Wiener-Bronner, CNN

New York (CNN) — Last year, customers did their Halloween shopping early. But this year, they’re taking their time.

That means that this weekend, Hershey — which makes Reese’s, Kit Kat (in the US), Twizzlers and more — is counting on shoppers to load up on candy so it can meet its goals. And with regular chocolate sales slowing, the stakes are high, especially as cocoa prices soar.

“Consumers have returned to purchasing their trick-or-treat candy closer to Halloween after supply chain and availability concerns spurred earlier purchases last year,” Hershey CEO Michele Buck said Thursday in prepared remarks discussing the company’s third quarter results.

“With Halloween next Tuesday, we still have several important selling days to go.”

A crucial weekend

It’s too soon to tell exactly how things will shake out this year. But earlier this month, things were “off to a little bit of a rocky start,” said Dan Sadler, a principal of client insights at consumer research firm Circana with a specialty in confections.

2021 was a great year for Halloween candy sales, he said, as people were eager to celebrate after Covid shutdowns. Last year was worse. And early this season, sales “have lagged even last year’s off performance,” he said. “We are seeing both chocolate and non-chocolate performance down a little bit.”

There’s still time to make up the gap, especially as more people have been making holiday purchases later in the season. And this year, for Hershey at least, there won’t be any supply issues.

Last summer, Hershey warned that it wouldn’t be able to meet demand for Halloween. But for this season, “shelves are full,” said Buck. And so far, she said, trends are in Hershey’s favor. “Hershey Halloween retail sales to date are up slightly versus prior year and we are outperforming the category,” she said.

Figuring out how much candy to pump out for the holidays is a delicate business. Food makers want to make the right amount: Too little product could leave shoppers discouraged and reaching for a competitor’s brand. Too much means excess inventory that has to be sold off at a discount. Plus, retailers are constantly evaluating which items get how much shelf space, and a disappointing season could convince them to shrink a particular company’s allotment.

The holiday season is particularly important for candy brands. For Hershey, About 25% to 30% of Hershey’s business comes from holidays, including Halloween, each year.

And Hershey’s regular chocolate sales aren’t doing so well, putting extra pressure on Halloween items

Chocolate sales slow

“Within North America Confectionery, everyday chocolate sales growth slowed in the third quarter,” said Buck.

Net sales of the company’s North America Confectionery segment, which includes candy, mint and gum, grew 9.9% in the third quarter, year-over-year. But the increases were driven by an 11.1% spike in prices. Volumes in that period declined, a sign that people are spending more but buying less. Still, Hershey, which also owns snack brands like Dot’s Pretzels and Pirate’s Booty, beat Wall Street’s expectations in the quarter. But its stock fell nearly 3% on Friday.

For a while, customers didn’t seem to care much about higher chocolate prices. But certain factors are making them tighten their belts.

“It is a different time today,” Buck said during an analyst call Thursday. “We know that value and affordability continue to be top of mind for consumers as budgets are stretched.” Higher interest rates, the return of student loan repayments and less financial assistance from government programs are prompting people to spend less, she said.

To reach these consumers, Hershey has been increasing its focus on selling at dollar stores, as well as discount outlets and club locations, Buck said, and is exploring other options like selling smaller sizes at less expensive prices.

Overall, US candy sales are still growing. In the year through September 30, dollar sales were up 10.7% in retail, according to retail sales data from NIQ. But unit sales fell about 2.8%. In the chocolate category, sales were up but units were down 5.1%.

Cocoa prices soar

With consumers more sensitive to pricing, it would make sense for companies like Hershey to keep prices steady.

Executives at Hershey noted that pricing is moderating, and that the brand hasn’t announced any additional price hikes. But holding prices steady may come at a cost, as cocoa prices soar.

Over the past year, cocoa’s wholesale prices have been steadily rising, due to strong demand and a supply crunch caused by poor yields.

“Overall, compared to the same period a year ago, cocoa prices remained significantly high for the last month of the 2022/23 season,” according to the International Cocoa Organization’s monthly report for September. “A deficit of around 100,000 tonnes is currently estimated for the 2022/23 season which just ended,” the report said.

Hershey has long contracts for commodities like cocoa, giving it the ability to secure prices even in a volatile market. But this year, the company has “less visibility” into the market, said CFO Steve Voskuil. The higher costs could potentially lead to more price increases.

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