Dive Brief:
- Retail sales volumes of U.S. chocolate have been “off and down” 2% to 3% over the past few months while prices have increased in the “high single-digit, low double-digit” range, Melissa Poole, Hershey’s vice president of investor relations, told Reuters. Other chocolate makers have reported a similar trend.
- The wire service noted that Hershey, along with snacking competitor Mondelēz International, have reduced the weight of some of their products while keeping prices the same.
- Higher costs for ingredients, supply chain disruptions and labor shortages have prompted many CPGs to look for ways to recoup their expenses, with consumers having to pay more for many of the foods they buy.
Dive Insight:
As inflation infiltrates the U.S. economy, nearly every sector of the food space has been hit, and candy is no exception. The Labor Department noted Wednesday that consumer prices for candy and gum have risen 6.9% during the last year. The department also noted that prices rose 0.7% from May to June.
The increase in costs for candy dovetail with higher prices for everything from milk and fruit to coffee and butter, which are hitting the shopper’s pocketbook. Factor in volatile gas prices, and it’s no surprise that people are looking for ways to cut back on spending after getting hit in so many different parts of their everyday life. It’s likely going to continue for the foreseeable future, something companies, including Hershey, have warned about recently.
“We are expecting that as we move through the year… we will see a bit of pull-back in volume,” Poole told Reuters. Until the recent dip, “consumers haven’t really reduced consumption much at all.”
In an email, IRI, a Chicago-based market research firm, noted the volume sold of chocolate products in the U.S. declined 1.5% versus a year ago in the 13 weeks ended June 12, while prices increased 8.2% compared to a year before. At the same time, sales volumes of private label items, which make up a small portion of the chocolate category, rose 8% during the last six months, Reuters noted, citing IRI data.
The drop in chocolate sales overall comes after the CPG food business, including candy, benefited from consumers spending more time at home during the COVID-19 pandemic, with an ongoing demand for snacks and a desire to indulge.
So far, it appears consumers have reluctantly tolerated price increases on food items, but the longer the current climate lingers, the more consumers may decide to cut back or transition to lower-priced options. Reuters noted chocolate companies are seeing consumers turn to less costly products, such as by buying individual candy bars versus a multipack.
“Today, snapshot things are really good and price increases have passed and, compared to the trend that we had before, have really had no effect. Now, is that going to last? I wish I could tell you that, but I don’t,” [[ missing word? ]] Dirk Van de Put, Mondelēz’s CEO, said at Deutsche Bank in mid-June. “What I do know is that we are doing everything that’s in our power to prepare for potentially a consumer that reacts.”
Mondelēz’s portfolio includes Cadbury and Milka chocolates, but is largely made up of well-known snacking brands like Ritz, Triscuit and Oreo.
In some cases, companies have kept prices the same but cut back on how much product each package contains — a term known as shrinkflation. Hershey and Mondelēz are not the only companies to use the practice. PepsiCo this week said it is considering smaller sizes in its variety packs and may choose to reduce the number of chips in a bag rather than increase prices.
