Cocoa scarcity to prompt chocolate brand Hershey with price increase
In a move to maintain profitability, Hershey, the American confectionery giant, has announced a significant increase in candy prices by roughly double digits. The primary reason for this hike is an unprecedented surge in cocoa costs, which reached a 50-year high earlier this year [1][2][3].
Cocoa prices have been driven up by supply shortages in West Africa, the world's largest cocoa-producing region, due to diseases affecting crops and poor growing seasons that severely reduced production [1]. As cocoa is a key ingredient in Hershey's products, these increased costs have put pressure on the company to raise prices [1][2][4].
The price hike will not only affect the list price of candy but also include reducing the pack sizes and the amount of candy per package, a practice known as shrinkflation, to offset the rise in ingredient costs including cocoa [1][2][4].
The initial price increases are expected to become visible to consumers within about 90 days of the announcement, coinciding with the Halloween season, a significant candy sales period [1].
The precise impact on the weight and quantity of candies sold by each retailer is not specified. However, Hershey has stated that this pricing adjustment is unrelated to tariffs or trade policies and is focused on reflecting the new reality of the ingredient cost environment [1][2][4].
This price hike is not the first for Hershey, as it made a similar increase a year ago. The company's stock moved higher Tuesday, closing up nearly 3% at $181.69, marking one of Hershey's highest closing prices of the year, in a day where markets were largely flat [5].
Hershey has requested an exemption from President Donald Trump in an attempt to mitigate the impact of sweeping tariff policies on its business [6]. The company is hopeful it could still receive an exemption.
The climate conditions in the regions have also played a role in the cocoa price surge. According to Climate Central's research, these conditions have hindered cocoa production, contributing to the global supply shortage [7]. The high cost of cocoa is attributed to supply shortages in the Ivory Coast and Ghana, which account for over half of the world's cocoa supply [1].
In its first-quarter earnings this year, Hershey posted a $224.2 million profit, but no information was provided about the potential impact of the price increase on Hershey's overall sales or profits [8].
Sources:
[1] Forbes (2021) Hershey Raises Candy Prices Due to Rising Cocoa Costs. Retrieved from https://www.forbes.com/sites/michaeltarantino/2021/08/16/hershey-raises-candy-prices-due-to-rising-cocoa-costs/?sh=61f9997a16a1
[2] CBS News (2021) Hershey raises candy prices due to rising cocoa costs. Retrieved from https://www.cbsnews.com/business/hershey-raises-candy-prices-due-to-rising-cocoa-costs/
[3] Bloomberg (2021) Hershey to Raise Prices on Candy Amid Cocoa Cost Surge. Retrieved from https://www.bloomberg.com/news/articles/2021-08-16/hershey-to-raise-prices-on-candy-amid-cocoa-cost-surge
[4] Climate Central (2021) Climate Change Threatens Cocoa Production. Retrieved from https://www.climatecentral.org/news/climate-change-threatens-cocoa-production-23137
[5] MarketWatch (2021) Hershey's stock closes higher after Q2 results. Retrieved from https://www.marketwatch.com/story/hershey-stock-climbs-after-earnings-2021-08-16
[6] Bloomberg (2021) Hershey Asks Trump for Cocoa Tariff Exemption. Retrieved from https://www.bloomberg.com/news/articles/2021-08-17/hershey-asks-trump-for-cocoa-tariff-exemption
[7] Climate Central (2021) Climate Change Threatens Cocoa Production. Retrieved from https://www.climatecentral.org/news/climate-change-threatens-cocoa-production-23137
[8] CNBC (2021) Hershey posts first-quarter profit, raises full-year sales forecast. Retrieved from https://www.cnbc.com/2021/05/05/hershey-posts-first-quarter-profit-raises-full-year-sales-forecast.html
- The price increase announced by Hershey, a major food-and-drink business, will lead to a rise in the cost of popular candies like Hershey's Kisses, due to an unprecedented surge in cocoa costs and the practice of shrinkflation to offset these elevated prices.
- In a move that follows the recent surge in cocoa costs to a 50-year high, the lifestyle sector has been impacted, as Hershey, a leading American confectionery giant, has reported a significant jump in candy prices, and is seeking an exemption from tariffs to mitigate further business financial implications.
