Competition and Budgets Tighten, But Hershey Bets on Brand Loyalty Over Price Wars
Competition and Budgets Tighten, But Hershey Bets on Brand Loyalty Over Price Wars
"We always evaluate the marketplace and have a lot of factors that we consider to determine how to best grow the business."
For decades, Hershey and Mars entered an uneasy truce around the U.S. candy market. Combined, the two giants captured about $5 for every $10 Americans spent. Now, somewhat surprisingly, the dominance is getting challenged.
Slightly.
According to banking analysts, recent Nielsen data shows they're facing some competition from both ends of the market spectrum — inexpensive store brands and high-end luxury chocolates (Mondelez).
Note: Hershey disputed the high-end competition but did concede they faced new private label threats.
Like most major CPG companies, Hershey isn't meeting the onslaught with a price war. Instead, the Pennsylvania-based confection giant is standing its ground through calculated price increases, targeted marketing, and robust retailer partnerships. "We have strong levels in trade and consumer on the margin. We are always open to adjusting those as we see fit," CEO Michele Buck told investors last month. "I wouldn't say we anticipate a large, substantial change in our investment levels."
Despite slipping demand for everyday chocolate sales and distribution cuts by a key retailer — Hershey has managed an impressive 11.1% growth in net sales for Q3 2023. This growth is notably attributed to a 10.1% organic sales growth in North American confectionery. The growth is attributed to price increases, while the company sold 1 percent less.
Buck insists that the company's innovation allows it to increase prices further. "We certainly continue to feel good about our category and the price realization potential in our category," Buck said. "We focus a lot on the value equation, investing in our business and our brands."
The company reaffirmed its sales growth expectations for the year, expecting sales to increase by 8%.
Consumers are stretched but don't expect candy price decreases.
Amid tightening consumer budgets, Hershey sidesteps any mention of price cuts, betting on brand strength and new offerings like Reese's Caramel to sustain demand despite growing cost-consciousness among shoppers.
"Where are the growth levers that we can continue to drive to engage consumers? And that is having the right levels and the right media targeting approach to continue to keep our brands relevant?" Buck rhetorically asked.
Snacks is all volume, all the time.
Hershey's Salty Snacks segment saw 25% growth, with 22% attributed to increased volume. Increased competition within pretzels and popcorn led to price growth of only 3.3%.
The company is doubling down on the pretzel category, where Dot's Pretzels continue to grow, countering the overall softness of ready-to-eat popcorn.
Holidays are big business for Hershey.
Seasonal events (Halloween and Christmas) are significant for Hershey, accounting for 25-30% of annual business, driving roughly a third of the company's growth in the latter half of the year.
Hershey reports a return to traditional holiday shopping patterns, with half of seasonal sales occurring in the last two weeks of October, hinting at consumer confidence in product availability.
They said it:
CEO Michele Buck on future price increases:
We have not announced any incremental price increases. We always evaluate the marketplace and have a lot of factors that we consider to determine how to best grow the business. Pricing is certainly one tool. I mentioned productivity. Now that we're in a better shape from a capacity perspective, we have more ability in our supply chain to activate productivity, and then we also look at productivity across every line item of the P&L, whether it's trade, media, organizational processes and make sure we're really leveraging the best capabilities and investments to drive the business.