It could be a house of horrors in the candy aisle this Halloween, given that The Hershey Company (NYSE: HSY) announced there might be a shortage this year.
Because of rising costs, ongoing supply chain issues, and energy issues abroad amid a heightened demand environment, the chocolate giant says it can’t meet the needs for both everyday confection supplies for store shelves and the holiday crush. It was forced to choose between one or the other, and so Halloween sales got short shrift.
While other candy makers could benefit from the production shift and take market share, Hershey might not be the only one experiencing these issues. Unilever, for example, just announced it was ending production of the popular, chocolate-dipped Choco Taco ice cream sandwich after nearly 40 years because it needed to make “tough decisions” about its product lines.
A scary good time
Halloween is one of the biggest holidays for candy sales, with some $4.5 billion worth sold last year, according to the National Confectioners Association (NCA), second only to Christmas at $4.9 billion and ahead of Easter and Valentine’s Day.
Halloween is also one of the biggest revenue producers for Hershey, which says its third and fourth quarters are its biggest sales periods because of holiday candy spending. Yet, despite rampant inflation, higher energy costs, and supply chain snarls, the candy company’s sales haven’t slowed so far, and they might not in the coming quarters either.
Even though it’s prioritizing everyday store shelf candy over Halloween candy, Hershey is raising prices and passing along higher input costs to consumers, so its revenue is still soaring. The company reported that net sales grew 19% in the second quarter to $2.37 billion, while currency-adjusted organic sales were up 14% year over year. Sales were up by double-digit rates in all its categories, and though it was helped by increased demand, the price increases it took to offset some of the inflationary impacts also boosted its results. Hershey expects pricing to go up by high single digits in 2023 as well.
Chocolate as comfort food
The NCA says total confection sales hit $36.9 billion in 2021, 57% of which was chocolate, and it expects candy sales to run to almost $45 billion by 2026. It’s noteworthy that tough times like the current recession are often tailwinds that push candy sales higher.
One of the industry’s biggest sales spikes in recent years was in 2009 during the depths of the Great Recession and led candy makers like Hershey and Nestle to report surprise profit growth for the period. According to a then-current article in The New York Times, profits surged by 30% for Cadbury, which, at the time, was a stand-alone company, before being acquired by what eventually became Mondelez International.
The article also noted some of today’s most popular confections — such as Tootsie Roll candies and Mars brands Snickers and Three Musketeers — were all launched in the early 1930s during the Great Depression. Because Hershey was so profitable, it launched its own jobs program for unemployed people.
Results that melt in your mouth
Hershey’s ability to do well in tough times could be why — despite capacity constraints inhibiting its production for Halloween — the chocolate giant still raised its full-year sales and earnings guidance for 2022. While the candy and snack food company previously forecast sales growth of 10% to 12% for the year, it now forecasts sales will be up 12% to 14% — the same gains it’s expecting for its adjusted earnings-per-share estimates.
This year, Halloween could be a scary time for consumers looking to buy candy, but for Hershey and possibly other chocolate producers, this could be the inflection point for another big year of profitable growth.