Candy Costs Climb

Hershey, MARS raise wholesale prices to offset raw-material, production costs

Published in CSP Daily News

By
Steve Holtz, Online News Director & Beverage Editor

HERSHEY, Pa. -- Even as the Hershey Co. promises to raise its marketing game in an effort to halt continuing share loss to rival MARS Snackfood US, the Pennsylvania-based candy company is following MARS' lead in increasing the wholesale prices on approximately one-third of its domestic confectionery line.

Both companies said in letters to distributors or press releases that increased manufacturing costs are driving the price hikes, as reported in a CSP Daily News Flash yesterday. Both also are giving direct-buying customers, such as wholesalers, until February 24 to order and take delivery [image-nocss] of up to eight weeks of inventory at the previous lower prices.

For Hershey, a weighted average 13% increase on the company's standard bar (from 40 cents to 45 cents), king-size bar (from 69 cents to 78 cents), 6-packs (from $2.40 to $2.70) and vending lines is effective immediately.

"The changes approximate a 3% price increase over Hershey's entire domestic product line and will help offset increases in areas of the company's input costs, including raw materials, fuel, utilities and transportation," Hershey said in a statement.

For MARS, the increases, which took effect January 23, range from 4.3% to 5%, according to a letter to wholesalers. The cost of singles increased from 40 cents to 42 cents, multipacks from 40 cents per serving to 42 cents per serving, and king-size bars from 69 cents to 72 cents.

"Since our last immediate-consumption price increase in March 2007, both direct and indirect expenses continue to increase, including dairy, peanuts, cocoa and energy costs up by 13%-18%," MARS wrote in the letter. "[This] announcement represents a step in our continued efforts to provide the appropriate price/value relationship with our brands and to the consumer. We will continue to evaluate our position in the marketplace, which may include price and weight adjustments over the course of the coming next year. Our focus and approach with respect to future changes is to limit the disruption to our valued customers, though cost pressures may continue to prevail."

Meanwhile, during its fourth-quarter investment call this past week, Hershey promised to raise its marketing game, according to a report in Ad Age.

"Our primary goal in 2008 is to stabilize U.S. business marketplace performance," said president and CEO David J. West. "Markedly higher brand-building support, including advertising, quality merchandising, enhanced retail coverage and new chocolate products within the premium and trade-up segments will enable us to achieve this goal."

The remarks came after the iconic chocolatier reported a 65% drop in net profit for the fourth quarter, citing high dairy costs, among other factors. According to the report, West deflected tough questions and said that more information about the company's prospects would be available in the second quarter.

Analysts didn't bite. "Why should we believe management now has regained its marketing touch and can revitalize its innovation pipeline beyond just cannibalistic line extensions?" Robert Moskow, analyst at Credit Suisse, told AdAge. "Competitor MARS is doing a better job of meeting retailer and consumer needs and Hershey is struggling." He said Hershey's share price has fallen 30% in the last year.

By Steve Holtz, Online News Director & Beverage Editor
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