Hershey Hikes Wholesale Prices

Standard, king-size bars, six-pack and vending lines, affected by immediate increase

Published in CSP Daily News

HERSHEY, Pa. -- Following the launch of a supply-chain revamp, The Hershey Co. is increasing the wholesale prices of its domestic confectionery linean increase of approximately 4% to 5% on the company's standard bar, king-size bar, six-pack and vending lines takes effect immediately.

These products represent roughly one-third of the company's portfolio. This action will help offset the company's input costs, including raw and packaging materials, fuel, utilities and transportation, the candy maker said. While there has been no change in list prices on [image-nocss] these impacted items since December 2004, over this period costs have continued to rise, the company said.

Our primary business objective is to win in the marketplace. As we implement this pricing action, we will work with our customers to create programs which will drive retail takeaway, said Christopher J. Baldwin, senior vice president and president of the North American Commercial Group. Given the midyear timing of this pricing action and our commitment to planned consumer and customer promotions and merchandising events, we expect minimal financial impact from the pricing in 2007.

The wholesale price hike by Hershey comes a few weeks after Wm. Wrigley Jr. Co. said it would raise prices in the United States by about 10%, the its first significant price increase since 2001. In 2003, Wrigley raised prices on five-stick packs of its sugared gums such as Big Red and Doublemint. It said the increase was due in part to rising costs, but did not specify which costs. Food companies have been hit by higher costs for natural sweeteners like high-fructose corn syrup as demand for use of crops in ethanol has sent prices soaring.

In mid-February, Hershey, Pa.-based Hershey announced a three-year supply chain transformation program. When completed, this program is expected to greatly enhance Hershey's manufacturing, sourcing and customer service capabilities, it said, and will generate significant resources to invest in the company's growth initiatives.

These initiatives include accelerated marketplace momentum within the company's core U.S. business, creation of new product platforms and disciplined global expansion, the company said.

Under the program, which will be implemented in stages over the next three years, Hershey said it will significantly increase manufacturing capacity utilization by reducing the number of production lines by more than one-third; outsource production of low value-added items; and construct a flexible, cost-effective production facility in Monterrey,

Mexico, to meet current and emerging marketplace needs.

The transformation program will result in a flexible, global supply chain capable of delivering Hershey's brands, in a variety of affordable items and assortments, across retail channels in the company's priority markets, said the company.

Finished products will be sourced from fewer facilities, each one specializing in a proprietary product technology. Increased access to borderless sourcing will further leverage the company's manufacturing scale within a lower overall cost structure.

The program will result in a total net reduction of approximately 1,500 jobs across Hershey's supply chain over the next three years, it said. When completed, manufacturing of approximately 80% of the company's production volume will take place in the United States and Canada.

In order for Hershey to remain competitive, we are implementing a comprehensive strategic agenda focused on increasing our North American marketplace leadership and developing a truly global footprint for Hershey's iconic brands, said Richard H. Lenny, Hershey chairman, president and CEO.

Meanwhile, British candy and soft drinks company Cadbury Schweppes PLC has said it sees a merger with U.S. rival Hershey as more attractive than when it teamed with Switzerland-based Nestle SA in a failed attempt to take over Hershey in 2002. Cadbury Schweppes CEO Todd Stitzer said at a recent meeting with analysts that a combination with Hershey would make commercial, strategic and financial sense.

The CEO said at the meeting that a deal would be more desirable now than it was in 2002, because Cadbury has a much bigger U.S. presence than it did five years ago. Cadbury bought Parsippany, N.J., gum maker Adams, which makes Trident and Dentyne chewing gum, Halls cough drops and Certs breath mints and other products, in 2003.

But Stitzer also said that little at Hershey has changed since 2002, when Hershey's controlling shareholder, the Milton Hershey School Trust, decided against selling the company in response to staff protests. LeRoy Zimmerman, chairman of Hershey Trust Co., Hershey's biggest stockholder, suggested a combination with Cadbury Schweppes might be possible, but stresses that the trust has no interest in losing control of Hershey.