Hershey Announces Broad Price Increase

NEW YORK (MainStreet) — Chocolate lovers beware, as candy giant The Hershey Co. (HSY) raised prices by 8%.

"Commodity spot prices for ingredients such as cocoa, dairy and nuts have increased meaningfully since the beginning of the year," said Michele G. Buck, president The Hershey Company for North America. "Given these trends, we expect significant commodity cost increases in 2015."

The price hike will impact the company's "instant consumable, multi-pack, packaged candy and grocery lines."

Cocoa prices are up 36% year-over-year and have risen 3.2% over the past month.

Consumers have also been dealing with steep price increases in coffee, orange juice, wheat and meat over the past several months.

Inflation has also inched up, as the consumer price index rose 0.3% in June and is up 2.1% over the past year, according to a Bureau of Labor Statistics report released Tuesday. The Federal Reserve's inflation target is 2%.

Chocolate enthusiasts shouldn't panic about the rising prices. "This won't impact consumers this year, but will during the 2015 Halloween season, almost a year and half away," says Morningstar analyst Erin Lash.

As seen with many commodities, companies tend to lock in prices ahead of time to hedge against rising prices, sometimes two years in advance.

"This is how pricing works in the confectionary space because of contracts that have already been signed between manufacturers and retailers," Lash adds. "In March 2011, price increases didn't show up on shelves until April 2012."

Other commodities, such as the aforementioned coffee, tend to trickle down faster to consumers when the commodity price rises. In fact, J.M. Smucker, which makes the Folgers and Dunkin' Donuts store brands, announced a 9% jump in prices in early June, after the coffee commodity rallied largely in February, amid a drought in Brazil.

Still, raising consumer prices in the event of rising costs isn't the first choice companies make.

While your sweet tooth won't notice more expensive candy, it may come across a slightly different chocolate taste. Another form of price increase involves companies altering the product mix of ingredients to keep costs under control. Companies may also shrink package sizes, while charging the same price.

When it comes to candy, consumers stick to what they're familiar with. "Relative to other areas within the food and beverage industry, confectionary has one of the lowest levels of private label penetration, so consumers are loyal to brands," Lash tells MainStreet. "Hershey has 44% to 45% of market share, compared to 1% for private label."

Private label brand is a technical term for generic brands.

The Hershey Company's stock is down 5.25% so far this year.

- Written by Scott Gamm for MainStreet. Gamm is author of MORE MONEY, PLEASE

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